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Section 1: 10-Q (10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

x  Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the quarterly period ended

March 31, 2008

 

or

 

o  Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Commission File No.

001-10253

 

 

TCF FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

41-1591444

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

200 Lake Street East, Mail Code EX0-03-A,

Wayzata, Minnesota 55391-1693

(Address and Zip Code of principal executive offices)

 

Registrant’s telephone number, including area code:  (952) 745-2760

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes   x

 

No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x

Accelerated filer  o

Non-accelerated filer  o

Smaller reporting company  o

 

 

(Do not check if a smaller

 

 

 

reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  o

 

No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Outstanding at

Class

 

April 22, 2008

Common Stock, $.01 par value

 

126,484,523 shares

 

 

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
 
INDEX
 

Part I.

Financial Information

Pages

 

 

 

 

Item 1.  Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition

 

 

at March 31, 2008 and December 31, 2007

3

 

 

 

 

Consolidated Statements of Income for the

 

 

Three Months Ended March 31, 2008 and 2007

4

 

 

 

 

Consolidated Statements of Cash Flows for the

 

 

Three Months Ended March 31, 2008 and 2007

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the

 

 

Three Months Ended March 31, 2008 and 2007

6

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

Item 2. 

Management’s Discussion and Analysis of Consolidated Financial

 

 

 

Condition and Results of Operations for the
Three Months Ended March 31, 2008 and 2007

18

 

 

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

 

Item 4.  Controls and Procedures

35

 

 

 

 

Supplementary Information

36

 

 

 

Part II.

Other Information

 

 

 

 

 

Items 1-6

37

 

 

 

 

Signatures

38

 

 

 

 

Index to Exhibits

39

 

 

2



 

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At

 

At

 

 

 

March 31,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2008

 

2007

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

331,171

 

$

358,174

 

Investments

 

144,179

 

148,267

 

Securities available for sale

 

2,177,262

 

1,963,681

 

Education loans held for sale

 

223,333

 

156,135

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

6,784,621

 

6,590,631

 

Commercial real estate

 

2,596,050

 

2,557,330

 

Commercial business

 

535,014

 

558,325

 

Leasing and equipment finance

 

2,180,782

 

2,104,343

 

Subtotal

 

12,096,467

 

11,810,629

 

Residential real estate

 

506,394

 

527,607

 

Total loans and leases

 

12,602,861

 

12,338,236

 

Allowance for loan and lease losses

 

(97,390

)

(80,942

)

Net loans and leases

 

12,505,471

 

12,257,294

 

Premises and equipment, net

 

439,532

 

438,452

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

396,817

 

502,452

 

Total assets

 

$

16,370,364

 

$

15,977,054

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,288,960

 

$

4,108,527

 

Savings

 

2,882,813

 

2,636,820

 

Money market

 

585,840

 

576,667

 

Certificates of deposit

 

2,599,456

 

2,254,535

 

Total deposits

 

10,357,069

 

9,576,549

 

Short-term borrowings

 

138,442

 

556,070

 

Long-term borrowings

 

4,414,644

 

4,417,378

 

Total borrowings

 

4,553,086

 

4,973,448

 

Accrued expenses and other liabilities

 

330,339

 

328,045

 

Total liabilities

 

15,240,494

 

14,878,042

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $.01 per share, 30,000,000

 

 

 

 

 

shares authorized; none issued and outstanding

 

 

 

Common stock, par value $.01 per share, 280,000,000 shares

 

 

 

 

 

authorized; 131,065,676 and 131,468,699 shares issued

 

1,311

 

1,315

 

Additional paid-in capital

 

349,392

 

354,563

 

Retained earnings, subject to certain restrictions

 

942,937

 

926,875

 

Accumulated other comprehensive loss

 

(3,000

)

(18,055

)

Treasury stock at cost, 4,752,480 and 4,866,480 shares, and other

 

(160,770

)

(165,686

)

Total stockholders’ equity

 

1,129,870

 

1,099,012

 

Total liabilities and stockholders’ equity

 

$

16,370,364

 

$

15,977,054

 

See accompanying notes to consolidated financial statements.

 

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

Three Months Ended

 

March 31,

(In thousands, except per-share data)

 

2008

 

2007

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

Loans and leases

 

$

211,777

 

$

201,605

 

Securities available for sale

 

28,279

 

25,105

 

Education loans held for sale

 

3,452

 

4,146

 

Investments

 

1,642

 

2,806

 

Total interest income

 

245,150

 

233,662

 

Interest expense:

 

 

 

 

 

Deposits

 

48,728

 

57,155

 

Borrowings

 

53,593

 

41,030

 

Total interest expense

 

102,321

 

98,185

 

Net interest income

 

142,829

 

135,477

 

Provision for credit losses

 

29,995

 

4,656

 

Net interest income after provision for credit losses

 

112,834

 

130,821

 

Non-interest income:

 

 

 

 

 

Fees and service charges

 

63,547

 

62,022

 

Card revenue

 

24,771

 

23,261

 

ATM revenue

 

7,970

 

8,749

 

Investments and insurance revenue

 

3,235

 

2,178

 

Subtotal

 

99,523

 

96,210

 

Leasing and equipment finance

 

12,134

 

14,001

 

Other

 

1,048

 

1,953

 

Fees and other revenue

 

112,705

 

112,164

 

Visa share redemption

 

8,308

 

 

Gains on sales of securities available for sale

 

6,286

 

 

Gains on sales of branches and real estate

 

 

31,173

 

Total non-interest income

 

127,299

 

143,337

 

Non-interest expense:

 

 

 

 

 

Compensation and employee benefits

 

88,718

 

88,093

 

Occupancy and equipment

 

32,413

 

30,451

 

Advertising and promotions

 

6,296

 

5,981

 

Other

 

36,335

 

35,315

 

Subtotal

 

163,762

 

159,840

 

Operating lease depreciation

 

4,514

 

4,360

 

Total non-interest expense

 

168,276

 

164,200

 

Income before income tax expense

 

71,857

 

109,958

 

Income tax expense

 

24,431

 

27,234

 

Net income

 

$

47,426

 

$

82,724

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

Basic

 

$

.38

 

$

.65

 

Diluted

 

$

.38

 

$

.65

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.25

 

$

.2425

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

4



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2008

 

2007

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

47,426

 

$

82,724

 

Adjustments to reconcile net income to net cash
provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

16,146

 

15,953

 

Provision for credit losses

 

29,995

 

4,656

 

Proceeds from sales of education loans held for sale

 

24,491

 

24,776

 

Principal collected on education loans held for sale

 

894

 

1,468

 

Originations of education loans held for sale

 

(92,779

)

(90,200

)

Net (decrease) increase in other assets and
accrued expenses and other liabilities

 

(9,318

)

44,227

 

Gains on sales of assets and deposits, net

 

(6,286

)

(31,173

)

Other, net

 

2,451

 

801

 

Total adjustments

 

(34,406

)

(29,492

)

Net cash provided by operating activities

 

13,020

 

53,232

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

785,330

 

843,909

 

Originations and purchases of loans

 

(892,846

)

(792,121

)

Purchases of equipment for lease financing

 

(197,323

)

(150,482

)

Proceeds from sales of securities available for sale

 

1,082,452

 

 

Proceeds from maturities of and principal collected on
securities available for sale

 

60,619

 

60,293

 

Purchases of securities available for sale

 

(1,225,885

)

(100,422

)

Net increase in federal funds sold

 

 

(94,000

)

Purchases of Federal Home Loan Bank stock

 

(32,262

)

(17,800

)

Proceeds from redemptions of Federal Home Loan Bank stock

 

36,724

 

8,914

 

Proceeds from sales of real estate owned

 

8,169

 

7,283

 

Purchases of premises and equipment

 

(10,763

)

(21,459

)

Proceeds from sales of premises and equipment

 

250

 

4,809

 

Other, net

 

4,683

 

5,615

 

Net cash used by investing activities

 

(380,852

)

(245,461

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

780,520

 

369,868

 

Sale of deposits, net

 

 

(213,294

)

Net decrease in short-term borrowings

 

(417,628

)

(166,737

)

Proceeds from long-term borrowings

 

5,040

 

394,910

 

Payments on long-term borrowings

 

(2,206

)

(203,978

)

Purchases of common stock

 

 

(28,022

)

Dividends paid on common stock

 

(31,554

)

(31,633

)

Stock compensation tax benefits

 

3,828

 

2,157

 

Other, net

 

2,829

 

2,480

 

Net cash provided by financing activities

 

340,829

 

125,751

 

Net decrease in cash and due from banks

 

(27,003

)

(66,478

)

Cash and due from banks at beginning of period

 

358,174

 

348,980

 

Cash and due from banks at end of period

 

$

331,171

 

$

282,502

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

98,637

 

$

92,601

 

Income taxes

 

$

9,967

 

$

244

 

Transfer of loans and leases to other assets

 

$

16,910

 

$

14,653

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

5



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

 

 

Common

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

(Dollars in thousands)

 

Shares Issued

 

Stock

 

Capital

 

Earnings

 

Loss

 

and Other

 

Total

 

Balance, December 31, 2006

 

131,660,749

 

$

1,317

 

$

343,744

 

$

784,011

 

$

(34,926

)

$

(60,772

)

$

1,033,374

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

82,724

 

 

 

82,724

 

Other comprehensive income

 

 

 

 

 

2,688

 

 

2,688

 

Comprehensive income

 

 

 

 

82,724

 

2,688

 

 

85,412

 

Dividends on common stock

 

 

 

 

(31,633

)

 

 

(31,633

)

Repurchase of 1,060,000 shares

 

 

 

 

 

 

(28,022

)

(28,022

)

Issuance of 80,550 shares

 

 

 

(1,804

)

 

 

1,804

 

 

Cancellation of shares

 

(93,075

)

(1

)

(168

)

116

 

 

 

(53

)

Cancellation of shares for
tax withholding

 

(46,832

)

(1

)

(1,290

)

 

 

 

(1,291

)

Amortization of stock compensation

 

 

 

1,972

 

 

 

 

1,972

 

Exercise of stock options,
7,333 shares

 

 

 

(75

)

 

 

167

 

92

 

Stock compensation tax benefits

 

 

 

2,157

 

 

 

 

2,157

 

Change in shares held in trust for
deferred compensation plans, at cost

 

 

 

6,203

 

 

 

(6,203

)

 

Balance, March 31, 2007

 

131,520,842

 

$

1,315

 

$

350,739

 

$

835,218

 

$

(32,238

)

$

(93,026

)

$

1,062,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

 

131,468,699

 

$

1,315

 

$

354,563

 

$

926,875

 

$

(18,055

)

$

(165,686

)

$

1,099,012

 

Pension and postretirement measurement
date change from adoption of SFAS 158

 

 

 

 

65

 

 

 

65

 

Subtotal

 

131,468,699

 

1,315

 

354,563

 

926,940

 

(18,055

)

(165,686

)

1,099,077

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

47,426

 

 

 

47,426

 

Other comprehensive income

 

 

 

 

 

15,055

 

 

15,055

 

Comprehensive income

 

 

 

 

47,426

 

15,055

 

 

62,481

 

Dividends on common stock

 

 

 

 

(31,554

)

 

 

(31,554

)

Issuance of 101,000 shares

 

 

 

(2,617

)

 

 

2,617

 

 

Cancellation of shares

 

(12,500

)

 

(138

)

125

 

 

 

(13

)

Cancellation of shares for
tax withholding

 

(390,523

)

(4

)

(6,200

)

 

 

 

(6,204

)

Amortization of stock compensation

 

 

 

2,093

 

 

 

 

2,093

 

Exercise of stock options, 13,000 shares

 

 

 

(173

)

 

 

335

 

162

 

Stock compensation tax benefits

 

 

 

3,828

 

 

 

 

3,828

 

Change in shares held in trust for
deferred compensation plans, at cost

 

 

 

(1,964

)

 

 

1,964

 

 

Balance, March 31, 2008

 

131,065,676

 

$

1,311

 

$

349,392

 

$

942,937

 

$

(3,000

)

$

(160,770

)

$

1,129,870

 

See accompanying notes to consolidated financial statements.

 

6



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)   Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and notes necessary for complete financial statements in conformity with generally accepted accounting principles.  The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the most recent Annual Report on Form 10-K of TCF Financial Corporation (“TCF” or the “Company”), which contains the latest audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2007 and for the year then ended.  All significant intercompany accounts and transactions have been eliminated in consolidation.  Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.  For Consolidated Statements of Cash Flow purposes, cash and cash equivalents include cash and due from banks.

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.  These estimates are based on information available to management at the time the estimates are made.  Actual results could differ from those estimates.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring items, considered necessary for a fair presentation.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

 

(2)   Investments

 

The carrying values of investments consist of the following.

 

 

 

At

 

At

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2008

 

2007

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

111,386

 

$

115,848

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

116,003

 

120,465

 

Federal Reserve Bank stock, at cost

 

20,415

 

20,423

 

Interest-bearing deposits with banks and other

 

7,761

 

7,379

 

Total investments

 

$

144,179

 

$

148,267

 

 

The investments in Federal Home Loan Bank (“FHLB”) stock are required investments related to TCF’s borrowings from these banks.  FHLBs obtain their funding primarily through issuance of consolidated obligations of the Federal Home Loan Bank system.  The U.S. Government does not guarantee these obligations, and each of the 12 FHLBs are generally jointly and severally liable for repayment of each other’s debt.  Therefore, TCF’s investments in these banks could be adversely impacted by the financial operations of the FHLBs and actions by the Federal Housing Finance Board’s Office of Supervision.

 

7



 

(3)   Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At March 31, 2008

 

At December 31, 2007

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

2,166,886

 

$

9,802

 

$

(3,300

)

$

2,173,388

 

$

1,975,817

 

$

2,493

 

$

(18,681

)

$

1,959,629

 

Other

 

3,807

 

 

(183

)

3,624

 

3,992

 

 

(190

)

3,802

 

Other securities

 

250

 

 

 

250

 

250

 

 

 

250

 

Total

 

$

2,170,943

 

$

9,802

 

$

(3,483

)

$

2,177,262

 

$

1,980,059

 

$

2,493

 

$

(18,871

)

$

1,963,681

 

Weighted-average yield

 

5.29

%

 

 

 

 

 

 

5.27

%

 

 

 

 

 

 

 

The following tables show the securities available for sale portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.  Unrealized losses on securities available for sale are due to changes in interest rates and not due to credit quality issues.  TCF has the ability and intent to hold these investments until a recovery of fair value.  Accordingly, TCF has concluded that no other-than-temporary impairment has occurred at March 31, 2008.

 

 

 

At March 31, 2008

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

552,932

 

$

(1,040

)

$

216,413

 

$

(2,260

)

$

769,345

 

$

(3,300

)

Other

 

 

 

3,292

 

(183

)

3,292

 

(183

)

Total

 

$

552,932

 

$

(1,040

)

$

219,705

 

$

(2,443

)

$

772,637

 

$

(3,483

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2007

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

286,063

 

$

(190

)

$

977,511

 

$

(18,491

)

$

1,263,574

 

$

(18,681

)

Other

 

 

 

3,443

 

(190

)

3,443

 

(190

)

Total

 

$

286,063

 

$

(190

)

$

980,954

 

$

(18,681

)

$

1,267,017

 

$

(18,871

)

 

8



 

 

(4)   Loans and Leases

 

The following table sets forth information about loans and leases, excluding loans held for sale.

 

 

 

At

 

At

 

 

 

 

 

March 31,

 

December 31,

 

Percentage

 

(Dollars in thousands)

 

2008

 

2007

 

Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

 

Home equity:

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,323,612

 

$

4,178,961

 

3.5

%

 

Junior lien

 

2,399,271

 

2,344,113

 

2.4

 

 

Total consumer home equity

 

6,722,883

 

6,523,074

 

3.1

 

 

Other

 

61,738

 

67,557

 

(8.6

)

 

Total consumer home equity and other

 

6,784,621

 

6,590,631

 

2.9

 

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

2,305,687

 

2,280,204

 

1.1

 

 

Construction and development

 

290,363

 

277,126

 

4.8

 

 

Total commercial real estate

 

2,596,050

 

2,557,330

 

1.5

 

 

Commercial business

 

535,014

 

558,325

 

(4.2

)

 

Total commercial

 

3,131,064

 

3,115,655

 

0.5

 

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

 

Equipment finance loans

 

635,368

 

604,185

 

5.2

 

 

Lease financings:

 

 

 

 

 

 

 

 

Direct financing leases

 

1,656,184

 

1,611,881

 

2.7

 

 

Sales-type leases

 

24,744

 

26,657

 

(7.2

)

 

Lease residuals

 

44,627

 

41,678

 

7.1

 

 

Unearned income and deferred lease costs

 

(180,141

)

(180,058

)

 

 

Total lease financings

 

1,545,414

 

1,500,158

 

3.0

 

 

Total leasing and equipment finance

 

2,180,782

 

2,104,343

 

3.6

 

 

Total consumer, commercial and leasing and equipment finance

 

12,096,467

 

11,810,629

 

2.4

 

 

Residential real estate

 

506,394

 

527,607

 

(4.0

)

 

Total loans and leases

 

$

12,602,861

 

$

12,338,236

 

2.1

 

 

(1)      Operating leases of $68.3 million at March 31, 2008 and $71.1 million at December 31, 2007 are included in Other Assets on the Consolidated Statements of Financial Condition.

9



 

(5)   Long-term Borrowings

 

The following table sets forth information about long-term borrowings.

 

 

 

 

 

At March 31, 2008

 

At December 31, 2007

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

 

 

 

Stated

 

 

 

Average

 

 

 

 

Average

 

 

(Dollars in thousands)

 

Maturity

 

Amount

 

Rate

 

 

Amount

 

Rate

 

 

Federal Home Loan Bank advances and
securities sold under repurchase agreements

 

2009

 

$

117,000

 

5.26

%

 

$

117,000

 

5.26

%

 

 

 

2010

 

100,000

 

6.02

 

 

100,000

 

6.02

 

 

 

 

2011

 

200,000

 

4.85

 

 

200,000

 

4.85

 

 

 

 

2015

 

1,400,000

 

4.16

 

 

1,400,000

 

4.16

 

 

 

 

2016

 

1,100,000

 

4.49

 

 

1,100,000

 

4.49

 

 

 

 

2017

 

1,250,000

 

4.60

 

 

1,250,000

 

4.60

 

 

Sub-total

 

 

 

4,167,000

 

4.49

 

 

4,167,000

 

4.49

 

 

Subordinated bank notes

 

2014

 

74,773

 

5.27

 

 

74,726

 

5.27

 

 

 

 

2015

 

49,661

 

5.37

 

 

49,619

 

5.37

 

 

 

 

2016

 

74,410

 

5.63

 

 

74,395

 

5.63

 

 

Sub-total

 

 

 

198,844

 

5.43

 

 

198,740

 

5.43

 

 

Discounted lease rentals

 

2008

 

18,233

 

6.91

 

 

24,318

 

7.13

 

 

 

 

2009

 

16,795

 

6.78

 

 

15,439

 

7.10

 

 

 

 

2010

 

8,066

 

6.64

 

 

6,681

 

6.98

 

 

 

 

2011

 

2,140

 

6.75

 

 

1,732

 

7.00

 

 

 

 

2012

 

381

 

6.62

 

 

276

 

6.98

 

 

Sub-total

 

 

 

45,615

 

6.80

 

 

48,446

 

7.09

 

 

Other borrowings

 

2008

 

2,219

 

4.50

 

 

2,226

 

4.51

 

 

 

 

2009

 

966

 

5.00

 

 

966

 

5.00

 

 

Sub-total

 

 

 

3,185

 

4.65

 

 

3,192

 

4.66

 

 

Total long-term borrowings

 

 

 

$

4,414,644

 

4.55

 

 

$

4,417,378

 

4.56

 

 

 

Included in FHLB advances and repurchase agreements at March 31, 2008 were $717 million of FHLB advances, which are callable quarterly by the counterparties at par until maturity.  In addition, TCF has $1.9 billion of FHLB advances and $1.6 billion of repurchase agreements which contain one-time call provisions for various years from 2008 through 2011.  The probability that these advances and repurchase agreements will be called depends primarily on the level of related interest rates during the call period. If FHLB advances are called, replacement funding will be available from the FHLB at the then-prevailing market rate of interest for the term selected by TCF, subject to standard terms and conditions.

 

The following table represents the maturity of FHLB advances and repurchase agreements based on the next available call date, compared with the stated maturity date at March 31, 2008.

 

(Dollars in thousands)

Year

 

Next Call
Date

 

Weighted-Average Rate

 

Stated Maturity

 

Weighted-Average Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

$

1,617,000

 

4.42

%

 

$

 

%

 

2009

 

1,000,000

 

4.45

 

 

117,000

 

5.26

 

 

2010

 

1,450,000

 

4.56

 

 

100,000

 

6.02

 

 

2011

 

100,000

 

4.82

 

 

200,000

 

4.85

 

 

2015

 

 

 

 

1,400,000

 

4.16

 

 

2016

 

 

 

 

1,100,000

 

4.49

 

 

2017

 

 

 

 

1,250,000

 

4.60

 

 

Total

 

$

4,167,000

 

4.49

 

 

$

4,167,000

 

4.49

 

 

 

10



 

(6)   Stockholders’ Equity

 

Treasury stock and other consists of the following.

 

 

 

At

 

At

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2008

 

2007

 

Treasury stock, at cost

 

$

(123,068

)

$

(126,020

)

Shares held in trust for deferred
compensation plans, at cost

 

(37,702

)

(39,666

)

Total

 

$

(160,770

)

$

(165,686

)

 

(7)   Fair Value Measurement

 

Effective January 1, 2008, TCF adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. In accordance with the FASB Staff Position 157-2, Effective Date of SFAS No. 157, TCF has not applied the provisions of this statement to non-financial assets and liabilities such as real estate owned, repossessed assets and equipment held for sale.  SFAS 157 defines fair value and establishes a consistent framework for measuring fair value under GAAP and expands disclosure requirements for fair value measurements.  Fair values represent the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

The following is a description of valuation methodologies used for assets recorded at fair value on a recurring basis at March 31, 2008.

 

Securities available for sale

 

At March 31, 2008, securities available for sale consisted primarily of U.S. Government sponsored enterprise and federal agency mortgage-backed securities.  The fair value of available for sale securities are recorded using observable market prices from independent asset pricing services that are based on observable transactions, but not a quoted market.

 

Assets held in trust for deferred compensation

 

At March 31, 2008, assets held in trust for deferred compensation plans consisted of investments in publicly traded stock other than TCF stock and mutual funds. The fair value of these assets are based upon quotes from independent asset pricing services based on active markets.

 

11



 

Fair value of assets measured on a recurring basis:

 

(in thousands)

 

Readily Available Market Prices (1)

 

Observable
Market Prices (2)

 

Company Determined
Market Prices (3)

 

Total at Fair Value

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

 

$

 

 

$

2,173,388

 

 

$

 

 

$

2,173,388

 

Other

 

 

 

 

 

 

3,624

 

 

3,624

 

Other securities

 

 

 

 

 

 

250

 

 

250

 

Assets held in trust for deferred
compensation plans (4)

 

 

18,594

 

 

 

 

 

 

18,594

 

Total assets

 

 

$

18,594

 

 

$

2,173,388

 

 

$

3,874

 

 

$

2,195,856

 

(1)      Considered Level 1 under SFAS 157.

(2)      Considered Level 2 under SFAS 157.

(3)      Considered Level 3 under SFAS 157 and is based on valuation models that use significant assumptions that are not observable in an active market.

(4)      A corresponding liability is recorded in other liabilities for TCF’s obligation on these assets.

 

The change in the balance sheet carrying values associated with company determined market priced financial assets carried at fair value during the three months ended March 31, 2008 was not significant.

 

(8)   Stock Compensation

 

The following table reflects TCF’s restricted stock transactions under the TCF Financial Incentive Stock Program since December 31, 2007.

 

 

 

Restricted Stock

 

 

 

 

 

Weighted-Average

 

(Dollars in thousands)

 

Shares

 

Grant Date Fair Value

 

Outstanding at December 31, 2007

 

2,525,216

 

 

 

$

19.72

 

Granted

 

101,000

 

 

 

15.75

 

Forfeited

 

(12,500

)

 

 

25.93

 

Vested

 

(1,103,866

)

 

 

11.09

 

Outstanding at March 31, 2008

 

1,509,850

 

 

 

$

25.49

 

 

The following table reflects TCF’s stock option transactions under the TCF Financial Incentive Stock Program since December 31, 2007.

 

 

 

Stock Options

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

Weighted-Average

 

Remaining Contractual

 

(Dollars in thousands)

 

Shares

 

Exercise Price

 

Term

 

Outstanding at December 31, 2007

 

144,050

 

 

 

$

13.91

 

1.32

 

Granted

 

1,626,000

 

 

 

15.75

 

9.75

 

Exercised

 

(13,000

)

 

 

12.56

 

 

Forfeited

 

(250

)

 

 

16.09

 

 

Outstanding at March 31, 2008

 

1,756,800

 

 

 

$

15.62

 

9.10

 

Exercisable at March 31, 2008

 

130,800

 

 

 

$

14.04

 

1.08

 

 

In January 2008, TCF issued 1,626,000 nonqualified stock options. These options have an exercise price of $15.75 per share, with 813,000 options exercisable in 2011, which expire in 2021 and the remaining 813,000 options exercisable in 2012, which expire in 2022. The weighted-average grant date fair value of stock options granted in January 2008 was $3.70 and $3.73, respectively.

 

12



 

Unrecognized stock compensation for restricted stock and stock options was $18.8 million with a weighted-average remaining amortization period of 2.83 years at March 31, 2008.

 

The following table summarizes information about stock options outstanding at March 31, 2008.

 

 

 

Stock Options Outstanding

 

Stock Options Exercisable

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

 

 

Weighted-Average

 

Remaining Contractual

 

 

 

Weighted-Average

 

Exercise price range

 

Shares

 

Exercise Price

 

Life in Years

 

Shares

 

Exercise Price

 

$10.91-$15.03

 

130,800

 

$         14.04

 

1.08

 

130,800

 

$         14.04

 

$15.75

 

1,626,000

 

$         15.75

 

9.75

 

 

$              —

 

 

The 130,800 exercisable stock options are accounted for using Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees. TCF estimated the fair value of stock options granted during the first quarter of 2008 using a Black-Scholes option valuation model.  Additional valuation and related assumption information for TCF’s stock option plans are presented below.

 

Expected volatility

 

28.5

%

Weighted-average volatility

 

28.5

%

Expected dividends

 

3.5

%

Expected term (in years)

 

6.5 - 7

 

Risk-free rate

 

2.5 - 2.73

%

 

(9)                     Regulatory Capital Requirements

 

The following table sets forth TCF’s and TCF National Bank’s regulatory tier 1 leverage, tier 1 risk-based and total risk-based capital levels, and applicable percentages of adjusted assets, together with the minimum and well-capitalized capital requirements.

 

 

 

 

 

Minimum

 

Well-Capitalized

 

 

 

Actual

 

Capital Requirement

 

Capital Requirement

 

(Dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

980,270

 

6.11

%

$

481,638

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

929,097

 

5.80

 

480,454

 

3.00

 

$

800,757

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

980,270

 

8.34

 

470,401

 

4.00

 

705,602

 

6.00

 

TCF National Bank

 

929,097

 

7.92

 

469,206

 

4.00

 

703,809

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,278,720

 

10.87

 

940,802

 

8.00

 

1,176,003

 

10.00

 

TCF National Bank

 

1,227,511

 

10.46

 

938,412

 

8.00

 

1,173,015

 

10.00

 

As of December 31, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

964,467

 

6.16

%

$

469,914

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

900,864

 

5.76

 

468,806

 

3.00

 

$

781,343

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

964,467

 

8.28

 

465,931

 

4.00

 

698,897

 

6.00

 

TCF National Bank

 

900,864

 

7.75

 

464,934

 

4.00

 

697,402

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,245,808

 

10.70

 

931,863

 

8.00

 

1,164,829

 

10.00

 

TCF National Bank

 

1,182,196

 

10.17

 

929,869

 

8.00

 

1,162,336

 

10.00

 

N.A. Not Applicable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2008, TCF, TCF National Bank and TCF National Bank Arizona exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the Federal

 

13



 

Reserve Board (“FRB”) and the OCC pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.

 

(10)               Employee Benefit Plans

 

The following tables set forth the net periodic benefit cost included in compensation and employee benefits expense for TCF’s Pension Plan and Postretirement Plan for the three months ended March 31, 2008 and 2007.

 

 

Pension Plan

 

Postretirement Plan

 

Three Months Ended March 31,

 

Three Months Ended March 31,

(In thousands)

 

2008

 

2007

 

2008

 

2007

 

Service cost

 

$

 

$

 

$

3

 

$

4

 

Interest cost

 

734

 

732

 

134

 

123

 

Expected return on plan assets

 

(1,265

)

(1,234

)

 

 

Amortization of transition obligation

 

 

 

1

 

25

 

Recognized actuarial loss

 

215

 

499

 

78

 

56

 

Settlement expense

 

178

 

350

 

 

 

Net periodic benefit cost (income)

 

$

(138

)

$

347

 

$

216

 

$

208

 

 

Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158) requires TCF to measure the funded status of the Pension and Postretirement Plans (the Plans) as of its fiscal year end, December 31st. Previously, TCF used September 30th as its measurement date. TCF adopted this requirement effective January 1, 2008 and selected the “15-month” approach under the measurement date transition provisions of SFAS 158. Under this approach, the Plans’ actuaries determine expense for the 15-month period from October 1, 2007 to December 31, 2008, excluding settlement expense. The 15-month expense is then allocated proportionately between amounts recognized as an adjustment to beginning retained earnings, net of tax, and net periodic benefit cost in 2008.  TCF recorded a $65 thousand credit to January 1, 2008 retained earnings for adoption of SFAS 158 under this approach.

 

TCF made no contributions to the Pension Plan during the first quarter of 2008 and 2007.  TCF is not required to make any contributions to the Pension Plan during 2008.  During the first quarter of 2008, TCF paid $310 thousand for benefits of the Postretirement Plan, compared with $325 thousand for the same 2007 period.

 

(11)               Business Segments

 

Banking and leasing and equipment finance have been identified as reportable operating segments.  Banking includes the following operating units that provide financial services to customers: deposits and investment products, commercial banking, consumer lending and treasury services.  Management of TCF’s banking operations is organized by state.  The separate state operations have been aggregated for purposes of segment disclosures.  Leasing and equipment finance provides a broad range of leasing and equipment finance products addressing the financing needs of diverse businesses.  In addition, TCF’s bank holding company (“Parent Company”) and corporate functions provide data processing, bank operations and other professional services to the operating segments.

 

TCF evaluates performance and allocates resources based on the segments’ net income.  The business segments follow generally accepted accounting principles as described in the Summary of Significant Accounting Policies in the most recent Annual Report on Form 10-K.  TCF generally accounts for inter-segment sales and transfers at cost.

 

14



 

The following table sets forth certain information for TCF’s reportable segments, including a reconciliation of TCF’s consolidated totals.  The “other” category in the tables below includes TCF’s parent company and corporate functions.

 

 

 

 

 

Leasing and

 

 

 

Eliminations

 

 

 

 

 

 

 

Equipment

 

 

 

and

 

 

 

(In thousands)

 

Banking

 

Finance

 

Other

 

Reclassifications

 

Consolidated

 

At or For the Three Months Ended
March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

204,217

 

$

40,933

 

$

 

$

 

$

245,150

 

Non-interest income

 

114,990

 

12,138