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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

September 30, 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.

 

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

 

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.

 

Class

 

Outstanding at
October 16, 2008

Common Stock, $.01 par value

 

130,939,325 shares

 

 

 


 
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
 

INDEX

 

Part I.

 

Financial Information

 

Pages

 

 

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition
at September 30, 2008 and December 31, 2007

 

3

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 2008 and 2007

 

4

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2008 and 2007

 

5

 

 

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the
Nine Months Ended September 30, 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 and
Nine Months Ended September 30, 2008 and 2007

 

20

 

 

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

40

 

 

 

 

 

 

 

 

 

Supplementary Information

 

41

 

 

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

 

 

 

 

Items 1-6

 

42

 

 

 

 

 

 

 

 

 

Signatures

 

44

 

 

 

 

 

 

 

 

 

Index to Exhibits

 

45

 

 

 

2

 


 

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At

 

At

 

 

 

September 30,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2008

 

2007

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

297,701

 

$

358,188

 

Investments

 

167,115

 

148,253

 

Securities available for sale

 

2,102,756

 

1,963,681

 

Education loans held for sale

 

3,569

 

156,135

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

6,898,323

 

6,590,631

 

Commercial real estate

 

2,852,754

 

2,557,330

 

Commercial business

 

549,337

 

558,325

 

Leasing and equipment finance

 

2,330,841

 

2,104,343

 

Subtotal

 

12,631,255

 

11,810,629

 

Residential real estate

 

470,413

 

527,607

 

Total loans and leases

 

13,101,668

 

12,338,236

 

Allowance for loan and lease losses

 

(158,978

)

(80,942

)

Net loans and leases

 

12,942,690

 

12,257,294

 

Premises and equipment, net

 

441,904

 

438,452

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

402,261

 

502,452

 

Total assets

 

$

16,510,595

 

$

15,977,054

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,089,044

 

$

4,108,527

 

Savings

 

2,717,635

 

2,636,820

 

Money market

 

646,655

 

576,667

 

Certificates of deposit

 

2,396,903

 

2,254,535

 

Total deposits

 

9,850,237

 

9,576,549

 

Short-term borrowings

 

603,233

 

556,070

 

Long-term borrowings

 

4,630,776

 

4,417,378

 

Total borrowings

 

5,234,009

 

4,973,448

 

Accrued expenses and other liabilities

 

315,320

 

328,045

 

Total liabilities

 

15,399,566

 

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; 130,951,694 and 131,468,699 shares issued

 

1,308

 

1,315

 

Additional paid-in capital

 

329,897

 

354,563

 

Retained earnings, subject to certain restrictions

 

934,121

 

926,875

 

Accumulated other comprehensive loss

 

(21,555

)

(18,055

)

Treasury stock at cost, 3,761,925 and 4,866,480 shares, and other

 

(132,742

)

(165,686

)

Total stockholders’ equity

 

1,111,029

 

1,099,012

 

Total liabilities and stockholders’ equity

 

$

16,510,595

 

$

15,977,054

 

See accompanying notes to consolidated financial statements.

 

 

3

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(In thousands, except per-share data)

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

210,651

 

$

213,528

 

$

630,835

 

$

621,871

 

Securities available for sale

 

28,577

 

28,439

 

85,714

 

80,209

 

Education loans held for sale

 

123

 

2,588

 

5,331

 

10,099

 

Investments and other

 

1,644

 

2,279

 

4,713

 

6,642

 

Total interest income

 

240,995

 

246,834

 

726,593

 

718,821

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

33,730

 

60,440

 

119,412

 

175,837

 

Borrowings

 

55,100

 

48,690

 

160,625

 

132,378

 

Total interest expense

 

88,830

 

109,130

 

280,037

 

308,215

 

Net interest income

 

152,165

 

137,704

 

446,556

 

410,606

 

Provision for credit losses

 

52,105

 

18,883

 

144,995

 

36,868

 

Net interest income after provision for credit losses

 

100,060

 

118,821

 

301,561

 

373,738

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

71,783

 

71,965

 

203,291

 

205,715

 

Card revenue

 

26,240

 

25,685

 

77,839

 

73,822

 

ATM revenue

 

8,720

 

9,251

 

24,957

 

27,314

 

Investments and insurance revenue

 

3,193

 

2,632

 

9,405

 

7,582

 

Subtotal

 

109,936

 

109,533

 

315,492

 

314,433

 

Leasing and equipment finance

 

13,006

 

15,110

 

39,190

 

44,310

 

Other

 

103

 

1,751

 

2,572

 

6,697

 

Fees and other revenue

 

123,045

 

126,394

 

357,254

 

365,440

 

Visa share redemption

 

 

 

8,308

 

 

Gains on sales of securities available for sale

 

498

 

2,017

 

7,899

 

2,017

 

Gains on sales of branches and real estate

 

 

1,246

 

 

35,142

 

Total non-interest income

 

123,543

 

129,657

 

373,461

 

402,599

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

84,895

 

85,113

 

257,880

 

259,913

 

Occupancy and equipment

 

31,832

 

30,226

 

95,450

 

90,006

 

Advertising and promotions

 

12,309

 

5,480

 

25,735

 

17,047

 

Other

 

44,337

 

37,632

 

122,339

 

109,478

 

Subtotal

 

173,373

 

158,451

 

501,404

 

476,444

 

Operating lease depreciation

 

4,215

 

4,326

 

13,189

 

13,067

 

Total non-interest expense

 

177,588

 

162,777

 

514,593

 

489,511

 

Income before income tax expense

 

46,015

 

85,701

 

160,429

 

286,826

 

Income tax expense

 

15,889

 

26,563

 

59,175

 

82,835

 

Net income

 

$

30,126

 

$

59,138

 

$

101,254

 

$

203,991

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.24

 

$

.48

 

$

.81

 

$

1.62

 

Diluted

 

$

.24

 

$

.48

 

$

.81

 

$

1.62

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.25

 

$

.2425

 

$

.75

 

$

.7275

 

See accompanying notes to consolidated financial statements.

 

 

4

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

(In thousands)

 

2008

 

2007

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

101,254

 

$

203,991

 

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

 

 

 

 

 

Depreciation and amortization

 

48,834

 

47,616

 

Provision for credit losses

 

144,995

 

36,868

 

Proceeds from sales of education loans held for sale

 

243,021

 

172,120

 

Principal collected on education loans held for sale

 

1,658

 

3,571

 

Originations of education loans held for sale

 

(95,209

)

(180,839

)

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

 

(11,300

)

14,461

 

Gains on sales of assets and deposits, net

 

(7,899

)

(37,159

)

Other, net

 

8,365

 

6,148

 

Total adjustments

 

332,465

 

62,786

 

Net cash provided by operating activities

 

433,719

 

266,777

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

2,351,376

 

2,516,614

 

Originations of loans

 

(2,665,692

)

(2,656,024

)

Purchases of equipment for lease financing

 

(593,760

)

(512,013

)

Proceeds from sales of securities available for sale

 

1,263,313

 

141,979

 

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

 

181,591

 

184,184

 

Purchases of securities available for sale

 

(1,482,203

)

(594,211

)

Net decrease in federal funds sold

 

 

(9,000

)

Purchases of Federal Home Loan Bank stock

 

(102,336

)

(43,387

)

Proceeds from redemptions of Federal Home Loan Bank stock

 

84,570

 

12,281

 

Proceeds from sales of real estate owned

 

29,826

 

26,801

 

Purchases of premises and equipment

 

(33,566

)

(54,757

)

Proceeds from sales of premises and equipment

 

1,336

 

6,951

 

Other, net

 

14,256

 

16,124

 

Net cash used by investing activities

 

(951,289

)

(964,458

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

273,688

 

218,224

 

Sale of deposits, net

 

 

(213,294

)

Net increase (decrease) in short-term borrowings

 

47,163

 

(46,793

)

Proceeds from long-term borrowings

 

234,285

 

1,116,587

 

Payments on long-term borrowings

 

(18,161

)

(214,894

)

Purchases of common stock

 

 

(102,960

)

Dividends paid on common stock

 

(94,767

)

(93,793

)

Stock compensation tax benefits

 

5,534

 

4,537

 

Other, net

 

9,341

 

3,852

 

Net cash provided by financing activities

 

457,083

 

671,466

 

Net decrease in cash and due from banks

 

(60,487

)

(26,215

)

Cash and due from banks at beginning of period

 

358,188

 

349,839

 

Cash and due from banks at end of period

 

$

297,701

 

$

323,624

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

281,914

 

$

292,873

 

Income taxes

 

$

38,264

 

$

67,757

 

Transfer of loans and leases to other assets

 

$

68,784

 

$

57,992

 

See accompanying notes to consolidated financial statements.

 

 

5

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

(Dollars in thousands)

 

Number of
Common
Shares Issued

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Treasury
 Stock
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

 

 

 

 

203,991

 

 

 

203,991

 

Other comprehensive loss

 

 

 

 

 

(6,469

)

 

(6,469

)

Comprehensive income (loss)

 

 

 

 

203,991

 

(6,469

)

 

197,522

 

Dividends on common stock

 

 

 

 

(93,793

)

 

 

(93,793

)

Repurchase of 3,810,000 shares

 

 

 

 

 

 

(102,960

)

(102,960

)

Issuance of 168,600 shares

 

 

 

(4,065

)

 

 

4,065

 

 

Cancellation of shares

 

(127,625

)

(1

)

(494

)

448

 

 

 

(47

)

Cancellation of shares for tax withholding

 

(49,664

)

(1

)

(1,366

)

 

 

 

(1,367

)

Amortization of stock compensation

 

 

 

5,448

 

 

 

 

5,448

 

Exercise of stock options, 57,083 shares

 

 

 

(698

)

 

 

1,431

 

733

 

Stock compensation tax benefits

 

 

 

4,537

 

 

 

 

4,537

 

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

 

 

 

6,063

 

 

 

(6,063

)

 

Balance, September 30, 2007

 

131,483,460

 

$

1,315

 

$

353,169

 

$

894,657

 

$

(41,395

)

$

(164,299

)

$

1,043,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

65

 

 

 

65

 

Subtotal

 

131,468,699

 

1,315

 

354,563

 

926,940

 

(18,055

)

(165,686

)

1,099,077

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

101,254

 

 

 

101,254

 

Other comprehensive loss

 

 

 

 

 

(3,500

)

 

(3,500

)

Comprehensive income (loss)

 

 

 

 

101,254

 

(3,500

)

 

97,754

 

Dividends on common stock

 

 

 

 

(94,767

)

 

 

(94,767

)

Issuance of 729,895 shares

 

 

 

(18,901

)

 

 

18,901

 

 

Treasury shares sold to TCF employee benefit plans, 361,660 shares

 

 

 

(3,988

)

 

 

9,366

 

5,378

 

Cancellation of shares

 

(123,700

)

(3

)

(3,093

)

694

 

 

 

(2,402

)

Cancellation of shares for tax withholding

 

(393,305

)

(4

)

(6,241

)

 

 

 

(6,245

)

Amortization of stock compensation

 

 

 

6,537

 

 

 

 

6,537

 

Exercise of stock options, 13,000 shares

 

 

 

(173

)

 

 

336

 

163

 

Stock compensation tax benefits

 

 

 

5,534

 

 

 

 

5,534

 

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

 

 

 

(4,341

)

 

 

4,341

 

 

Balance, September 30, 2008

 

130,951,694

 

$

1,308

 

$

329,897

 

$

934,121

 

$

(21,555

)

$

(132,742

)

$

1,111,029

 

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.

 

(In thousands)

 

At
September 30,
2008

 

At
December 31,
2007

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

133,614

 

$

115,848

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

138,231

 

120,465

 

Federal Reserve Bank stock, at cost

 

20,515

 

20,423

 

Other

 

8,369

 

7,365

 

Total investments

 

$

167,115

 

$

148,253

 

 

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 Agency.

 

 

7

 


 

(3)         Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At September 30, 2008

 

At December 31, 2007

 

(Dollars in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

2,122,533

 

$

405

 

$

(23,579

)

$

2,099,359

 

$

1,975,817

 

$

2,493

 

$

(18,681

)

$

1,959,629

 

Other

 

3,463

 

 

(316

)

3,147

 

3,992

 

 

(190

)

3,802

 

Other securities

 

250

 

 

 

250

 

250

 

 

 

250

 

Total

 

$

2,126,246

 

$

405

 

$

(23,895

)

$

2,102,756

 

$

1,980,059

 

$

2,493

 

$

(18,871

)

$

1,963,681

 

Weighted-average yield

 

5.28

%

 

 

 

 

 

 

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 September 30, 2008.

 

 

 

At September 30, 2008

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

(In thousands)

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

1,798,420

 

$

(18,776

)

$

200,652

 

$

(4,803

)

$

1,999,072

 

$

(23,579

)

Other

 

 

 

2,840

 

(316

)

2,840

 

(316

)

Total

 

$

1,798,420

 

$

(18,776

)

$

203,492

 

$

(5,119

)

$

2,001,912

 

$

(23,895

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 education loans held for sale.

 

(Dollars in thousands)

 

At
September 30,
2008

 

At
December 31,
2007

 

Percentage
Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

 

Home equity:

 

 

 

 

 

 

 

 

First mortgage liens

 

$

4,400,761

 

$

4,178,961

 

5.3

%

 

Junior liens

 

2,427,201

 

2,344,113

 

3.5

 

 

Total consumer home equity

 

6,827,962

 

6,523,074

 

4.7

 

 

Other

 

70,361

 

67,557

 

4.2

 

 

Total consumer home equity and other

 

6,898,323

 

6,590,631

 

4.7

 

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

2,577,644

 

2,280,204

 

13.0

 

 

Construction and development

 

275,110

 

277,126

 

(0.7

)

 

Total commercial real estate

 

2,852,754

 

2,557,330

 

11.6

 

 

Commercial business

 

549,337

 

558,325

 

(1.6

)

 

Total commercial

 

3,402,091

 

3,115,655

 

9.2

 

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

 

Equipment finance loans

 

723,971

 

604,185

 

19.8

 

 

Lease financings:

 

 

 

 

 

 

 

 

Direct financing leases

 

1,719,722

 

1,611,881

 

6.7

 

 

Sales-type leases

 

21,232

 

26,657

 

(20.4

)

 

Lease residuals

 

49,524

 

41,678

 

18.8

 

 

Unearned income and deferred lease costs

 

(183,608

)

(180,058

)

(2.0

)

 

Total lease financings

 

1,606,870

 

1,500,158

 

7.1

 

 

Total leasing and equipment finance

 

2,330,841

 

2,104,343

 

10.8

 

 

Total consumer, commercial and leasing and equipment finance

 

12,631,255

 

11,810,629

 

6.9

 

 

Residential real estate

 

470,413

 

527,607

 

(10.8

)

 

Total loans and leases

 

$

13,101,668

 

$

12,338,236

 

6.2

 

 

(1)  Operating leases of $58.5 million at September 30, 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 September 30, 2008

 

 

At December 31, 2007

 

(Dollars in thousands)

 

Stated
Maturity

 

Amount

 

Weighted-
Average
Rate

 

 

Amount

 

Weighted-
Average
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

 

300,000

 

4.64

 

 

 

200,000

 

4.85

 

 

 

 

2015

 

1,200,000

 

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

 

 

 

 

2018

 

200,000

 

3.78

 

 

 

 

 

 

Sub-total

 

 

 

4,267,000

 

4.46

 

 

 

4,167,000

 

4.49

 

 

Subordinated bank notes

 

2014

 

74,869

 

5.27

 

 

 

74,726

 

5.27

 

 

 

 

2015

 

49,746

 

5.37

 

 

 

49,619

 

5.37

 

 

 

 

2016

 

74,441

 

5.63

 

 

 

74,395

 

5.63

 

 

Sub-total

 

 

 

199,056

 

5.43

 

 

 

198,740

 

5.43

 

 

Junior subordinated notes (trust preferred)

 

2068

 

110,440

 

11.20

 

 

 

 

 

 

Discounted lease rentals

 

2008

 

6,847

 

6.58

 

 

 

24,318

 

7.13

 

 

 

 

2009

 

22,713

 

6.46

 

 

 

15,439

 

7.10

 

 

 

 

2010

 

14,375

 

6.35

 

 

 

6,681

 

6.98

 

 

 

 

2011

 

6,481

 

6.44

 

 

 

1,732

 

7.00

 

 

 

 

2012

 

2,394

 

6.58

 

 

 

276

 

6.98

 

 

 

 

2013

 

498

 

6.53

 

 

 

 

 

 

Sub-total

 

 

 

53,308

 

6.45

 

 

 

48,446

 

7.09

 

 

Other borrowings

 

2008

 

6

 

5.00

 

 

 

2,226

 

4.51

 

 

 

 

2009

 

966

 

5.00

 

 

 

966

 

5.00

 

 

Sub-total

 

 

 

972

 

5.00

 

 

 

3,192

 

4.66

 

 

Total long-term borrowings

 

 

 

$

4,630,776

 

4.69

 

 

 

$

4,417,378

 

4.56

 

 

 

Included in FHLB advances and repurchase agreements at September 30, 2008 were $717 million of FHLB advances and repurchase agreements, 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.

 

On July 9, 2008, TCF extended the maturity and call dates of $200 million of callable repurchase agreements that previously had a scheduled maturity date in 2015 and a call date in 2008 to a scheduled maturity date in 2018 and a call date in 2011.

 

The probability that the advances and repurchase agreements will be called by the counterparties 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.

 

 

10

 


 

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 September 30, 2008.

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Year

 

Next Call
Date

 

Weighted-
Average Rate

 

 

Stated Maturity

 

Weighted-
Average Rate

 

 

 

 

 

 

 

 

 

 

 

 

2008 (a)

 

$

1,417,000

 

4.46

%

 

$

 

%

2009

 

1,000,000

 

4.45

 

 

117,000

 

5.26

 

2010

 

1,450,000

 

4.56

 

 

100,000

 

6.02

 

2011

 

300,000

 

4.13

 

 

200,000

 

4.85

 

2015

 

 

 

 

1,200,000

 

4.16

 

2016

 

 

 

 

1,100,000

 

4.49

 

2017

 

 

 

 

1,250,000

 

4.60

 

2018

 

 

 

 

200,000

 

3.78

 

Total

 

$

4,167,000

 

4.47

 

 

$

4,167,000

 

4.47

 

 

(a)

On October 6, 2008, one of TCF’s counterparties exercised its contractual call option on $300 million of repurchase agreements.

 

During the third quarter of 2008, TCF formed TCF Capital I (the “Trust”), a wholly-owned statutory trust formed under the laws of the state of Delaware.  The Trust issued 10.75% Capital Securities, Series I, to the public, using the proceeds to purchase $115 million of 10.75% Junior Subordinated Notes, Series I (the “Notes”), from TCF.  The Notes have a fixed coupon rate and qualify as Tier 1 capital.  The Notes are redeemable, at par, after August 14, 2013, and have a final maturity of August 15, 2068.  Net proceeds after issue costs were $110.4 million resulting in a weighted-average rate of 11.20%.

 

(6)         Stockholders’ Equity

 

Treasury stock and other consists of the following.

 

(In thousands)

 

At
September 30,
2008

 

At
December 31,
2007

 

Treasury stock, at cost

 

$

(97,417

)

$

(126,020

)

Shares held in trust for deferred
compensation plans, at cost

 

(35,325

)

(39,666

)

Total

 

$

(132,742

)

$

(165,686

)

 

In October, 2008, the United States Treasury, working with the Federal Reserve Bank, announced several initiatives in an effort to stabilize the banking industry.  Amongst those initiatives is a $250 billion capital purchase program for certain qualified and healthy banking institutions.  As part of the program, the United States Treasury will purchase a limited amount of senior perpetual preferred securities with an attached warrant for the purchase of common stock.  TCF is in the process of reviewing the details of this program as the information is being made available and is analyzing the impact of participation in the program.

 

(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 estimated 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.

 

 

11


 

The following is a description of valuation methodologies used for assets recorded at fair value on a recurring basis at September 30, 2008.

 

Securities available for sale

 

At September 30, 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 September 30, 2008, assets held in trust for deferred compensation plans included 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.

 

At September 30, 2008, the fair value of assets measured on a recurring basis are:

 

(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

 

 

$

 

 

$

2,099,359

 

 

$

 

 

$

2,099,359

 

Other

 

 

 

 

 

 

3,147

 

 

3,147

 

Other securities

 

 

 

 

 

 

250

 

 

250

 

Assets held in trust for deferred compensation plans (4)

 

 

16,686

 

 

 

 

 

 

16,686

 

Total assets

 

 

$

16,686

 

 

$

2,099,359

 

 

$

3,397

 

 

$

2,119,442

 

 

 

(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 to the participants in these plans.

 

The change in the balance sheet carrying values associated with company determined market priced financial assets carried at fair value during the nine months ended September 30, 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

 

 

 

Shares

 

Weighted-Average   
Grant Date Fair Value
 

 

Outstanding at December 31, 2007

 

2,525,216

 

 

$

19.72

 

Granted

 

729,150

 

 

12.34

 

Forfeited

 

(123,700

)

 

25.58

 

Vested

 

(1,113,099

)

 

11.18

 

Outstanding at September 30, 2008

 

2,017,567

 

 

$

21.41

 

 

 

12

 


 

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

 

 

 

 Stock Options

 

 

 

Shares   

 

Weighted-Average
Exercise Price

Weighted-Average
Remaining Contractual
Term In Years

 

Outstanding at December 31, 2007

 

144,050

 

 

$

13.91

 

 

 

1.32

 

Granted

 

2,626,000

 

 

14.65

 

 

 

9.47

 

Exercised

 

(13,000

)

 

12.56

 

 

 

 

Forfeited

 

(331,215

)

 

15.74

 

 

 

 

Outstanding at September 30, 2008

 

2,425,835

 

 

$

14.46

 

 

 

9.04

 

Exercisable at September 30, 2008

 

126,800

 

 

$

14.01

 

 

 

0.59

 

 

In July 2008, TCF issued 1,000,000 nonqualified stock options. These options have an exercise price of $12.85 per share, with 500,000 options exercisable in 2011, which expire in 2018 and the remaining 500,000 options exercisable in 2012, which expire in 2018. The weighted-average grant date fair value of stock options granted in July 2008 was $3.11 and $3.16, respectively.

 

Unrecognized stock compensation for restricted stock and stock options was $23.1 million with a weighted-average remaining amortization period of 2.4 years at September 30, 2008.

 

The following table summarizes information about stock options outstanding at September 30, 2008.

 

 

 

Stock Options Outstanding

 

Stock Options Exercisable

 

Exercise price range

 

Shares

 

Weighted-Average
Exercise Price

 

Weighted-Average
Remaining Contractual
Life in Years

 

Shares

 

Weighted-Average
Exercise Price

 

$11.78-$14.52

 

126,800

 

 

$

14.01

 

 

0.59

 

126,800

 

 

$

14.01

 

 

$12.85-$15.75

 

2,299,035

 

 

$

14.49

 

 

9.50

 

 

 

$

 

 

 

The 126,800 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 third 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 dividend yield

 

3.5

%

Expected term (in years)

 

6.25 - 6.75

 

Risk-free interest rate

 

2.58 - 2.91

%

 

 

13


 

(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 stated minimum and well-capitalized capital ratio requirements.

 

 

 

Actual

 

Minimum

Capital Requirement

 

Well-Capitalized

Capital Requirement

 

(Dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of September 30, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

1,094,985

 

6.70

%

$

490,218

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

1,017,377

 

6.25

 

488,442

 

3.00

 

$

814,070

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,094,985

 

9.03

 

485,091

 

4.00

 

727,637

 

6.00

 

TCF National Bank

 

1,017,377

 

8.43

 

482,620

 

4.00

 

723,931

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,446,668

 

11.93

 

970,183

 

8.00

 

1,212,728

 

10.00

 

TCF National Bank

 

1,368,314

 

11.34

 

965,241

 

8.00

 

1,206,551

 

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.

 

The minimum and well capitalized capital requirements are determined by the Federal Reserve Board for TCF and by the Office of the Comptroller of the Currency for TCF National Bank pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. At September 30, 2008, TCF, TCF National Bank and TCF National Bank Arizona exceeded their stated regulatory capital requirements and are considered “well-capitalized”.

 

 

14

 


 

(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 and nine months ended September 30, 2008 and 2007.

 

 

 

Pension Plan

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(In thousands)