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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

June 30, 2009

 

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
incorporation or organization)

 

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

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

Yes o

 

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
July 22, 2009

Common Stock, $.01 par value

 

128,513,284 shares

 

 

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES
 
INDEX
 

Part I.

 

Financial Information

 

Pages

 

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition
at June 30, 2009 and December 31, 2008

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three and Six Months
Ended June 30, 2009 and 2008

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the
Six Months Ended June 30, 2009 and 2008

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2009 and 2008

 

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 Six Months
Ended June 30, 2009 and 2008

 

22

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

44

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

45

 

 

 

 

 

 

 

Supplementary Information

 

46

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

 

 

Items 1-6

 

47

 

 

 

 

 

 

 

Signatures

 

50

 

 

 

 

 

 

 

Index to Exhibits

 

51

 

2


 

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

(Dollars in thousands, except per-share data)

 

At
June 30,
2009

 

At
December 31,
2008

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

431,328

 

$

342,380

 

Investments

 

166,770

 

155,725

 

Securities available for sale

 

2,087,406

 

1,966,104

 

Education loans held for sale

 

 

757

 

Loans and leases:

 

 

 

 

 

Consumer real estate and other

 

7,340,124

 

7,363,583

 

Commercial real estate

 

3,155,398

 

2,984,156

 

Commercial business

 

487,083

 

506,887

 

Leasing and equipment finance

 

2,822,858

 

2,486,082

 

Inventory finance

 

157,193

 

4,425

 

Total loans and leases

 

13,962,656

 

13,345,133

 

Allowance for loan and lease losses

 

(193,445

)

(172,442

)

Net loans and leases

 

13,769,211

 

13,172,691

 

Premises and equipment, net

 

448,514

 

447,826

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

419,893

 

502,275

 

Total assets

 

$

17,475,721

 

$

16,740,357

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,064,597

 

$

3,969,768

 

Savings and money market

 

5,668,069

 

3,677,301

 

Certificates of deposit

 

1,886,387

 

2,596,283

 

Total deposits

 

11,619,053

 

10,243,352

 

Short-term borrowings

 

25,829

 

226,861

 

Long-term borrowings

 

4,307,098

 

4,433,913

 

Total borrowings

 

4,332,927

 

4,660,774

 

Accrued expenses and other liabilities

 

381,206

 

342,455

 

Total liabilities

 

16,333,186

 

15,246,581

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $.01 per share, 30,000,000 shares authorized; 0 and 361,172 issued and outstanding

 

 

348,437

 

Common stock, par value $.01 per share, 280,000,000 shares authorized; 130,398,951 and 130,839,378 shares issued

 

1,304

 

1,308

 

Additional paid-in capital

 

306,718

 

330,474

 

Retained earnings, subject to certain restrictions

 

921,766

 

927,893

 

Accumulated other comprehensive loss

 

(15,296

)

(3,692

)

Treasury stock at cost, 1,973,713 and 3,413,855 shares, and other

 

(71,957

)

(110,644

)

Total stockholders’ equity

 

1,142,535

 

1,493,776

 

Total liabilities and stockholders’ equity

 

$

17,475,721

 

$

16,740,357

 

See accompanying notes to consolidated financial statements.

 

3


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

(In thousands, except per-share data)

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

215,400

 

$

208,407

 

$

424,777

 

$

420,184

 

Securities available for sale

 

23,217

 

28,858

 

48,918

 

57,137

 

Education loans held for sale

 

 

1,756

 

 

5,208

 

Investments and other

 

1,137

 

1,427

 

1,993

 

3,069

 

Total interest income

 

239,754

 

240,448

 

475,688

 

485,598

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

33,345

 

36,954

 

73,429

 

85,682

 

Borrowings

 

49,946

 

51,932

 

100,383

 

105,525

 

Total interest expense

 

83,291

 

88,886

 

173,812

 

191,207

 

Net interest income

 

156,463

 

151,562

 

301,876

 

294,391

 

Provision for credit losses

 

61,891

 

62,895

 

105,603

 

92,890

 

Net interest income after provision for credit losses

 

94,572

 

88,667

 

196,273

 

201,501

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

77,536

 

67,961

 

134,600

 

131,508

 

Card revenue

 

26,604

 

26,828

 

51,564

 

51,599

 

ATM revenue

 

7,973

 

8,267

 

15,571

 

16,237

 

Subtotal

 

112,113

 

103,056

 

201,735

 

199,344

 

Leasing and equipment finance

 

16,881

 

14,050

 

29,532

 

26,184

 

Other

 

820

 

4,398

 

1,278

 

8,681

 

Fees and other revenue

 

129,814

 

121,504

 

232,545

 

234,209

 

Gains on securities

 

10,556

 

1,115

 

22,104

 

7,401

 

Visa share redemption

 

 

 

 

8,308

 

Total non-interest income

 

140,370

 

122,619

 

254,649

 

249,918

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

90,752

 

84,267

 

176,942

 

172,985

 

Occupancy and equipment

 

31,527

 

31,205

 

63,574

 

63,618

 

Deposit account premiums

 

7,287

 

2,441

 

13,863

 

3,937

 

Advertising and promotions

 

4,134

 

4,689

 

8,579

 

9,490

 

FDIC insurance premiums

 

13,303

 

437

 

17,098

 

858

 

Foreclosed real estate and repossessed assets, net

 

6,125

 

4,892

 

10,416

 

7,507

 

Other

 

39,558

 

36,338

 

72,398

 

69,636

 

Subtotal

 

192,686

 

164,269

 

362,870

 

328,031

 

Operating lease depreciation

 

3,860

 

4,460

 

7,884

 

8,974

 

Total non-interest expense

 

196,546

 

168,729

 

370,754

 

337,005

 

Income before income tax expense

 

38,396

 

42,557

 

80,168

 

114,414

 

Income tax expense

 

14,853

 

18,855

 

29,978

 

43,286

 

Net income

 

23,543

 

23,702

 

50,190

 

71,128

 

Preferred stock dividends

 

1,193

 

 

6,378

 

 

Non-cash deemed preferred stock dividend

 

12,025

 

 

12,025

 

 

Net income available to common stockholders

 

$

10,325

 

$

23,702

 

$

31,787

 

$

71,128

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.08

 

$

.19

 

$

.25

 

$

.57

 

Diluted

 

$

.08

 

$

.19

 

$

.25

 

$

.57

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.05

 

$

.25

 

$

.30

 

$

.50

 

See accompanying notes to consolidated financial statements.

 

4


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

(Dollars in thousands)

 

Number of
Common
Shares Issued

 

Preferred
Stock

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Treasury
Stock
and Other

 

Total

 

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

 

 

 

 

 

71,128

 

 

 

71,128

 

Other comprehensive income (loss)

 

 

 

 

 

 

(18,931

)

 

(18,931

)

Comprehensive income (loss)

 

 

 

 

 

71,128

 

(18,931

)

 

52,197

 

Dividends on common stock

 

 

 

 

 

(63,175

)

 

 

(63,175

)

Issuance of 277,150 common shares

 

 

 

 

(7,177

)

 

 

7,177

 

 

Cancellation of common shares

 

(19,600

)

 

(1

)

(2,654

)

485

 

 

 

(2,170

)

Cancellation of common shares for tax withholding

 

(391,746

)

 

(4

)

(6,223

)

 

 

 

(6,227

)

Amortization of stock compensation

 

 

 

 

4,448

 

 

 

 

4,448

 

Exercise of stock options, 13,000 shares

 

 

 

 

(173

)

 

 

336

 

163

 

Stock compensation tax benefits

 

 

 

 

3,988

 

 

 

 

3,988

 

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

 

 

 

 

(1,104

)

 

 

1,104

 

 

Balance, June 30, 2008

 

131,057,353

 

$

 

$

1,310

 

$

345,668

 

$

935,378

 

$

(36,986

)

$

(157,069

)

$

1,088,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2008

 

130,839,378

 

$

348,437

 

$

1,308

 

$

330,474

 

$

927,893

 

$

(3,692

)

$

(110,644

)

$

1,493,776

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

50,190

 

 

 

50,190

 

Other comprehensive income (loss)

 

 

 

 

 

 

(11,604

)

 

(11,604

)

Comprehensive income (loss)

 

 

 

 

 

50,190

 

(11,604

)

 

38,586

 

Dividends on preferred stock

 

 

710

 

 

 

(6,378

)

 

 

(5,668

)

Dividends on common stock

 

 

 

 

 

(38,068

)

 

 

(38,068

)

Non-cash deemed preferred stock dividend

 

 

12,025

 

 

 

(12,025

)

 

 

 

Redemption of preferred stock

 

 

(361,172

)

 

 

 

 

 

(361,172

)

Issuance of 547,150 common shares

 

 

 

 

(14,169

)

 

 

14,169

 

 

Treasury shares sold to TCF employee benefit plans, 799,192 shares

 

 

 

 

(10,128

)

 

 

20,696

 

10,568

 

Cancellation of common shares

 

(433,450

)

 

(4

)

(251

)

154

 

 

 

(101

)

Cancellation of common shares for tax withholding

 

(6,977

)

 

 

(93

)

 

 

 

(93

)

Amortization of stock compensation

 

 

 

 

4,347

 

 

 

 

4,347

 

Exercise of stock options, 93,800 shares

 

 

 

 

(1,105

)

 

 

2,429

 

1,324

 

Stock compensation tax expense

 

 

 

 

(964

)

 

 

 

(964

)

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

 

 

 

 

(1,393

)

 

 

1,393

 

 

Balance, June 30, 2009

 

130,398,951

 

$

 

$

1,304

 

$

306,718

 

$

921,766

 

$

(15,296

)

$

(71,957

)

$

1,142,535

 

See accompanying notes to consolidated financial statements.

 

5

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

(In thousands)

 

2009

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

50,190

 

$

71,128

 

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

 

 

 

 

 

Provision for credit losses

 

105,603

 

92,890

 

Depreciation and amortization

 

31,360

 

32,815

 

Proceeds from sales of education loans held for sale

 

708

 

221,628

 

Principal collected on education loans held for sale

 

23

 

1,495

 

Originations of education loans held for sale

 

(221

)

(94,131

)

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

 

41,984

 

(19,271

)

Gains on sales of assets, net

 

(22,305

)

(7,401

)

Other, net

 

5,848

 

5,063

 

Total adjustments

 

163,000

 

233,088

 

Net cash provided by operating activities

 

213,190

 

304,216

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

1,524,027

 

1,607,296

 

Originations and purchases of loans

 

(1,653,330

)

(1,913,411

)

Purchases of equipment for lease financing

 

(392,613

)

(398,804

)

Purchase of leasing and equipment finance portfolio

 

(277,404

)

 

Proceeds from sales of securities available for sale

 

1,097,711

 

1,206,236

 

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

 

218,699

 

133,751

 

Purchases of securities available for sale

 

(1,307,052

)

(1,418,925

)

Purchases of Federal Home Loan Bank stock

 

 

(51,167

)

Proceeds from redemptions of Federal Home Loan Bank stock

 

 

46,746

 

Proceeds from sales of real estate owned

 

22,868

 

15,429

 

Purchases of premises and equipment

 

(20,667

)

(22,776

)

Proceeds from sales of premises and equipment

 

855

 

671

 

Other, net

 

604

 

9,917

 

Net cash used by investing activities

 

(786,302

)

(785,037

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

1,375,701

 

569,573

 

Net decrease in short-term borrowings

 

(201,032

)

(144,268

)

Proceeds from long-term borrowings

 

9,879

 

113,056

 

Payments on long-term borrowings

 

(131,642

)

(10,951

)

Redemption of preferred stock

 

(361,172

)

 

Dividends paid on common stock

 

(38,068

)

(63,175

)

Dividends paid on preferred stock

 

(7,925

)

 

Stock compensation tax (expense) benefit

 

(964

)

3,988

 

Treasury shares sold to TCF employee benefit plans

 

10,568

 

 

Other, net

 

6,715

 

4,227

 

Net cash provided by financing activities

 

662,060

 

472,450

 

Net increase (decrease) in cash and due from banks

 

88,948

 

(8,371

)

Cash and due from banks at beginning of period

 

342,380

 

358,188

 

Cash and due from banks at end of period

 

$

431,328

 

$

349,817

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid (received) for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

176,601

 

$

192,570

 

Income taxes

 

$

(3,542

)

$

37,550

 

Transfer of loans and leases to other assets

 

$

92,954

 

$

39,825

 

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, 2008 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 fair presentation.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.  Management has evaluated subsequent events for disclosure or recognition up to the time of filing these financial statements with the Securities and Exchange Commission on July 30, 2009.

 

(2)                      Investments

 

The carrying values of investments consist of the following.

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2009

 

2008

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

120,263

 

$

120,263

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

124,880

 

124,880

 

Federal Reserve Bank stock, at cost

 

33,644

 

22,706

 

Other

 

8,246

 

8,139

 

Total investments

 

$

166,770

 

$

155,725

 

 

The investments in Federal Home Loan Bank (“FHLB”) stock are required investments related to TCF’s current and previous 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 of the Federal Housing Finance Agency.

 

7


 

(3)                      Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At June 30, 2009

 

At December 31, 2008

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

U.S. Government agencies and corporations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency guaranteed mortgage-backed securities

 

$

1,470,316

 

$

18,588

 

$

(4,408

)

$

1,484,496

 

$

1,928,245

 

$

37,310

 

$

 

$

1,965,555

 

Agency debentures

 

600,100

 

2,301

 

(20

)

602,381

 

 

 

 

 

Other securities

 

529

 

 

 

529

 

549

 

 

 

549

 

Total

 

$

2,070,945

 

$

20,889

 

$

(4,428

)

$

2,087,406

 

$

1,928,794

 

$

37,310

 

$

 

$

1,966,104

 

Weighted-average yield

 

4.04

%

 

 

 

 

 

 

5.17

%

 

 

 

 

 

 

 

In late March and April of 2009, TCF purchased $600.1 million of short-term Fannie Mae and Freddie Mac debentures with maturities of three years or less and a one-time issuer call feature, resulting in a reduction in lower yielding interest-bearing deposits at the Federal Reserve.

 

At June 30, 2009 and December 31, 2008, TCF had $1.8 billion of agency guaranteed mortgaged-backed securities and agency debentures pledged as collateral to secure certain deposits and borrowings.

 

The following table shows 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 June 30, 2009.

 

 

 

At June 30, 2009

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

U.S. Government agencies and corporations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency guaranteed mortgage-backed securities

 

$

493,186

 

$

(4,408

)

$

 

$

 

$

493,186

 

$

(4,408

)

Agency debentures

 

49,980

 

(20

)

 

 

49,980

 

(20

)

Total

 

$

543,166

 

$

(4,428

)

$

 

$

 

$

543,166

 

$

(4,428

)

 

At December 31, 2008, TCF had no securities in an unrealized loss position within the available for sale portfolio.

 

8


 

(4)                      Loans and Leases

 

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

 

 

 

At

 

At

 

 

 

 

 

 

June 30,

 

December 31,

 

 

Percentage

 

(Dollars in thousands)

 

2009

 

2008

 

 

Change

 

Consumer real estate and other:

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

First mortgage liens

 

$

4,940,904

 

$

4,881,662

 

 

   1.2%

 

Junior liens

 

2,338,647

 

2,420,116

 

 

(3.4)

 

Total consumer real estate

 

7,279,551

 

7,301,778

 

 

(0.3)

 

Other

 

60,573

 

61,805

 

 

(2.0)

 

Total consumer real estate and other

 

7,340,124

 

7,363,583

 

 

(0.3)

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

2,888,080

 

2,693,085

 

 

7.2

 

Construction and development

 

267,318

 

291,071

 

 

(8.2)

 

Total commercial real estate

 

3,155,398

 

2,984,156

 

 

5.7

 

Commercial business

 

487,083

 

506,887

 

 

(3.9)

 

Total commercial

 

3,642,481

 

3,491,043

 

 

4.3

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

 

Equipment finance loans (2)

 

865,970

 

789,869

 

 

9.6

 

Lease financings:

 

 

 

 

 

 

 

 

Direct financing leases (2)

 

2,101,174

 

1,813,254

 

 

15.9  

 

Sales-type leases

 

19,713

 

22,095

 

 

(10.8)  

 

Lease residuals

 

58,277

 

52,906

 

 

10.2  

 

Unearned income

 

(222,276

)

(192,042

)

 

(15.7)  

 

Total lease financings

 

1,956,888

 

1,696,213

 

 

15.4  

 

Total leasing and equipment finance

 

2,822,858

 

2,486,082

 

 

13.5  

 

Inventory finance

 

157,193

 

4,425

 

 

N.M.  

 

Total loans and leases

 

$

13,962,656

 

$

13,345,133

 

 

4.6

 

(1)               Operating leases of $53.1 million at June 30, 2009 and $58.8 million at December 31, 2008 are included in other assets on the Consolidated Statements of Financial Condition.

(2)               Included in these amounts is a total of $13.8 million of non-accretable credit valuation reserves, which was recorded as a result of a portfolio purchase.

N.M. Not Meaningful.

 

9


 

(5)                      Long-term Borrowings

 

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

 

 

 

 

 

At June 30, 2009

 

At December 31, 2008

 

 

 

 

 

 

 

 

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%

 

 

 

2010

 

100,000

 

 

6.02

 

100,000

 

 

6.02

 

 

 

2011

 

300,000

 

 

4.64

 

300,000

 

 

4.64

 

 

 

2015

 

900,000

 

 

4.18

 

900,000

 

 

4.18

 

 

 

2016

 

1,100,000

 

 

4.49

 

1,100,000

 

 

4.49

 

 

 

2017

 

1,250,000

 

 

4.60

 

1,250,000

 

 

4.60

 

 

 

2018

 

300,000

 

 

3.51

 

300,000

 

 

3.51

 

Sub-total

 

 

 

3,950,000

 

 

4.43

 

4,067,000

 

 

4.45

 

Subordinated bank notes

 

2014

 

71,020

 

 

2.26

 

74,917

 

 

5.27

 

 

 

2015

 

49,878

 

 

5.37

 

49,790

 

 

5.37

 

 

 

2016

 

74,489

 

 

5.63

 

74,457

 

 

5.63

 

Sub-total

 

 

 

195,387

 

 

4.34

 

199,164

 

 

5.43

 

Junior subordinated notes (trust preferred)

 

2068

 

110,441

 

 

11.20  

 

110,440

 

 

11.20  

 

Discounted lease rentals

 

2009

 

12,677

 

 

6.35

 

25,104

 

 

6.38

 

 

 

2010

 

19,577

 

 

6.33

 

17,077

 

 

6.29

 

 

 

2011

 

11,231

 

 

6.47

 

8,976

 

 

6.34

 

 

 

2012

 

5,628

 

 

6.56

 

4,059

 

 

6.47

 

 

 

2013

 

1,196

 

 

7.00

 

1,118

 

 

6.94

 

 

 

2014

 

9

 

 

  —

 

9

 

 

7.73

 

Sub-total

 

 

 

50,318

 

 

6.41

 

56,343

 

 

6.36

 

Other borrowings

 

2009

 

952

 

 

5.00

 

966

 

 

5.00

 

Total long-term borrowings

 

 

 

$

4,307,098

 

 

4.62

 

$

4,433,913

 

 

4.69

 

 

Included in FHLB advances and repurchase agreements at June 30, 2009 are $600 million of fixed-rate FHLB advances and repurchase agreements, which are callable quarterly by counterparties at par until maturity.  In addition, TCF has $1.9 billion of FHLB advances and $700 million of repurchase agreements which contain one-time call provisions for various years from 2009 through 2011.

 

The probability that the advances and repurchase agreements will be called by the counterparties depends primarily on the level of related interest rates at the call date. 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 next call year and stated maturity year for the callable FHLB advances and repurchase agreements outstanding at June 30, 2009 were as follows.

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Year

 

Next Call

 

 

Weighted-
Average Rate

 

Stated Maturity

 

 

Weighted-
Average Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

$

1,300,000

 

 

4.50

%

$

 

 

%

2010

 

1,450,000

 

 

4.56

 

100,000

 

 

6.02

 

2011

 

400,000

 

 

3.84

 

200,000

 

 

4.85

 

2015

 

 

 

 

500,000

 

 

4.15

 

2016

 

 

 

 

800,000

 

 

4.43

 

2017

 

 

 

 

1,250,000

 

 

4.60

 

2018

 

 

 

 

300,000

 

 

3.51

 

Total

 

$

3,150,000

 

 

4.44

 

$

3,150,000

 

 

4.44

 

 

10


 

(6)                      Stockholders’ Equity

 

Treasury stock and other consists of the following.

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2009

 

2008

 

Treasury stock, at cost

 

$

(51,110

)

$

(88,404

)

Shares held in trust for deferred
compensation plans, at cost

 

(20,847

)

(22,240

)

Total

 

$

(71,957

)

$

(110,644

)

 

On April 22, 2009, TCF redeemed all of the 361,172 outstanding shares of its Fixed-Rate Cumulative Perpetual Preferred Stock, Series A, $.01 Par Value.  Since receiving the Capital Purchase Program funds on November 14, 2008, TCF paid the U.S. Department of the Treasury $7.9 million in cash dividends.  Upon redemption, the difference of $12 million between the preferred stock redemption amount and the recorded amount was charged to retained earnings as a non-cash deemed preferred stock dividend.  This non-cash deemed preferred stock dividend had no impact on total stockholders equity, but reduced earnings per diluted common share by 10 cents.  Additionally, TCF recorded preferred stock dividends of $1.2 million, or 1 cent per common share, and $5.2 million, or 4 cents per common share, in the second and first quarters of 2009, respectively.  The warrant issued to the U.S. Treasury under the Capital Purchase Program has not been repurchased and TCF has requested the U.S. Treasury to liquidate it, as required by law.

 

TCF continues to be well-capitalized based on the capital requirements determined by the Federal Reserve Board and the Office of the Comptroller of the Currency.  See Note 10 of Notes to Consolidated Financial Statements for additional information on TCF’s capital position and requirements.

 

(7)                      Fair Value Measurement

 

TCF determines fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements.  SFAS 157 defines fair value and establishes a consistent framework for measuring fair value under generally accepted accounting principles 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 willing market participants at the measurement date.

 

11


 

The table below presents the balances of assets measured at fair value on a recurring basis.

 

 

 

Readily Available

 

Observable Market

 

Company Determined

 

Total at

 

(In thousands)

 

Market Prices (1)

 

Prices (2)

 

Market Prices (3)

 

Fair Value

 

At June 30, 2009:

    

 

    

 

    

 

    

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

U.S. Government agencies and corporations:

 

 

 

 

 

 

 

 

 

Agency guaranteed mortgage-backed securities

 

    $

 

    $

1,484,496

 

    $

 

$

1,484,496

 

Agency debentures

 

 

602,381

 

 

602,381

 

Other securities

 

 

 

529

 

529

 

Assets held in trust for deferred compensation plans (4)

 

5,866

 

 

 

5,866

 

Total assets

 

    $

5,866

 

    $

2,086,877

 

    $

529

 

$

2,093,272

 

At December 31, 2008:

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

U.S. Government agency and corporations guaranteed mortgage-backed securities

 

    $

 

    $

1,965,555

 

    $

 

$

1,965,555

 

Other securities

 

 

 

549

 

549

 

Assets held in trust for deferred compensation plans (4)

 

5,516

 

 

 

5,516

 

Total assets

 

    $

5,516

 

    $

1,965,555

 

    $

549

 

$

1,971,620

 

(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 assumptions that are not observable in an active market.

(4) An equal and 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 assets measured at fair value on a recurring basis during the three months ended June 30, 2009 and 2008 was not significant.

 

Effective January 1, 2009, TCF adopted FASB Staff Position 157-2, Effective Date of SFAS No. 157, which requires TCF to apply the provisions of SFAS 157 to non-financial assets and liabilities measured on a non-recurring basis.

 

The following is a description of valuation methodologies used for assets measured on a non-recurring basis.

 

Long-lived assets held for sale Long-lived assets held for sale include real estate owned and repossessed and returned equipment. The fair value of real estate owned is based on independent full appraisals, real estate broker’s price opinions, or automated valuation methods, less estimated selling costs.  Certain properties require assumptions that are not observable in an active market in the determination of fair value.  The fair value of repossessed and returned equipment is based on available pricing guides, auction results or third-party price opinions, less estimated selling costs.  Assets that are acquired through foreclosure, repossession or return are initially recorded at the lower of the loan or lease carrying amount or fair value less estimated selling costs at the time of transfer to real estate owned or repossessed and returned equipment.  Long-lived assets held for sale were written down $4.6 million, which is included in other non-interest expense, during the six months ended June 30, 2009.

 

12


 

The table below presents the balances of assets measured at fair value on a non-recurring basis at June 30, 2009.

 

 

 

Readily Available

 

Observable Market

 

Company Determined

 

Total at

 

(In thousands)

 

Market Prices (1)

 

Prices (2)

 

Market Prices (3)

 

Fair Value

 

Other assets (4):

    

 

    

 

    

 

    

 

 

Real estate owned

 

    $

 

    $

50,333

 

    $

3,675

 

$

54,008

 

Repossessed and returned equipment

 

 

14,637

 

 

14,637

 

Total other assets

 

    $

 

    $

64,970

 

    $

3,675

 

$

68,645

 

(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 assumptions that are not observable in an active market.

(4) Amounts do not include assets held at cost at June 30, 2009.

 

(8)                      Fair Values of Financial Instruments

 

TCF is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value.  These fair value estimates are based on relevant market information and information about the financial instruments.  Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled.  However, given there is no active market or observable market transactions for many of TCF’s financial instruments, the Company has made many estimates of fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimated values.  The fair value estimates are determined in accordance with SFAS 157.

 

13


 

The carrying amounts and fair values of the Company’s financial instruments are set forth in the following table.  This information represents only a portion of TCF’s balance sheet and the estimated value of the Company as a whole.  Non-financial instruments such as the value of TCF’s branches and core deposits, leasing operations and the future revenues from TCF’s customers are not reflected in this disclosure.  Therefore, use of this information to assess the value of TCF is limited.

 

 

 

At June 30,

 

At December 31,

 

 

 

2009

 

2008

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

(In thousands)

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Financial instrument assets:

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

431,328

 

$

431,328

 

$

342,380

 

$

342,380

 

Investments

 

166,770

 

166,766

 

155,725

 

155,725

 

Education loans held for sale

 

 

 

757

 

757

 

Securities available for sale

 

2,087,406

 

2,087,406

 

1,966,104

 

1,966,104

 

Loans:

 

 

 

 

 

 

 

 

 

Consumer real estate and other

 

7,340,124

 

7,121,770

 

7,363,583

 

7,198,927

 

Commercial real estate

 

3,155,398

 

3,009,203

 

2,984,156

 

2,860,293

 

Commercial business

 

487,083

 

466,572

 

506,887

 

488,821

 

Equipment finance loans

 

865,970

 

866,230

 

789,869

 

790,970

 

Inventory finance loans

 

157,193

 

156,897

 

4,425

 

4,425

 

Allowance for loan losses (1)

 

(193,445

)

 

(172,442

)

 

Total financial instrument assets

 

$

14,497,827

 

$

14,306,172

 

$

13,941,444

 

$

13,808,402

 

Financial instrument liabilities:

 

 

 

 

 

 

 

 

 

Checking, savings and money market deposits

 

$

9,732,666

 

$

9,732,666

 

$

7,647,069

 

$

7,647,069

 

Certificates of deposit

 

1,886,387

 

1,897,362

 

2,596,283

 

2,612,874

 

Short-term borrowings

 

25,829

 

25,829

 

226,861

 

226,861

 

Long-term borrowings

 

4,307,098

 

4,612,038

 

4,433,913

 

4,964,682

 

Total financial instrument liabilities

 

$

15,951,980

 

$

16,267,895

 

$

14,904,126

 

$

15,451,486

 

Financial instruments with off-balance-sheet risk: (2)

 

 

 

 

 

 

 

 

 

Commitments to extend credit (3)

 

$

37,748

 

$

37,748

 

$

38,730

 

$

38,730

 

Standby letters of credit (4)

 

(69

)

(69

)

(105

)

(105

)

Total financial instruments with off-balance-sheet risk

 

$

37,679

 

$

37,679

 

$

38,625

 

$

38,625

 

(1) Expected credit losses are included in the estimated fair values.

(2) Positive amounts represent assets, negative amounts represent liabilities.

(3) Carrying amounts are included in other assets.

(4) Carrying amounts are included in accrued expenses and other liabilities.

 

The carrying amounts of cash and due from banks and accrued interest payable and receivable approximate their fair values due to the short period of time until their expected realization.  Securities available for sale and assets held in trust for deferred compensation plans are carried at fair value.  Certain financial instruments, including lease financings, discounted lease rentals and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements.  The following methods and assumptions are used by the Company in estimating fair value for its remaining financial instruments, all of which are issued or held for purposes other than trading.

 

Investments Short-term investments approximate their fair values due to the short period of time until their realization.  The carrying value of investments in FHLB stock and FRB stock approximates fair value.  The fair value of other investments is estimated based on discounting cash flows at current market rates and consideration of credit exposure.

 

Loans The fair value of loans is estimated based on discounted expected cash flows.  These cash flows include assumptions for prepayment estimates over the loans’ remaining life, considerations for the current interest rate environment compared to the weighted average rate of each portfolio, a credit risk component based on the historical and expected performance of each portfolio and a liquidity adjustment related to the current market environment.

 

14


 

Deposits The fair value of checking, savings and money market deposits is deemed equal to the amount payable on demand.  The fair value of certificates of deposit is estimated based on discounted cash flow analyses using offered market rates.  The intangible value of long-term relationships with depositors is not taken into account in the fair values disclosed.

 

Borrowings The carrying amounts of short-term borrowings approximate their fair values.  The fair values of TCF’s long-term borrowings are estimated based on observable market prices and discounted cash flow analyses using interest rates for borrowings of similar remaining maturities and characteristics.

 

Financial Instruments with Off-Balance Sheet Risk The fair value of TCF’s commitments to extend credit and standby letters of credit are estimated using fees currently charged to enter into similar agreements as commitments and standby letters of credit similar to TCF’s are not actively traded.  Substantially all commitments to extend credit and standby letters of credit have floating rates and do not expose TCF to interest rate risk; therefore fair value is approximately equal to carrying value.

 

(9)                      Stock Compensation

 

The following table reflects TCF’s restricted stock transactions under the TCF Financial Incentive Stock Program since December 31, 2008.

 

 

 

Restricted Stock

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Shares

 

Grant Date Fair Value

 

 

 

 

 

Outstanding at December 31, 2008

 

1,887,517

 

 

 

$

21.00

 

 

 

 

 

Granted

 

547,150

 

 

 

9.65