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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, 2010

 

or

 

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

of the Securities Exchange Act of 1934

 

Commission File Number:

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)

 

(952) 745-2760

(Registrant’s telephone number, including area code)

 

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
(Do not check if a smaller reporting company)

 

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.

 

 

 

Outstanding at

Class

 

April 21, 2010

Common Stock, $.01 par value

 

142,162,995 shares

 

 

 


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

Part I.

 

Financial Information

 

Pages

 

 

 

 

 

 

 

Item 1. Financial Statements.

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition
at March 31, 2010 and December 31, 2009

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three Months
Ended March 31, 2010 and 2009

 

4

 

 

 

 

 

 

 

Consolidated Statements of Equity for the
Three Months Ended March 31, 2010 and 2009

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2010 and 2009

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

 

20

 

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

40

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

41

 

 

 

 

 

 

 

Supplementary Information

 

42

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

 

 

Items 1-6

 

43

 

 

 

 

 

 

 

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

 

 

 

March 31,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2010

 

2009

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

533,020

 

$

299,127

 

Investments

 

154,625

 

163,692

 

Securities available for sale

 

1,899,825

 

1,910,476

 

Loans and leases:

 

 

 

 

 

Consumer real estate and other

 

7,295,765

 

7,331,991

 

Commercial real estate

 

3,281,179

 

3,269,003

 

Commercial business

 

421,554

 

449,516

 

Leasing and equipment finance

 

3,007,504

 

3,071,429

 

Inventory finance

 

700,421

 

468,805

 

Total loans and leases

 

14,706,423

 

14,590,744

 

Allowance for loan and lease losses

 

(250,430

)

(244,471

)

Net loans and leases

 

14,455,993

 

14,346,273

 

Premises and equipment, net

 

444,719

 

447,930

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

546,533

 

565,078

 

Total assets

 

$

18,187,314

 

$

17,885,175

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,601,984

 

$

4,400,290

 

Savings

 

5,499,835

 

5,339,955

 

Money market

 

672,894

 

640,569

 

Certificates of deposit

 

1,107,660

 

1,187,505

 

Total deposits

 

11,882,373

 

11,568,319

 

Short-term borrowings

 

17,590

 

244,604

 

Long-term borrowings

 

4,496,574

 

4,510,895

 

Total borrowings

 

4,514,164

 

4,755,499

 

Accrued expenses and other liabilities

 

397,160

 

381,602

 

Total liabilities

 

16,793,697

 

16,705,420

 

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; 142,560,181 and 130,339,500 shares issued

 

1,426

 

1,303

 

Additional paid-in capital

 

455,608

 

297,429

 

Retained earnings, subject to certain restrictions

 

973,513

 

946,002

 

Accumulated other comprehensive loss

 

(11,836

)

(18,545

)

Treasury stock at cost, 622,618 and 1,136,688 shares, and other

 

(36,891

)

(50,827

)

Total TCF Financial Corporation stockholders’ equity

 

1,381,820

 

1,175,362

 

Non-controlling interest in subsidiaries

 

11,797

 

4,393

 

Total equity

 

1,393,617

 

1,179,755

 

Total liabilities and equity

 

$

18,187,314

 

$

17,885,175

 

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)

 

2010

 

2009

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

Loans and leases

 

$

221,264

 

$

209,377

 

Securities available for sale

 

21,407

 

25,701

 

Investments and other

 

1,141

 

856

 

Total interest income

 

243,812

 

235,934

 

Interest expense:

 

 

 

 

 

Deposits

 

17,604

 

40,084

 

Borrowings

 

51,546

 

50,437

 

Total interest expense

 

69,150

 

90,521

 

Net interest income

 

174,662

 

145,413

 

Provision for credit losses

 

50,491

 

43,712

 

Net interest income after provision for
credit losses

 

124,171

 

101,701

 

Non-interest income:

 

 

 

 

 

Fees and service charges

 

66,172

 

57,064

 

Card revenue

 

27,072

 

24,960

 

ATM revenue

 

7,022

 

7,598

 

Subtotal

 

100,266

 

89,622

 

Leasing and equipment finance

 

20,352

 

12,651

 

Other

 

2,455

 

458

 

Fees and other revenue

 

123,073

 

102,731

 

Gains (losses) on securities, net

 

(430

)

11,548

 

Total non-interest income

 

122,643

 

114,279

 

Non-interest expense:

 

 

 

 

 

Compensation and employee benefits

 

88,225

 

86,190

 

Occupancy and equipment

 

32,181

 

32,047

 

Deposit account premiums

 

6,798

 

6,576

 

FDIC premiums

 

5,481

 

3,795

 

Advertising and marketing

 

2,820

 

4,445

 

Other

 

34,764

 

32,016

 

Subtotal

 

170,269

 

165,069

 

Operating lease depreciation

 

10,040

 

4,024

 

Foreclosed real estate and repossessed assets, net

 

8,906

 

4,291

 

Other credit costs, net

 

2,587

 

824

 

Total non-interest expense

 

191,802

 

174,208

 

Income before income tax expense

 

55,012

 

41,772

 

Income tax expense

 

20,790

 

15,125

 

Income after income tax expense

 

34,222

 

26,647

 

Income attributable to non-controlling interest

 

301

 

 

Net income

 

33,921

 

26,647

 

Preferred stock dividends

 

 

5,185

 

Net income available to common stockholders

 

$

33,921

 

$

21,462

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

Basic

 

$

.26

 

$

.17

 

Diluted

 

$

.26

 

$

.17

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.05

 

$

.25

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

4


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(Unaudited)

 

 

 

TCF Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

Non-

 

 

 

 

 

Common

 

Preferred

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

controlling

 

Total

 

(Dollars in thousands)

 

Shares Issued

 

Stock

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

and Other

 

Total

 

Interests

 

Equity

 

Balance, December 31, 2008

 

130,839,378

 

$

348,437

 

$

1,308

 

$

330,474

 

$

927,893

 

$

(3,692

)

$

(110,644

)

$

1,493,776

 

$

 

$

1,493,776

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

26,647

 

 

 

26,647

 

 

26,647

 

Other comprehensive income

 

 

 

 

 

 

8,083

 

 

8,083

 

 

8,083

 

Comprehensive income

 

 

 

 

 

26,647

 

8,083

 

 

34,730

 

 

34,730

 

Dividends on preferred stock

 

 

570

 

 

 

(5,185

)

 

 

(4,615

)

 

(4,615

)

Dividends on common stock

 

 

 

 

 

(31,715

)

 

 

(31,715

)

 

(31,715

)

Grants of restricted stock,
309,000 shares

 

 

 

 

(8,002

)

 

 

8,002

 

 

 

 

Treasury shares sold to TCF employee benefit plans, 517,242 shares

 

 

 

 

(6,772

)

 

 

13,395

 

6,623

 

 

6,623

 

Cancellation of shares of restricted stock

 

(421,450

)

 

(4

)

(76

)

122

 

 

 

42

 

 

 

42

 

Cancellation of common shares for tax withholding

 

(6,977

)

 

 

(93

)

 

 

 

(93

)

 

(93

)

Amortization of stock compensation

 

 

 

 

2,088

 

 

 

 

2,088

 

 

2,088

 

Exercise of stock options,
13,800 shares

 

 

 

 

(195

)

 

 

357

 

162

 

 

162

 

Stock compensation tax expense

 

 

 

 

(1,042

)

 

 

 

(1,042

)

 

(1,042

)

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

 

 

 

 

(1,357

)

 

 

1,357

 

 

 

 

Balance, March 31, 2009

 

130,410,951

 

$

349,007

 

$

1,304

 

$

315,025

 

$

917,762

 

$

4,391

 

$

(87,533

)

$

1,499,956

 

$

 

$

1,499,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

 

130,339,500

 

$

 

$

1,303

 

$

297,429

 

$

946,002

 

$

(18,545

)

$

(50,827

)

$

1,175,362

 

$

4,393

 

$

1,179,755

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after income tax expense

 

 

 

 

 

34,222

 

 

 

34,222

 

 

34,222

 

Income attributable to
non-controlling interest

 

 

 

 

 

(301

)

 

 

(301

)

301

 

 

Other comprehensive income

 

 

 

 

 

 

6,709

 

 

6,709

 

 

6,709

 

Comprehensive income

 

 

 

 

 

33,921

 

6,709

 

 

40,630

 

301

 

40,931

 

Public offering of common stock

 

12,322,250

 

 

124

 

164,443

 

 

 

 

164,567

 

 

164,567

 

Investment by non-controlling interest

 

 

 

 

 

 

 

 

 

7,103

 

7,103

 

Dividends on common stock

 

 

 

 

 

(6,418

)

 

 

(6,418

)

 

(6,418

)

Grants of restricted stock,
105,583 shares

 

 

 

 

(2,734

)

 

 

2,734

 

 

 

 

Treasury shares sold to TCF employee benefit plans, 408,487 shares

 

 

 

 

(4,640

)

 

 

10,578

 

5,938

 

 

5,938

 

Cancellation of shares of restricted stock

 

(3,750

)

 

 

(60

)

8

 

 

 

(52

)

 

(52

)

Cancellation of common shares for tax withholding

 

(97,819

)

 

(1

)

(1,331

)

 

 

 

(1,332

)

 

(1,332

)

Amortization of stock compensation

 

 

 

 

2,291

 

 

 

 

2,291

 

 

2,291

 

Stock compensation tax benefits

 

 

 

 

834

 

 

 

 

834

 

 

834

 

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

 

 

 

 

(624

)

 

 

624

 

 

 

 

Balance, March 31, 2010

 

142,560,181

 

$

 

$

1,426

 

$

455,608

 

$

973,513

 

$

(11,836

)

$

(36,891

)

$

1,381,820

 

$

11,797

 

$

1,393,617

 

See accompanying notes to consolidated financial statements.

 

5


 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2010

 

2009

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

33,921

 

$

26,647

 

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

 

 

 

 

 

Provision for credit losses

 

50,491

 

43,712

 

Depreciation and amortization

 

22,156

 

15,701

 

Net increase in other assets and
accrued expenses and other liabilities

 

18,927

 

3,269

 

Gains on sales of assets, net

 

 

(11,548

)

Other, net

 

2,984

 

2,487

 

Total adjustments

 

94,558

 

53,621

 

Net cash provided by operating activities

 

128,479

 

80,268

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

961,612

 

685,535

 

Originations and purchases of loans

 

(1,024,614

)

(710,652

)

Purchases of equipment for lease financing

 

(165,222

)

(181,798

)

Purchase of leasing and equipment finance portfolios

 

 

(277,404

)

Purchase of inventory finance portfolios

 

 

(42,871

)

Proceeds from sales of securities available for sale

 

 

522,359

 

Purchases of securities available for sale

 

(50,523

)

(552,676

)

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

 

69,841

 

106,835

 

Purchases of Federal Home Loan Bank stock

 

(2,224

)

 

Redemption of Federal Home Loan Bank stock

 

11,130

 

 

Proceeds from sales of real estate owned

 

28,171

 

14,521

 

Purchases of premises and equipment

 

(6,910

)

(10,092

)

Other, net

 

9,918

 

(3,783

)

Net cash used by investing activities

 

(168,821

)

(450,026

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

314,054

 

1,403,851

 

Net decrease in short-term borrowings

 

(227,014

)

(200,561

)

Proceeds from long-term borrowings

 

20,703

 

7,410

 

Payments on long-term borrowings

 

(9,277

)

(131,110

)

Net proceeds from public offering of common stock

 

164,567

 

 

Net change in non-controlling interest

 

7,103

 

 

Dividends paid on common stock

 

(6,418

)

(31,715

)

Dividends paid on preferred stock

 

 

(4,565

)

Stock compensation tax benefit (expense)

 

834

 

(1,042

)

Treasury shares sold to TCF employee benefit plans

 

5,938

 

6,623

 

Other, net

 

3,745

 

3,228

 

Net cash provided by financing activities

 

274,235

 

1,052,119

 

Net increase in cash and due from banks

 

233,893

 

682,361

 

Cash and due from banks at beginning of period

 

299,127

 

342,380

 

Cash and due from banks at end of period

 

$

533,020

 

$

1,024,741

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

67,322

 

$

92,057

 

Income taxes

 

$

148

 

$

1,386

 

Transfer of loans and leases to other assets

 

$

39,426

 

$

39,564

 

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, 2009 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.

 

(2)                      Investments

 

The carrying values of investments consist of the following.

 

 

 

At

 

At

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2010

 

2009

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

119,110

 

$

128,016

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

123,727

 

132,633

 

Federal Reserve Bank stock, at cost

 

22,984

 

22,972

 

Other

 

7,914

 

8,087

 

Total investments

 

$

154,625

 

$

163,692

 

 

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.

 

During the first quarter of 2010, TCF recorded an impairment charge of $104 thousand on other investments, which had a carrying value of $7.9 million at March 31, 2010, as full recovery is not expected.

 

7


 

(3)                      Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At March 31, 2010

 

At December 31, 2009

 

 

 

 

 

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

 

$

1,883,632

 

$

25,579

 

$

(14,195

)

$

1,895,016

 

$

1,903,201

 

$

21,138

 

$

(19,130

)

$

1,905,209

 

Other

 

255

 

 

 

255

 

263

 

 

 

263

 

Other securities

 

4,456

 

98

 

 

4,554

 

4,783

 

221

 

 

5,004

 

Total

 

$

1,888,343

 

$

25,677

 

$

(14,195

)

$

1,899,825

 

$

1,908,247

 

$

21,359

 

$

(19,130

)

$

1,910,476

 

Weighted-average yield

 

4.52

%

 

 

 

 

 

 

4.54

%

 

 

 

 

 

 

 

At March 31, 2010 and December 31, 2009, TCF had $1.75 billion of mortgage-backed securities pledged as collateral to secure certain borrowings and deposits.

 

During the first quarter of 2010, TCF recorded an impairment charge of $326 thousand on other securities, which had a fair value of $4.6 million at March 31, 2010, as full recovery is not expected.

 

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 occurs.

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

At March 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
enterprises and federal agancies

 

$

1,025,918

 

$

(14,195

)

$

 

$

 

$

1,025,918

 

$

(14,195

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
enterprises and federal agancies

 

$

1,082,197

 

$

(19,130

)

$

 

$

 

$

1,082,197

 

$

(19,130

)

 

The amortized cost and fair value of securities available for sale at March 31, 2010, by contractual maturity, are shown below.

 

 

 

Amortized

 

 

 

(In thousands)

 

Cost

 

Fair Value

 

Due in one year or less

 

$

52

 

$

52

 

Due in 1-5 years

 

245

 

247

 

Due in 5-10 years

 

444

 

466

 

Due after 10 years

 

1,883,396

 

1,894,756

 

No stated maturity

 

4,206

 

4,304

 

Total

 

$

1,888,343

 

$

1,899,825

 

 

8


 

(4)                      Loans and Leases

 

The following table sets forth information about loans and leases.

 

 

 

At

 

At

 

 

 

 

 

March 31,

 

December 31,

 

Percentage

 

(Dollars in thousands)

 

2010

 

2009

 

Change

 

Consumer real estate and other:

 

 

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

 

 

First mortgage lien

 

$

4,940,006

 

$

4,961,347

 

(0.4)%

 

Junior lien

 

2,307,038

 

2,319,222

 

(0.5)

 

Total consumer real estate

 

7,247,044

 

7,280,569

 

(0.5)

 

Other

 

48,721

 

51,422

 

(5.3)

 

Total consumer real estate and other

 

7,295,765

 

7,331,991

 

(0.5)

 

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

3,064,141

 

3,016,518

 

1.6

 

Construction and development

 

217,038

 

252,485

 

(14.0)  

 

Total commercial real estate

 

3,281,179

 

3,269,003

 

0.4

 

Commercial business

 

421,554

 

449,516

 

(6.2)

 

Total commercial

 

3,702,733

 

3,718,519

 

(0.4)

 

Leasing and equipment finance (1):

 

 

 

 

 

 

 

Equipment finance loans

 

865,701

 

868,830

 

(0.4)

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases

 

2,231,294

 

2,305,945

 

(3.2)

 

Sales-type leases

 

23,474

 

24,714

 

(5.0)

 

Lease residuals

 

107,047

 

106,391

 

0.6

 

Unearned income and deferred lease costs

 

(220,012

)

(234,451

)

(6.2)

 

Total lease financings

 

2,141,803

 

2,202,599

 

(2.8)

 

Total leasing and equipment finance

 

3,007,504

 

3,071,429

 

(2.1)

 

Inventory finance

 

700,421

 

468,805

 

49.4  

 

Total loans and leases

 

$

14,706,423

 

$

14,590,744

 

0.8

 

(1)     Operating leases of $99.1 million at March 31, 2010 and $105.9 million at December 31, 2009 are included in other assets in the Consolidated Statements of Financial Condition.

 

9


 

(5)                      Long-term Borrowings

 

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

 

 

 

 

 

At March 31, 2010

 

At December 31, 2009

 

 

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

Stated

 

 

 

Average

 

 

 

Average

 

(Dollars in thousands)

 

Maturity

 

Amount

 

Rate

 

Amount

 

Rate

 

Federal Home Loan Bank advances
and securities sold under repurchase agreements

 

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

 

3,950,000

 

4.43

 

Subordinated bank notes

 

2014

 

71,020

 

1.91

 

71,020

 

1.91

 

 

 

2015

 

50,000

 

1.84

 

49,969

 

5.37

 

 

 

2016

 

74,539

 

5.63

 

74,522

 

5.63

 

Sub-total

 

 

 

195,559

 

3.31

 

195,511

 

4.21

 

Junior subordinated notes (trust preferred)

 

2068

 

110,441

 

11.20  

 

110,441

 

11.20  

 

Discounted lease rentals

 

2010

 

76,691

 

5.43

 

108,795

 

5.42

 

 

 

2011

 

74,563

 

5.52

 

69,420

 

5.55

 

 

 

2012

 

49,666

 

5.58

 

43,968

 

5.62

 

 

 

2013

 

29,204

 

5.63

 

25,657

 

5.72

 

 

 

2014

 

9,592

 

5.63

 

6,500

 

5.84

 

 

 

2015

 

626

 

5.78

 

402

 

5.89

 

 

 

2016

 

232

 

5.66

 

201

 

5.91

 

Sub-total

 

 

 

240,574

 

5.52

 

254,943

 

5.53

 

Total long-term borrowings

 

 

 

$

4,496,574

 

4.60

 

$

4,510,895

 

4.65

 

 

Included in FHLB advances and repurchase agreements at March 31, 2010 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 $850 million of FHLB advances and $700 million of repurchase agreements which contain one-time call provisions in either 2010 or 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.  Subordinated bank notes with stated maturities in 2014 and 2015 are callable quarterly and have variable interest rates which reset quarterly.

 

The next call year and stated maturity year for the callable FHLB advances and repurchase agreements outstanding at March 31, 2010 were as follows.

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Year

 

Next Call

 

 

Weighted-
Average Rate

 

Stated Maturity

 

 

Weighted-
Average Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

$

1,750,000

 

 

4.59

%

$

100,000

 

 

6.02

%

2011

 

400,000

 

 

3.84

 

200,000

 

 

4.85

 

2015

 

 

 

 

500,000

 

 

4.15

 

2016

 

 

 

 

100,000

 

 

4.82

 

2017

 

 

 

 

950,000

 

 

4.62

 

2018

 

 

 

 

300,000

 

 

3.51

 

Total

 

$

2,150,000

 

 

4.45

 

$

2,150,000

 

 

4.45

 

 

10


 

(6)                      Equity

 

Treasury stock and other consists of the following.

 

 

 

At

 

At

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2010

 

2009

 

Treasury stock, at cost

 

$

(16,123

)

$

(29,435

)

Shares held in trust for deferred
compensation plans, at cost

 

(20,768

)

(21,392

)

Total

 

$

(36,891

)

$

(50,827

)

 

In February of 2010, TCF completed a public offering of common stock which raised net proceeds of $164.6 million through the issuance of 12,322,250 common shares.  At March 31, 2010, TCF had 5.4 million shares in its stock repurchase program authorized by its Board of Directors.

 

TCF has a joint venture with The Toro Company (“Toro”) called Red Iron Acceptance, LLC (“Red Iron”). Red Iron provides U.S. distributors and dealers and select Canadian distributors of the Toro and Exmark brands with reliable, cost-effective sources of financing. TCF and Toro maintain a 55% and 45% ownership interest, respectively, in Red Iron.  As TCF has a controlling financial interest in Red Iron, its financial results are consolidated in TCF’s financial statements.  Toro’s interest is reported as a non-controlling interest within equity and qualifies as Tier 1 regulatory capital.

 

At March 31, 2010, TCF had outstanding 3,199,988 warrants to purchase common stock with a strike price of $16.93 per share. The warrants are publicly traded on the New York Stock Exchange under the symbol “TCB WS”.

 

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 (“OCC”).  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.  Increases in tier 1 and total risk-based capital are primarily the result of TCF’s public offering of common stock in February of 2010, which raised net proceeds of $164.6 million.

 

 

 

 

 

Minimum

 

Well-Capitalized

 

 

 

Actual

 

Capital Requirement

 

Capital Requirement

 

(Dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of March 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

1,369,005

 

7.67

%

$

535,517

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

1,318,204

 

7.39

 

535,041

 

3.00

 

$

891,736

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,369,005

 

9.98

 

548,889

 

4.00

 

823,333

 

6.00

 

TCF National Bank

 

1,318,204

 

9.62

 

548,297

 

4.00

 

822,445

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,713,369

 

12.49

 

1,097,778

 

8.00

 

1,372,222

 

10.00

 

TCF National Bank

 

1,662,386

 

12.13

 

1,096,593

 

8.00

 

1,370,742

 

10.00

 

As of December 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

1,161,750

 

6.59

%

$

528,681

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

1,103,875

 

6.27

 

527,836

 

3.00

 

$

879,727

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,161,750

 

8.52

 

545,115

 

4.00

 

817,672

 

6.00

 

TCF National Bank

 

1,103,875

 

8.11

 

544,648

 

4.00

 

816,972

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,514,940

 

11.12

 

1,090,230

 

8.00

 

1,362,787

 

10.00

 

TCF National Bank

 

1,456,858

 

10.70

 

1,089,297

 

8.00

 

1,361,621

 

10.00

 

N.A. Not Applicable.

 

11


 

The minimum and well capitalized capital requirements are determined by the Federal Reserve Board for TCF and by the OCC for TCF National Bank pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.  At March 31, 2010, TCF and TCF National Bank exceeded their stated regulatory capital requirements and are considered “well-capitalized”.

 

Tier 1 common capital at March 31, 2010 was $1.2 billion, or 9.05%, of the risk-weighted assets, compared to $1 billion, or 7.65%, of risk-weighted assets at December 31, 2009.  The increase was primarily the result of TCF’s public offering of common stock in February of 2010.

 

(7)                      Fair Value Measurement

 

Fair values represent the estimated price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price”.

 

The following is a description of valuation methodologies used for assets recorded at fair value on a recurring basis at March 31, 2010.

 

Securities Available for Sale At March 31, 2010, securities available for sale consisted primarily of U.S. Government sponsored enterprise securities. The fair value of available for sale securities is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not a quoted market. The fair value of other securities for which there is little or no market activity, is categorized as Level 3. Other securities classified as Level 3 include equity investments in other thinly traded financial institutions and foreign debt securities. The fair value of these assets is determined by using quoted prices, when available and incorporating results of internal pricing techniques, which consider observable market information along with security specific information. A $326 thousand impairment charge was recorded on other securities available for sale during the quarter ended March 31, 2010 and is included in gains (losses) on securities, net.

 

Assets Held in Trust for Deferred Compensation At March 31, 2010, assets held in trust for deferred compensation plans included investments in publicly traded stocks, excluding common TCF stock held in treasury, and mutual funds. The fair value of these assets is based upon prices obtained from independent asset pricing services based on active markets.

 

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

 

 

 

Readily Available

 

Observable

 

Company Determined

 

Total at

 

(In thousands)

 

Market Prices (1)

 

Market Prices (2)

 

Market Prices (3)

 

Fair Value

 

At March 31, 2010:

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
enterprises and federal agencies

 

$

 

$

1,895,016

 

$

 

$

1,895,016

 

Other

 

 

 

255

 

255

 

Other securities

 

 

 

4,554

 

4,554

 

Assets held in trust for deferred
compensation plans (4)

 

8,352

 

 

 

8,352

 

Total assets

 

$

8,352

 

$

1,895,016

 

$

4,809

 

$

1,908,177

 

(1)          Considered Level 1 under FASC 820, Fair Value Measurements and Disclosures.

(2)          Considered Level 2 under FASC 820, Fair Value Measurements and Disclosures.

(3)          Considered Level 3 under FASC 820, Fair Value Measurements and Disclosures 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 assets measured at fair value on a recurring basis during the three months ended March 31, 2010 was not significant and there were no transfers between Levels 1, 2 or 3 during the three months ended March 31, 2010.

 

12


 

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

 

Loans Impaired loans for which repayment of the loan is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the fair value of such collateral.

 

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 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 $4.8 million, which is included in other non-interest expense, during the three months ended March 31, 2010.

 

The table below presents the balances of assets at March 31, 2010 which were measured at fair value on a non-recurring basis for the three months ended March 31, 2010.

 

(In thousands)

 

Readily Available
Market Prices (1)

 

Observable
Market Prices (2)

 

Company 
Determined Market
Prices (3)

 

Total at Fair
Value

 

Loans (4)

 

$

 

$

 

$

103,043

 

$

103,043

 

Real estate owned (5)

 

 

 

83,335

 

83,335

 

Repossessed and returned equipment (5)

 

 

13,772

 

84

 

13,856

 

Investments (6)

 

 

 

4,813

 

4,813

 

Total

 

$

 

$

13,772

 

$

191,275

 

$

205,047

 

(1)          Considered Level 1 under FASC 820, Fair Value Measurements and Disclosures.

(2)          Considered Level 2 under FASC 820, Fair Value Measurements and Disclosures.

(3)          Considered Level 3 under FASC 820, Fair Value Measurements and Disclosures and is based on valuation models that use assumptions that are not observable in an active market.

(4)          Represents the carrying value of loans for which adjustments are based on the appraisal value of the collateral.

(5)          Amounts do not include assets held at cost at March 31, 2010.

(6)          Represents the carrying value of other investments which were measured at fair value during the three months ended March 31, 2010.

 

(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 were made at March 31, 2010 and December 31, 2009 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.

 

13


 

The carrying amounts and fair values of the Company’s remaining financial instruments are set forth in the following table.  This information represents only a portion of TCF’s balance sheet and not 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 March 31,

 

At December 31,

 

 

 

2010

 

2009

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

(In thousands)

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Financial instrument assets:

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

533,020

 

$

533,020

 

$

299,127

 

$

299,127

 

Investments

 

154,625

 

154,625

 

163,692

 

163,692

 

Securities available for sale

 

1,899,825

 

1,899,825

 

1,910,476

 

1,910,476

 

Loans: