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Section 1: 10-Q (10-Q)

Table of Contents

 

 

 

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, 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 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

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

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

 

 

 

Outstanding at

Class

 

July 15, 2010

Common Stock, $.01 par value

 

142,373,638 shares

 

 

 



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

 

Pages

 

 

 

Part I. Financial Information

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition at June 30, 2010 and December 31, 2009

 

3

 

 

 

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009

 

4

 

 

 

Consolidated Statements of Equity for the Six Months Ended June 30, 2010 and 2009

 

5

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009

 

6

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

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

 

22

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

45

 

 

 

Item 4. Controls and Procedures

 

46

 

 

 

Supplementary Information

 

48

 

 

 

Part II. Other Information

 

 

 

 

 

Items 1-6

 

49

 

 

 

Signatures

 

51

 

 

 

Index to Exhibits

 

52

 

2



Table of Contents

 

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(Dollars in thousands, except per-share data)

 

2010

 

2009

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

387,675

 

$

299,127

 

Investments

 

159,576

 

163,692

 

Securities available for sale

 

1,940,331

 

1,910,476

 

Loans and leases:

 

 

 

 

 

Consumer real estate and other

 

7,289,499

 

7,331,991

 

Commercial real estate

 

3,341,155

 

3,269,003

 

Commercial business

 

364,761

 

449,516

 

Leasing and equipment finance

 

3,000,239

 

3,071,429

 

Inventory finance

 

644,239

 

468,805

 

Total loans and leases

 

14,639,893

 

14,590,744

 

Allowance for loan and lease losses

 

(251,643

)

(244,471

)

Net loans and leases

 

14,388,250

 

14,346,273

 

Premises and equipment, net

 

447,266

 

447,930

 

Goodwill

 

152,599

 

152,599

 

Other assets

 

554,348

 

565,078

 

Total assets

 

$

18,030,045

 

$

17,885,175

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,406,752

 

$

4,400,290

 

Savings

 

5,498,535

 

5,339,955

 

Money market

 

633,255

 

640,569

 

Certificates of deposit

 

984,501

 

1,187,505

 

Total deposits

 

11,523,043

 

11,568,319

 

Short-term borrowings

 

14,805

 

244,604

 

Long-term borrowings

 

4,600,820

 

4,510,895

 

Total borrowings

 

4,615,625

 

4,755,499

 

Accrued expenses and other liabilities

 

416,841

 

381,602

 

Total liabilities

 

16,555,509

 

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; 142,547,564 and 130,339,500 shares issued

 

1,425

 

1,303

 

Additional paid-in capital

 

451,440

 

297,429

 

Retained earnings, subject to certain restrictions

 

1,011,497

 

946,002

 

Accumulated other comprehensive income (loss)

 

25,046

 

(18,545

)

Treasury stock at cost, 186,504 and 1,136,688 shares, and other

 

(26,475

)

(50,827

)

Total TCF Financial Corporation stockholders’ equity

 

1,462,933

 

1,175,362

 

Non-controlling interest in subsidiaries

 

11,603

 

4,393

 

Total equity

 

1,474,536

 

1,179,755

 

Total liabilities and equity

 

$

18,030,045

 

$

17,885,175

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In thousands, except per-share data)

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

221,913

 

$

215,400

 

$

443,177

 

$

424,777

 

Securities available for sale

 

21,065

 

23,217

 

42,472

 

48,918

 

Investments and other

 

1,236

 

1,137

 

2,377

 

1,993

 

Total interest income

 

244,214

 

239,754

 

488,026

 

475,688

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

16,281

 

33,345

 

33,885

 

73,429

 

Borrowings

 

51,434

 

49,946

 

102,980

 

100,383

 

Total interest expense

 

67,715

 

83,291

 

136,865

 

173,812

 

Net interest income

 

176,499

 

156,463

 

351,161

 

301,876

 

Provision for credit losses

 

49,013

 

61,891

 

99,504

 

105,603

 

Net interest income after provision for credit losses

 

127,486

 

94,572

 

251,657

 

196,273

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

77,845

 

77,536

 

144,017

 

134,600

 

Card revenue

 

28,591

 

26,604

 

55,663

 

51,564

 

ATM revenue

 

7,844

 

7,973

 

14,866

 

15,571

 

Subtotal

 

114,280

 

112,113

 

214,546

 

201,735

 

Leasing and equipment finance

 

20,528

 

16,881

 

40,880

 

29,532

 

Other

 

1,235

 

820

 

3,690

 

1,278

 

Fees and other revenue

 

136,043

 

129,814

 

259,116

 

232,545

 

Gains (losses) on securities, net

 

(137

)

10,556

 

(567

)

22,104

 

Total non-interest income

 

135,906

 

140,370

 

258,549

 

254,649

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

86,983

 

90,752

 

175,208

 

176,942

 

Occupancy and equipment

 

31,311

 

31,527

 

63,492

 

63,574

 

Deposit account premiums

 

5,478

 

7,287

 

12,276

 

13,863

 

FDIC premiums

 

5,219

 

4,941

 

10,700

 

8,736

 

Advertising and marketing

 

3,734

 

4,134

 

6,554

 

8,579

 

Other

 

35,053

 

36,080

 

69,463

 

67,889

 

Subtotal

 

167,778

 

174,721

 

337,693

 

339,583

 

Operating lease depreciation

 

9,812

 

3,860

 

19,852

 

7,884

 

Foreclosed real estate and repossessed assets, net

 

8,756

 

6,390

 

18,016

 

10,888

 

Other credit costs, net

 

2,723

 

3,213

 

5,310

 

4,037

 

FDIC special assessment

 

 

8,362

 

 

8,362

 

Total non-interest expense

 

189,069

 

196,546

 

380,871

 

370,754

 

Income before income tax expense

 

74,323

 

38,396

 

129,335

 

80,168

 

Income tax expense

 

28,112

 

14,853

 

48,902

 

29,978

 

Income after income tax expense

 

46,211

 

23,543

 

80,433

 

50,190

 

Income attributable to non-controlling interest

 

1,186

 

 

1,487

 

 

Net income

 

45,025

 

23,543

 

78,946

 

50,190

 

Preferred stock dividends

 

 

1,193

 

 

6,378

 

Non-cash deemed preferred stock dividend

 

 

12,025

 

 

12,025

 

Net income available to common stockholders

 

$

45,025

 

$

10,325

 

$

78,946

 

$

31,787

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.32

 

$

.08

 

$

.58

 

$

.25

 

Diluted

 

$

.32

 

$

.08

 

$

.58

 

$

.25

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.05

 

$

.05

 

$

.10

 

$

.30

 

 

See accompanying notes to consolidated financial statements.

 

4


 

 


Table of Contents

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after income tax expense

 

 

 

 

 

50,190

 

 

 

50,190

 

 

50,190

 

Other comprehensive income (loss)

 

 

 

 

 

 

(11,604

)

 

(11,604

)

 

(11,604

)

Comprehensive income (loss)

 

 

 

 

 

50,190

 

(11,604

)

 

38,586

 

 

38,586

 

Dividends on preferred stock

 

 

710

 

 

 

(6,378

)

 

 

(5,668

)

 

(5,668

)

Dividends on common stock

 

 

 

 

 

(38,068

)

 

 

(38,068

)

 

(38,068

)

Non-cash deemed preferred stock dividend

 

 

12,025

 

 

 

(12,025

)

 

 

 

 

 

Redemption of preferred stock

 

 

(361,172

)

 

 

 

 

 

(361,172

)

 

(361,172

)

Grants of restricted stock, 547,150 shares

 

 

 

 

(14,169

)

 

 

14,169

 

 

 

 

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

 

 

 

 

(10,128

)

 

 

20,696

 

10,568

 

 

10,568

 

Exercise of stock options, 93,800 shares

 

 

 

 

(1,105

)

 

 

2,429

 

1,324

 

 

1,324

 

Cancellation of shares of restricted stock

 

(433,450

)

 

(4

)

(251

)

154

 

 

 

(101

)

 

 

(101

)

Cancellation of common shares for tax withholding

 

(6,977

)

 

 

(93

)

 

 

 

(93

)

 

(93

)

Amortization of stock compensation

 

 

 

 

4,347

 

 

 

 

4,347

 

 

4,347

 

Stock compensation tax expense

 

 

 

 

(964

)

 

 

 

(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

 

$

 

$

1,142,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

80,433

 

 

 

80,433

 

 

80,433

 

Income attributable to non-controlling interest

 

 

 

 

 

(1,487

)

 

 

(1,487

)

1,487

 

 

Other comprehensive income

 

 

 

 

 

 

43,591

 

 

43,591

 

 

43,591

 

Comprehensive income

 

 

 

 

 

78,946

 

43,591

 

 

122,537

 

1,487

 

124,024

 

Public offering of common stock

 

12,322,250

 

 

124

 

164,443

 

 

 

 

164,567

 

 

164,567

 

Investment by non-controlling interest

 

 

 

 

 

 

 

 

 

5,723

 

5,723

 

Dividends on common stock

 

 

 

 

 

(13,472

)

 

 

(13,472

)

 

(13,472

)

Grants of restricted stock, 309,913 shares

 

 

 

 

(8,025

)

 

 

8,025

 

 

 

 

Treasury shares sold to TCF employee benefit plans, 640,271 shares

 

 

 

 

(6,727

)

 

 

16,580

 

9,853

 

 

9,853

 

Cancellation of shares of restricted stock

 

(10,250

)

 

 

(145

)

21

 

 

 

(124

)

 

(124

)

Cancellation of common shares for tax withholding

 

(103,936

)

 

(2

)

(1,430

)

 

 

 

(1,432

)

 

(1,432

)

Amortization of stock compensation

 

 

 

 

4,751

 

 

 

 

4,751

 

 

4,751

 

Stock compensation tax benefits

 

 

 

 

891

 

 

 

 

891

 

 

891

 

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

 

 

 

 

253

 

 

 

(253

)

 

 

 

Balance, June 30, 2010

 

142,547,564

 

$

 

$

1,425

 

$

451,440

 

$

1,011,497

 

$

25,046

 

$

(26,475

)

$

1,462,933

 

$

11,603

 

$

1,474,536

 

 

See accompanying notes to consolidated financial statements.

 

5


 

 


Table of Contents

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

(In thousands)

 

2010

 

2009

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

78,946

 

$

50,190

 

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

 

 

 

 

 

Provision for credit losses

 

99,504

 

105,603

 

Depreciation and amortization

 

44,380

 

31,360

 

Net increase in other assets and accrued expenses and other liabilities

 

24,772

 

41,977

 

Gains on sales of assets, net

 

 

(22,305

)

Other, net

 

5,008

 

5,859

 

Total adjustments

 

173,664

 

162,494

 

Net cash provided by operating activities

 

252,610

 

212,684

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

2,432,108

 

1,524,050

 

Originations and purchases of loans

 

(2,337,852

)

(1,608,492

)

Purchases of equipment for lease financing

 

(381,130

)

(392,613

)

Purchase of leasing and equipment finance portfolios

 

 

(279,592

)

Purchase of inventory finance portfolios

 

 

(42,871

)

Proceeds from sales of securities available for sale

 

 

1,097,711

 

Purchases of securities available for sale

 

(91,397

)

(1,307,052

)

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

 

127,868

 

218,699

 

Purchases of Federal Home Loan Bank stock

 

(2,225

)

 

Redemption of Federal Home Loan Bank stock

 

11,135

 

 

Proceeds from sales of real estate owned

 

51,494

 

22,864

 

Purchases of premises and equipment

 

(19,407

)

(20,667

)

Other, net

 

15,089

 

2,167

 

Net cash used by investing activities

 

(194,317

)

(785,796

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

(45,276

)

1,375,701

 

Net decrease in short-term borrowings

 

(229,799

)

(201,032

)

Proceeds from long-term borrowings

 

154,745

 

9,879

 

Payments on long-term borrowings

 

(21,954

)

(131,642

)

Net proceeds from public offering of common stock

 

164,567

 

 

Redemption of preferred stock

 

 

(361,172

)

Net investment in non-controlling interest

 

5,723

 

 

Dividends paid on common stock

 

(13,472

)

(38,068

)

Dividends paid on preferred stock

 

 

(7,925

)

Treasury shares sold to TCF employee benefit plans

 

9,853

 

10,568

 

Other, net

 

5,868

 

5,751

 

Net cash provided by financing activities

 

30,255

 

662,060

 

Net increase in cash and due from banks

 

88,548

 

88,948

 

Cash and due from banks at beginning of period

 

299,127

 

342,380

 

Cash and due from banks at end of period

 

$

387,675

 

$

431,328

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid (refunded) for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

131,088

 

$

176,601

 

Income taxes

 

$

36,332

 

$

(3,542

)

Transfer of loans and leases to other assets

 

$

97,287

 

$

92,954

 

 

See accompanying notes to consolidated financial statements.

 

6


 

 


Table of Contents

 

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

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2010

 

2009

 

Federal Home Loan Bank stock, at cost:

 

 

 

 

 

Des Moines

 

$

119,106

 

$

128,016

 

Chicago

 

4,617

 

4,617

 

Subtotal

 

123,723

 

132,633

 

Federal Reserve Bank stock, at cost

 

28,132

 

22,972

 

Other

 

7,721

 

8,087

 

Total investments

 

$

159,576

 

$

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 their regulator, the Federal Housing Finance Agency.

 

During the second quarter and first six months of 2010, TCF recorded impairment charges of $137 thousand and $241 thousand, respectively, on other investments, which had a carrying value of $7.7 million at June 30, 2010, as full recovery is not expected.

 

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Table of Contents

 

(3)                      Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

At June 30, 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

 

$

1,851,253

 

$

70,292

 

$

 

$

1,921,545

 

$

1,903,201

 

$

21,138

 

$

19,130

 

$

1,905,209

 

Other

 

235

 

 

 

235

 

263

 

 

 

263

 

U.S. Treasury Bills

 

14,993

 

2

 

 

14,995

 

 

 

 

 

Other securities

 

4,457

 

 

901

 

3,556

 

4,783

 

221

 

 

5,004

 

Total

 

$

1,870,938

 

$

70,294

 

$

901

 

$

1,940,331

 

$

1,908,247

 

$

21,359

 

$

19,130

 

$

1,910,476

 

Weighted-average yield

 

4.48

%

 

 

 

 

 

 

4.54

%

 

 

 

 

 

 

 

At both June 30, 2010 and December 31, 2009, TCF had $1.8 billion of mortgage-backed securities pledged as collateral to secure certain borrowings and deposits.

 

During the first six months of 2010, TCF recorded an impairment charge of $326 thousand on other securities, which had a fair value of $3.6 million at June 30, 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 lower values for equity securities or 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 June 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Other securities

 

$

3,556

 

$

901

 

$

 

$

 

$

3,556

 

$

901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 June 30, 2010, by contractual maturity, are shown below.

 

 

 

Amortized

 

 

 

(In thousands)

 

Cost

 

Fair Value

 

Due in one year or less

 

$

15,045

 

$

15,046

 

Due in 1-5 years

 

228

 

229

 

Due in 5-10 years

 

419

 

439

 

Due after 10 years

 

1,851,039

 

1,921,311

 

No stated maturity

 

4,207

 

3,306

 

Total

 

$

1,870,938

 

$

1,940,331

 

 

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Table of Contents

 

(4)                      Loans and Leases

 

The following table sets forth information about loans and leases.

 

 

 

At

 

At

 

 

 

 

 

June 30,

 

December 31,

 

Percentage

 

(Dollars in thousands)

 

2010

 

2009

 

Change

 

Consumer real estate and other:

 

 

 

 

 

 

 

Consumer real estate:

 

 

 

 

 

 

 

First mortgage lien

 

$

4,932,560

 

$

4,961,347

 

(.6

)%

Junior lien

 

2,307,428

 

2,319,222

 

(.5

)

Total consumer real estate

 

7,239,988

 

7,280,569

 

(.6

)

Other

 

49,511

 

51,422

 

(3.7

)

Total consumer real estate and other

 

7,289,499

 

7,331,991

 

(.6

)

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

3,129,435

 

3,016,518

 

3.7

 

Construction and development

 

211,720

 

252,485

 

(16.1

)

Total commercial real estate

 

3,341,155

 

3,269,003

 

2.2

 

Commercial business

 

364,761

 

449,516

 

(18.9

)

Total commercial

 

3,705,916

 

3,718,519

 

(.3

)

Leasing and equipment finance (1):

 

 

 

 

 

 

 

Equipment finance loans

 

883,642

 

868,830

 

1.7

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases

 

2,197,550

 

2,305,945

 

(4.7

)

Sales-type leases

 

24,310

 

24,714

 

(1.6

)

Lease residuals

 

110,179

 

106,391

 

3.6

 

Unearned income and deferred lease costs

 

(215,442

)

(234,451

)

8.1

 

Total lease financings

 

2,116,597

 

2,202,599

 

(3.9

)

Total leasing and equipment finance

 

3,000,239

 

3,071,429

 

(2.3

)

Inventory finance

 

644,239

 

468,805

 

37.4

 

Total loans and leases

 

$

14,639,893

 

$

14,590,744

 

.3

 

 


(1)          Operating leases of $92.5 million at June 30, 2010 and $105.9 million at December 31, 2009 are included in other assets in the Consolidated Statements of Financial Condition.

 

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Table of Contents

 

(5)                      Long-term Borrowings

 

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

 

 

 

 

 

At June 30, 2010

 

At December 31, 2009

 

 

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

Stated

 

 

 

Average

 

 

 

Average

 

(Dollars in thousands)

 

Maturity

 

Amount

 

Rate

 

Amount

 

Rate

 

FHLB 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

 

2.20

 

71,020

 

1.91

 

 

 

2015

 

50,000

 

2.13

 

49,969

 

5.37

 

 

 

2016

 

74,556

 

5.63

 

74,522

 

5.63

 

Sub-total

 

 

 

195,576

 

3.49

 

195,511

 

4.21

 

Junior subordinated notes (trust preferred)

 

2068

 

110,442

 

11.20

 

110,441

 

11.20

 

Senior unsecured term note

 

2012

 

89,581

 

3.90

 

 

 

Discounted lease rentals

 

2010

 

53,260

 

5.37

 

108,795

 

5.42

 

 

 

2011

 

83,143

 

5.40

 

69,420

 

5.55

 

 

 

2012

 

58,812

 

5.42

 

43,968

 

5.62

 

 

 

2013

 

35,435

 

5.37

 

25,657

 

5.72

 

 

 

2014

 

14,473

 

5.13

 

6,500

 

5.84

 

 

 

2015

 

4,506

 

5.01

 

402

 

5.89

 

 

 

2016

 

3,805

 

4.98

 

201

 

5.91

 

 

 

2017

 

1,787

 

4.98

 

 

 

Sub-total

 

 

 

255,221

 

5.36

 

254,943

 

5.53

 

Total long-term borrowings

 

 

 

$

4,600,820

 

4.59

 

$

4,510,895

 

4.65

 

 

Included in FHLB advances and repurchase agreements at June 30, 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 by TCF and have variable interest rates which reset quarterly.

 

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Table of Contents

 

The next call year and stated maturity year for the callable FHLB advances and repurchase agreements outstanding at June 30, 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

 

 

During the second quarter of 2010, TCF entered into a $90 million senior unsecured variable-rate term note maturing in July 2012.  The loan is prepayable and contains certain covenants common to such agreements.  TCF was not in default with respect to any covenants under the credit agreement at June 30, 2010.

 

(6)   Equity

 

Treasury stock and other consists of the following.

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2010

 

2009

 

Treasury stock, at cost

 

$

(4,830

)

$

(29,435

)

Shares held in trust for deferred compensation plans, at cost

 

(21,645

)

(21,392

)

Total

 

$

(26,475

)

$

(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 June 30, 2010, TCF had 5.4 million shares in its stock repurchase program authorized by its Board of Directors.

 

At June 30, 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 has a joint venture with The Toro Company (“Toro”) called Red Iron Acceptance, LLC (“Red Iron”). Red Iron provides financing for U.S. distributors and dealers and select Canadian distributors of the Toro and Exmark brands. 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.

 

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Table of Contents

 

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 since December 31, 2009 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, as well as an increase in retained earnings.

 

 

 

 

 

 

 

Minimum

 

Well-Capitalized

 

 

 

Actual

 

Capital Requirement

 

Capital Requirement

 

(Dollars in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of June 30, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

$

1,412,627

 

7.86

%

$

539,147

 

3.00

%

N.A.

 

N.A.

 

TCF National Bank

 

1,450,792

 

8.08

 

538,736

 

3.00

 

$

897,894

 

5.00

%

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,412,627

 

10.30

 

548,541

 

4.00

 

822,811

 

6.00

 

TCF National Bank

 

1,450,792

 

10.59

 

548,137

 

4.00

 

822,205

 

6.00

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF

 

1,742,705

 

12.71

 

1,097,081

 

8.00

 

1,371,351

 

10.00

 

TCF National Bank

 

1,780,745

 

12.99

 

1,096,273

 

8.00

 

1,370,342

 

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.

 

The minimum and well capitalized capital requirements are determined by the Federal Reserve Board for TCF and by the OCC for TCF National Bank.  At June 30, 2010, TCF and TCF National Bank exceeded their stated regulatory capital requirements and are considered “well-capitalized”.

 

Tier 1 common capital at June 30, 2010 was $1.3 billion, or 9.38%, 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 as well as an increase in retained earnings.

 

(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 June 30, 2010.

 

Securities Available for Sale At June 30, 2010, securities available for sale consisted primarily of U.S. Government sponsored enterprise securities. The fair value of mortgage backed securities and U.S. Treasury Bills are recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets, and are classified as Level 2 assets. Other securities, for which there is little or no market activity, are categorized as Level 3 assets. Other securities classified as Level 3 assets 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.  During the first six months of 2010, a $326 thousand impairment charge was recorded on other

 

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Table of Contents

 

securities available for sale and is included in gains (losses) on securities, net in the Consolidated Statements of Income.

 

Assets Held in Trust for Deferred Compensation At June 30, 2010, assets held in trust for deferred compensation plans included investments in publicly traded stocks, excluding TCF common stock reported in treasury and other in equity, 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 June 30, 2010:

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

 

$

1,921,545

 

$

 

$

1,921,545

 

Other

 

 

 

235

 

235

 

U.S. Treasury Bills

 

 

14,995

 

 

14,995

 

Other securities

 

 

 

3,556

 

3,556

 

Assets held in trust for deferred compensation plans (4)

 

7,599

 

 

 

7,599

 

Total assets

 

$

7,599

 

$

1,936,540

 

$

3,791

 

$

1,947,930

 

At December 31, 2009:

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

 

$

 

$

1,905,209

 

$

 

$

1,905,209

 

Other

 

 

 

262

 

262

 

Other securities

 

 

 

5,005

 

5,005

 

Assets held in trust for deferred compensation plans (4)

 

7,511

 

 

 

7,511

 

Total assets

 

$

7,511

 

$

1,905,209

 

$

5,267

 

$

1,917,987

 

 


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

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

(3)          Considered Level 3 under ASC 820, Fair Value Measurements and Disclosures and are 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 six months ended June 30, 2010 was not significant and there were no transfers between Levels 1, 2 or 3 during the six months ended June 30, 2010.

 

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

 

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Table of Contents

 

the time of transfer to real estate owned or repossessed and returned equipment.  Long-lived assets held for sale were written down $8.4 million, which is included in foreclosed real estate and repossessed assets, net expense, during the six months ended June 30, 2010.

 

The table below presents the balances of assets at June 30, 2010 and December 31, 2009 which were measured at fair value on a non-recurring basis for the six months ended June 30, 2010 and December 31, 2009, respectively.

 

(In thousands)

 

Readily Available
Market Prices (1)

 

Observable Market
Prices (2)

 

Company
Determined Market
Prices (3)

 

Total at Fair
Value

 

At June 30, 2010:

 

 

 

 

 

 

 

 

 

Loans (4)

 

$

 

$

 

$

129,886

 

$

129,886

 

Real estate owned (5)

 

 

831

 

100,673

 

101,504

 

Repossessed and returned equipment (5)