XNYS:TCB TCF Financial Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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, 2012

 

or

 

[  ] 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 [  ]

 

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 [  ]

 

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                  [   ]

Non-accelerated filer   [   ]  (Do not check if a smaller reporting company)

 

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 [   ]

 

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 19, 2012

Common Stock, $.01 par value

 

 

162,179,032  shares

 



TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

Part I. Financial Information

Pages

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition
March 31, 2012 and December 31, 2011

1

 

 

 

 

Consolidated Statements of Comprehensive Income for the
Three months ended March 31, 2012 and 2011

2

 

 

 

 

Consolidated Statements of Equity for the
Three months ended March 31, 2012 and 2011

3

 

 

 

 

Consolidated Statements of Cash Flows for the
Three months ended March 31, 2012 and 2011

4

 

 

 

 

Notes to Consolidated Financial Statements

5

 

 

 

 

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

30

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

52

 

 

 

 

Item 4. Controls and Procedures

53

 

 

 

 

Supplementary Information

54

 

 

 

Part II. Other Information

 

 

 

 

 

Items 1-6

55

 

 

 

 

Signatures

57

 

 

 

 

Index to Exhibits

58

 



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)

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

705,642

 

$

1,389,704

 

Investments

 

168,440

 

157,780

 

Securities available for sale

 

728,894

 

2,324,038

 

Loans and leases held for sale

 

1,918

 

14,321

 

Loans and leases:

 

 

 

 

 

Consumer real estate

 

6,815,909

 

6,895,291

 

Commercial

 

3,467,089

 

3,449,492

 

Leasing and equipment finance

 

3,118,755

 

3,142,259

 

Inventory finance

 

1,637,958

 

624,700

 

Auto finance

 

139,047

 

3,628

 

Other

 

29,178

 

34,885

 

Total loans and leases

 

15,207,936

 

14,150,255

 

Allowance for loan and lease losses

 

(265,293

)

(255,672

)

Net loans and leases

 

14,942,643

 

13,894,583

 

Premises and equipment, net

 

433,364

 

436,281

 

Goodwill

 

225,640

 

225,640

 

Other assets

 

626,916

 

537,041

 

Total assets

 

$

17,833,457

 

$

18,979,388

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,886,003

 

$

4,629,749

 

Savings

 

5,998,764

 

5,855,263

 

Money market

 

665,642

 

651,377

 

Certificates of deposit

 

1,208,631

 

1,065,615

 

Total deposits

 

12,759,040

 

12,202,004

 

Short-term borrowings

 

1,157,189

 

6,416

 

Long-term borrowings

 

1,962,053

 

4,381,664

 

Total borrowings

 

3,119,242

 

4,388,080

 

Accrued expenses and other liabilities

 

405,850

 

510,677

 

Total liabilities

 

16,284,132

 

17,100,761

 

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; 162,174,546 and 160,366,380 shares issued, respectively

 

1,622

 

1,604

 

Additional paid-in capital

 

736,288

 

715,247

 

Retained earnings, subject to certain restrictions

 

836,995

 

1,127,823

 

Accumulated other comprehensive income

 

3,273

 

56,826

 

Treasury stock at cost, 42,566, and 42,566 shares, respectively, and other

 

(47,159

)

(33,367

)

Total TCF Financial Corporation stockholders’ equity

 

1,531,019

 

1,868,133

 

Non-controlling interest in subsidiaries

 

18,306

 

10,494

 

Total equity

 

1,549,325

 

1,878,627

 

Total liabilities and equity

 

$

17,833,457

 

$

18,979,388

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

1



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands, except per-share data)

 

2012

 

2011

 

Interest income:

 

 

 

 

 

Loans and leases

 

$

205,984

 

$

214,673

 

Securities available for sale

 

19,112

 

19,429

 

Investments and other

 

2,433

 

1,801

 

Total interest income

 

227,529

 

235,903

 

Interest expense:

 

 

 

 

 

Deposits

 

9,061

 

12,004

 

Borrowings

 

38,295

 

49,859

 

Total interest expense

 

47,356

 

61,863

 

Net interest income

 

180,173

 

174,040

 

Provision for credit losses

 

48,542

 

45,274

 

Net interest income after provision for credit losses

 

131,631

 

128,766

 

Non-interest income:

 

 

 

 

 

Fees and service charges

 

41,856

 

53,513

 

Card revenue

 

13,207

 

26,584

 

ATM revenue

 

6,199

 

6,705

 

Subtotal

 

61,262

 

86,802

 

Leasing and equipment finance

 

22,867

 

26,750

 

Gains on sales of auto loans

 

2,250

 

-

 

Other

 

2,355

 

694

 

Fees and other revenue

 

88,734

 

114,246

 

Gains on securities, net

 

76,611

 

-

 

Total non-interest income

 

165,345

 

114,246

 

Non-interest expense:

 

 

 

 

 

Compensation and employee benefits

 

95,967

 

89,357

 

Occupancy and equipment

 

32,246

 

32,159

 

FDIC insurance

 

6,386

 

7,195

 

Deposit account premiums

 

5,971

 

3,198

 

Advertising and marketing

 

2,617

 

3,160

 

Other

 

37,296

 

34,566

 

Subtotal

 

180,483

 

169,635

 

Loss on termination of debt

 

550,735

 

-

 

Foreclosed real estate and repossessed assets, net

 

11,047

 

12,868

 

Operating lease depreciation

 

6,731

 

7,928

 

Other credit costs, net

 

(288

)

2,548

 

Total non-interest expense

 

748,708

 

192,979

 

(Loss) income before income tax expense

 

(451,732

)

50,033

 

Income tax (benefit) expense

 

(170,244

)

18,772

 

(Loss) income after income tax expense

 

(281,488

)

31,261

 

Income attributable to non-controlling interest

 

1,406

 

989

 

Net (loss) income attributable to common stockholders

 

$

(282,894

)

$

30,272

 

Other comprehensive loss:

 

 

 

 

 

Reclassification adjustment for securities gains
included in net income

 

(76,967

)

-

 

Unrealized holding losses arising during the period
on securities available for sale

 

(7,768

)

(21,070

)

Foreign currency hedge

 

(404

)

(507

)

Foreign currency translation adjustment

 

385

 

414

 

Recognized postretirement prior service cost
and transition obligation

 

(7

)

1

 

Income tax benefit

 

31,208

 

7,904

 

Total other comprehensive loss

 

(53,553

)

(13,258

)

Comprehensive (loss) income attributable to common stockholders

 

$

(336,447

)

$

17,014

 

Net (loss) income per common share:

 

 

 

 

 

Basic

 

$

(1.78

)

$

.21

 

Diluted

 

$

(1.78

)

$

.21

 

Dividends declared per common share

 

$

.05

 

$

.05

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

2



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(Unaudited)

 

 

 

TCF Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

Non-

 

 

 

 

 

Common

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

controlling

 

Total

 

(Dollars in thousands)

 

Shares Issued

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

and Other

 

Total

 

Interests

 

Equity

 

Balance, December 31, 2010

 

142,965,012

 

$

1,430

 

$

459,884

 

$

1,049,156

 

$

(15,692

)

$

(23,115

)

$

1,471,663

 

$

8,500

 

$

1,480,163

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after income tax expense

 

-

 

-

 

-

 

30,272

 

-

 

-

 

30,272

 

989

 

31,261

 

Other comprehensive loss

 

-

 

-

 

-

 

-

 

(13,258

)

-

 

(13,258

)

-

 

(13,258

)

Comprehensive income (loss)

 

-

 

-

 

-

 

30,272

 

(13,258

)

-

 

17,014

 

989

 

18,003

 

Public offering of common stock

 

15,081,968

 

151

 

219,515

 

-

 

-

 

-

 

219,666

 

-

 

219,666

 

Net investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

7,051

 

7,051

 

Dividends on common stock

 

-

 

-

 

-

 

(7,100

)

-

 

-

 

(7,100

)

-

 

(7,100

)

Grants of restricted stock to directors, 820,656 shares

 

815,000

 

8

 

(154

)

-

 

-

 

146

 

-

 

-

 

-

 

Common shares purchased by TCF
employee benefit plans

 

387,675

 

4

 

6,084

 

-

 

-

 

-

 

6,088

 

-

 

6,088

 

Cancellation of shares of restricted stock

 

(20,900

)

-

 

(144

)

13

 

-

 

-

 

(131

)

-

 

(131

)

Cancellation of common shares for
tax withholding

 

(141,765

)

(2

)

(2,115

)

-

 

-

 

-

 

(2,117

)

-

 

(2,117

)

Amortization of stock compensation

 

-

 

-

 

2,391

 

-

 

-

 

-

 

2,391

 

-

 

2,391

 

Stock compensation tax benefits

 

-

 

-

 

457

 

-

 

-

 

-

 

457

 

-

 

457

 

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

 

-

 

-

 

9,938

 

-

 

-

 

(9,938

)

-

 

-

 

-

 

Balance, March 31, 2011

 

159,086,990

 

$

1,591

 

$

695,856

 

$

1,072,341

 

$

(28,950

)

$

(32,907

)

$

1,707,931

 

$

16,540

 

$

1,724,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2011

 

160,366,380

 

$

1,604

 

$

715,247

 

$

1,127,823

 

$

56,826

 

$

(33,367

)

$

1,868,133

 

$

10,494

 

$

1,878,627

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income after income tax benefit

 

-

 

-

 

-

 

(282,894

)

-

 

-

 

(282,894

)

1,406

 

(281,488

)

Other comprehensive loss

 

-

 

-

 

-

 

-

 

(53,553

)

-

 

(53,553

)

-

 

(53,553

)

Comprehensive (loss) income

 

-

 

-

 

-

 

(282,894

)

(53,553

)

-

 

(336,447

)

1,406

 

(335,041

)

Investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

6,406

 

6,406

 

Dividends on common stock

 

-

 

-

 

-

 

(7,934

)

-

 

-

 

(7,934

)

-

 

(7,934

)

Grants of restricted stock

 

1,367,325

 

14

 

(14

)

-

 

-

 

-

 

-

 

-

 

-

 

Common shares purchased by TCF employee
benefit plans

 

567,918

 

5

 

6,178

 

-

 

-

 

-

 

6,183

 

-

 

6,183

 

Cancellation of shares of restricted stock

 

(6,580

)

-

 

(30

)

-

 

-

 

-

 

(30

)

-

 

(30

)

Cancellation of common shares for tax
withholding

 

(120,497

)

(1

)

(1,247

)

-

 

-

 

-

 

(1,248

)

-

 

(1,248

)

Amortization of stock compensation

 

-

 

-

 

2,656

 

-

 

-

 

-

 

2,656

 

-

 

2,656

 

Stock option expirations

 

-

 

-

 

(56

)

-

 

-

 

-

 

(56

)

-

 

(56

)

Stock compensation tax benefits

 

-

 

-

 

(238

)

-

 

-

 

-

 

(238

)

-

 

(238

)

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

 

-

 

-

 

13,792

 

-

 

-

 

(13,792

)

-

 

-

 

-

 

Balance, March 31, 2012

 

162,174,546

 

$

1,622

 

$

736,288

 

$

836,995

 

$

3,273

 

$

(47,159

)

$

1,531,019

 

$

18,306

 

$

1,549,325

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net (loss) income attributable to common stockholders

 

$

(282,894

)

$

30,272

 

Adjustments to reconcile net (loss) income to net cash
provided by operating activities:

 

 

 

 

 

Provision for credit losses

 

48,542

 

45,274

 

Depreciation and amortization

 

18,129

 

17,658

 

Proceeds from sales of loans and leases held for sale

 

15,828

 

-

 

Originations of auto loans held for sale

 

(12,554

)

-

 

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

 

(153,598

)

15,287

 

Gains on sales of assets, net

 

(81,187

)

(6,529

)

Loss on termination of debt

 

550,735

 

-

 

Net income attributable to non-controlling interest

 

1,406

 

989

 

Other, net

 

7,473

 

6,786

 

Total adjustments

 

394,774

 

79,465

 

Net cash provided by operating activities

 

111,880

 

109,737

 

Cash flows from investing activities:

 

 

 

 

 

Loan originations and purchases
net of principal collected on loans and leases

 

(990,492

)

29,546

 

Purchases of equipment for lease financing

 

(207,582

)

(190,593

)

Purchase of inventory finance portfolios

 

(37,526

)

-

 

Proceeds from sales of loans

 

62,350

 

3,153

 

Proceeds from sales of lease receivables

 

28,102

 

32,489

 

Proceeds from sales of securities available for sale

 

1,901,460

 

-

 

Purchases of securities available for sale

 

(430,516

)

(346,953

)

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

 

116,267

 

85,100

 

Purchases of Federal Home Loan Bank stock

 

(112,362

)

(3,335

)

Redemption of Federal Home Loan Bank stock

 

101,238

 

16,688

 

Proceeds from sales of real estate owned

 

28,331

 

27,707

 

Purchases of premises and equipment

 

(8,386

)

(8,842

)

Other, net

 

10,736

 

12,472

 

Net cash provided by (used in) investing activities

 

461,620

 

(342,568

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

542,073

 

461,602

 

Net increase (decrease) in short-term borrowings

 

1,150,771

 

(113,890

)

Proceeds from long-term borrowings

 

1,150,416

 

413

 

Payments on long-term borrowings

 

(4,105,153

)

(302,546

)

Net proceeds from public offering of common stock

 

-

 

219,666

 

Net investment by non-controlling interest

 

6,406

 

7,051

 

Dividends paid on common stock

 

(7,934

)

(7,100

)

Stock compensation tax (expenses) benefits

 

(238

)

457

 

Common shares sold to TCF employee benefit plans

 

6,097

 

6,088

 

Net cash (used in) provided by financing activities

 

(1,257,562

)

271,741

 

Net (decrease) increase in cash and due from banks

 

(684,062

)

38,910

 

Cash and due from banks at beginning of period

 

1,389,704

 

663,901

 

Cash and due from banks at end of period

 

$

705,642

 

$

702,811

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

55,717

 

$

61,013

 

Income taxes

 

$

2,131

 

$

4,915

 

Transfer of loans to other assets

 

$

36,651

 

$

48,918

 

See accompanying notes to consolidated financial statements.

 

4



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 (“GAAP”). 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, 2011 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 GAAP 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) Business Combinations

 

On November 30, 2011, TCF National Bank (“TCF Bank”) acquired 100% of the outstanding common shares of Gateway One Lending & Finance, LLC (“Gateway One”), a privately-held lending company that indirectly originates loans on new and used autos to consumers through established dealer relationships. The acquisition of Gateway One further diversifies the Company’s lending business and provides growth opportunities within the U.S. auto lending marketplace. As a result of the acquisition, Gateway One became a wholly-owned subsidiary of TCF Bank and accordingly, TCF’s Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 included net interest income, non-interest income and net loss of Gateway One totaling $1.8 million, $3.9 million, and $1.8 million, respectively.

 

The following unaudited pro forma financial information presents the combined results of operations of TCF and Gateway One as if the acquisition had been effective January 1, 2011. These results include the impact of amortizing certain purchase accounting adjustments such as intangible assets, compensation expenses and the related impact of the acquisition on income tax expense. There were no material nonrecurring pro forma adjustments directly attributable to the acquisition included within the following pro forma financial information. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had TCF and Gateway One constituted a single entity during such periods. Growth opportunities are expected to be achieved in various amounts at various times during the years subsequent to the acquisition and not ratably over, or at the beginning or end of such periods. No adjustments have been reflected in the following pro forma financial information for anticipated growth opportunities.

 

 

 

Three Months Ended

 

(In thousands, except per-share data)

 

March 31, 2011

 

Interest Income

 

$

237,741

 

Net interest income

 

175,605

 

Non-interest income

 

117,167

 

Net income attributable to common stockholders

 

30,336

 

Basic net income per common share

 

$

.21

 

Diluted net income per common share

 

$

.21

 

 

5



 

The total preliminary purchase price was allocated to Gateway One’s net tangible and identifiable intangible assets based on their estimated fair values as of November 30, 2011, as set forth below. The primary areas of the purchase price allocation that were not yet finalized at March 31, 2012 related to the valuation of certain loans held for investment.

 

The following table summarizes the consideration paid for Gateway One and the amounts of the assets acquired and liabilities assumed as of the acquisition date.

 

 

 

 

At

 

 

 

November 30,

 

(In thousands)

 

2011

 

Cash consideration

 

$

115,218

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

Cash and cash equivalents

 

$

2,210

 

Restricted cash

 

18,685

 

Loans held for sale

 

13,711

 

Loans held for investment

 

3,779

 

Intangible assets

 

6,170

 

Interest-only strip

 

21,210

 

Deferred tax asset

 

11,286

 

Deferred stock compensation

 

2,600

 

Other assets

 

1,588

 

Accounts payable

 

(1,043

)

Loan sale liability

 

(5,972

)

Debt assumed

 

(9,988

)

Servicing funds to be remitted

 

(17,901

)

Other liabilities

 

(4,158

)

Total identifiable net assets

 

$

42,177

 

Goodwill

 

73,041

 

Total net assets acquired

 

$

115,218

 

 

All of Gateway One’s loans held for investment had evidence of deteriorated credit quality. The goodwill of $73 million arising from the acquisition consists largely of expected incremental balance sheet and fee growth and cross selling opportunities. The goodwill was assigned to TCF’s Funding segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

 

Pursuant to the terms of the acquisition, three key members of Gateway One’s management team acquired shares of TCF common stock in the aggregate value of $2.6 million with proceeds received by them from the acquisition. These shares of TCF common stock will be retained by a trustee for three years pursuant to the terms of custodial agreements entered into between the trustee, TCF and each individual. Ownership of these shares will be forfeited to TCF if during the three year period the individual terminates his employment with TCF without cause, or TCF terminates their employment for cause, and has been accounted for separately from the acquisition. The value of these shares has been recorded within other assets and will be recognized as compensation expense ratably throughout the duration of the three-year period. In addition, TCF provided Gateway One $10 million in interim funding prior to the acquisition to facilitate its closing in a timely manner. This loan was executed at prevailing market pricing and terms.

 

6



 

(3) Cash and Due from Banks

 

At March 31, 2012 and December 31, 2011, TCF was required by Federal Reserve regulations to maintain reserves of $86.1 million and $42.1 million, respectively, in cash on hand or at the Federal Reserve.

 

TCF maintains cash balances that are restricted as to their use in accordance with certain contractual agreements related to the sale and servicing of auto loans. Cash proceeds from loans serviced for third parties are held in restricted accounts until remitted. TCF also retains restricted cash balances for potential loss recourse on certain sold auto loans. Restricted cash totaling $20.3 million and $17.5 million was included within cash and due from banks at March 31, 2012 and December 31, 2011, respectively.

 

(4) Investments

 

The carrying values of investments consist of the following.

 

 

 

At

 

At

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2012

 

2011

 

Federal Home Loan Bank stock, at cost

 

$

130,210

 

$

119,086

 

Federal Reserve Bank stock, at cost

 

31,714

 

31,711

 

Other

 

6,516

 

6,983

 

Total investments

 

$

168,440

 

$

157,780

 

 

The investments in Federal Home Loan Bank (“FHLB”) stock are required investments related to TCF’s current borrowings from the FHLB Des Moines.  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. Other investments primarily consist of non-traded mortgage-backed securities and other bonds which qualify for investment credit under the Community Reinvestment Act.

 

During the three months ended March 31, 2012, TCF recorded impairment charges of $356 thousand on other investments, which had a carrying value of $6.5 million at March 31, 2012. TCF did not record any impairment charges during the three months ended March 31, 2011.

 

(5) Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

March 31, 2012

 

December 31, 2011

 

 

 

 

 

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

 

$

722,905

 

$

10,980

 

$

6,694

 

$

727,191

 

$

2,233,307

 

$

89,029

 

$

-

 

$

2,322,336

 

Other

 

146

 

-

 

-

 

146

 

152

 

-

 

-

 

152

 

Other securities

 

1,742

 

-

 

185

 

1,557

 

1,742

 

-

 

192

 

1,550

 

Total

 

$

724,793

 

$

10,980

 

$

6,879

 

$

728,894

 

$

2,235,201

 

$

89,029

 

$

192

 

$

2,324,038

 

Weighted-average yield

 

3.17

%

 

 

 

 

 

 

3.79

%

 

 

 

 

 

 

 

Gains of $77 million were recognized on sales of securities during the three months ended March 31, 2012.  There were no sales of securities during the three months ended March 31, 2011.

 

7



 

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 March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored
enterprises and federal agencies

 

$

421,898

 

$

6,694

 

$

-

 

$

-

 

$

421,898

 

$

6,694

 

Other securities

 

1,457

 

185

 

-

 

-

 

1,457

 

185

 

Total

 

$

423,355

 

$

6,879

 

$

-

 

$

-

 

$

423,355

 

$

6,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Other securities

 

$

1,450

 

$

192

 

$

-

 

$

-

 

$

1,450

 

$

192

 

Total

 

$

1,450

 

$

192

 

$

-

 

$

-

 

$

1,450

 

$

192

 

 

The amortized cost and fair value of securities available for sale at March 31, 2012, by contractual maturity, are shown below. The remaining contractual principal maturities do not consider prepayments.  Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay.

 

 

 

Amortized

 

 

 

(In thousands)

 

Cost

 

Fair Value

 

Due in one year or less

 

$

100

 

$

100

 

Due in 1-5 years

 

125

 

131

 

Due in 5-10 years

 

130

 

130

 

Due after 10 years

 

722,796

 

727,076

 

No stated maturity

 

1,642

 

1,457

 

Total

 

$

724,793

 

$

728,894

 

 

8



 

(6) Loans and leases

 

The following table sets forth information about loans and leases.

 

 

 

At

 

At

 

 

 

 

 

 

March 31,

 

December 31,

 

 

Percentage

 

(Dollars in thousands)

 

2012

 

2011

 

 

Change

 

Consumer real estate:

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,685,761

 

$

4,742,423

 

 

(1.2

)%

Junior lien

 

2,130,148

 

2,152,868

 

 

(1.1

)

Total consumer real estate

 

6,815,909

 

6,895,291

 

 

(1.2

)

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

Permanent

 

3,065,828

 

3,039,488

 

 

.9

 

Construction and development

 

155,347

 

159,210

 

 

(2.4

)

Total commercial real estate

 

3,221,175

 

3,198,698

 

 

.7

 

Commercial business

 

245,914

 

250,794

 

 

(1.9

)

Total commercial

 

3,467,089

 

3,449,492

 

 

.5

 

Leasing and equipment finance:(1)

 

 

 

 

 

 

 

 

Equipment finance loans

 

1,143,063

 

1,110,803

 

 

2.9

 

Lease financings:

 

 

 

 

 

 

 

 

Direct financing leases

 

1,976,427

 

2,039,096

 

 

(3.1

)

Sales-type leases

 

29,196

 

29,219

 

 

(.1

)

Lease residuals

 

126,217

 

129,100

 

 

(2.2

)

Unearned income and deferred lease costs

 

(156,148

)

(165,959

)

 

5.9

 

Total lease financings

 

1,975,692

 

2,031,456

 

 

(2.7

)

Total leasing and equipment finance

 

3,118,755

 

3,142,259

 

 

(.7

)

Inventory finance

 

1,637,958

 

624,700

 

 

162.2

 

Auto finance

 

139,047

 

3,628

 

 

N.M

.

Other

 

29,178

 

34,885

 

 

(16.4

)

Total loans and leases

 

$

15,207,936

 

$

14,150,255

 

 

7.5

 %

N.M. Not Meaningful.

 

 

 

 

 

 

 

 

 

 

(1)

Operating leases of $67 million and $69.6 million at March 31, 2012 and December 31, 2011, respectively, are included in other
assets in the Consolidated Statements of Financial Condition.

 

From time to time, TCF sells minimum lease payments to third-party financial institutions at fixed rates.  For those transactions which achieve sale treatment, the related lease cash flow stream is not recognized on TCF’s Statements of Financial Condition.  During the three months ended March 31, 2012, TCF sold $32.7 million of minimum lease payment receivables, received cash of $33.5 million, and recognized a net gain of $808 thousand. During the three months ended March 31, 2011, TCF sold $26.7 million of minimum lease payment receivables, received cash of $32.5 million, and recognized a net gain of $5.8 million.  At March 31, 2012 and December 31, 2011, TCF’s lease residuals reported within the table above include $11.1 million and $9.1 million, respectively, related to all historical sales of minimum lease payment receivables.

 

During the first quarter of 2012, TCF sold $72 million of consumer auto loans with servicing retained and received cash of $70.3 million, resulting in gains of $2.3 million.  Related to these sales, TCF retained an interest-only strip of $4.6 million.  At March 31, 2012 and December 31, 2011, interest-only strips totaled $23.7 million and $22.4 million, respectively.  At March 31, 2012 and December 31, 2011, contractual recourse liabilities totaled $5.4 million and $6 million, respectively. No servicing assets or liabilities were recorded within TCF’s Consolidated Statements of Financial Condition, as the contractual servicing fees are adequate to compensate TCF for its servicing responsibilities.  The unpaid principal balance of auto loans serviced for third parties was $414.9 million and $387.1 million at March 31, 2012 and December 31, 2011, respectively. Approximately .6% of the auto loans serviced for third parties were 60 or more days past due at March 31, 2012.

 

9



 

(7) Allowance for Loan and Lease Losses and Credit Quality Information

 

Allowance for Loan and Lease Losses  The following tables provide information regarding the allowance for loan and lease losses.

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

At or For the Three Months Ended March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

183,435

 

$

46,954

 

$

21,173

 

$

2,996

 

$

-

 

$

1,114

 

$

255,672

 

Charge-offs

 

(37,161

)

(1,650

)

(1,776

)

(670

)

(2

)

(3,416

)

(44,675

)

Recoveries

 

1,473

 

126

 

1,625

 

27

 

-

 

2,491

 

5,742

 

Net charge-offs

 

(35,688

)

(1,524

)

(151

)

(643

)

(2

)

(925

)

(38,933

)

Provision for credit losses

 

36,078

 

5,014

 

515

 

5,191

 

1,021

 

723

 

48,542

 

Other

 

-

 

-

 

-

 

12

 

-

 

-

 

12

 

Balance, at end of quarter

 

$

183,825

 

$

50,444

 

$

21,537

 

$

7,556

 

$

1,019

 

$

912

 

$

265,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

172,850

 

$

62,478

 

$

26,301

 

$

2,537

 

$

-

 

$

1,653

 

$

265,819

 

Charge-offs

 

(36,188

)

(17,912

)

(3,950

)

(236

)

-

 

(2,819

)

(61,105

)

Recoveries

 

885

 

134

 

1,161

 

27

 

-

 

3,086

 

5,293

 

Net charge-offs

 

(35,303

)

(17,778

)

(2,789

)

(209

)

-

 

267

 

(55,812

)

Provision for credit losses

 

36,550

 

5,419

 

2,760

 

989

 

-

 

(444

)

45,274

 

Other

 

-

 

-

 

-

 

27

 

-

 

-

 

27

 

Balance, at end of quarter

 

$

174,097

 

$

50,119

 

$

26,272

 

$

3,344

 

$

-

 

$

1,476

 

$

255,308

 

 

The following tables provide other information regarding the allowance for loan and lease losses and balances by type of allowance methodology.

 

 

 

At March 31, 2012

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for loss potential

 

$

182,565

 

$

24,837

 

$

17,548

 

$

7,231

 

$

1,019

 

$

912

 

$

234,112

 

Individually evaluated for loss potential

 

1,260

 

25,607

 

3,989

 

325

 

-

 

-

 

31,181

 

Total

 

$

183,825

 

$

50,444

 

$

21,537

 

$

7,556

 

$

1,019

 

$

912

 

$

265,293

 

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for loss potential

 

$

6,808,841

 

$

2,848,766

 

$

3,091,243

 

$

1,630,305

 

$

135,919

 

$

29,178

 

$

14,544,252

 

Individually evaluated for loss potential

 

7,068

 

618,323

 

21,633

 

7,653

 

-

 

-

 

654,677

 

Loans acquired with deteriorated credit quality

 

-

 

-

 

5,879

 

-

 

3,128

 

-

 

9,007

 

Total

 

$

6,815,909

 

$

3,467,089

 

$

3,118,755

 

$

1,637,958

 

$

139,047

 

$

29,178

 

$

15,207,936

 

 

 

 

At December 31, 2011

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for loss potential

 

$

182,315

 

$

24,842

 

$

17,339

 

$

2,583

 

$

-

 

$

1,114

 

$

228,193

 

Individually evaluated for loss potential

 

1,120

 

22,112

 

3,834

 

413

 

-

 

-

 

27,479

 

Total

 

$

183,435

 

$

46,954

 

$

21,173

 

$

2,996

 

$

-

 

$

1,114

 

$

255,672

 

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for loss potential

 

$

6,887,627

 

$

2,811,046

 

$

3,112,864

 

$

616,496

 

$

-

 

$

34,885

 

$

13,462,918

 

Individually evaluated for loss potential

 

7,664

 

638,446

 

22,200

 

8,204

 

-

 

-

 

676,514

 

Loans acquired with deteriorated credit quality

 

-

 

-

 

7,195

 

-

 

3,628

 

-

 

10,823

 

Total

 

$

6,895,291

 

$

3,449,492

 

$

3,142,259

 

$

624,700

 

$

3,628

 

$

34,885

 

$

14,150,255

 

 

 

10



 

Performing and Non-accrual Loans and Leases  The following tables set forth information regarding TCF’s performing and non-accrual loans and leases. Performing loans and leases are considered to have a lower risk of loss and are on accruing status. Non-accrual loans and leases are those which management believes have a higher risk of loss than performing loans and leases. Delinquent balances are determined based on the contractual terms of the loan or lease.

 

 

 

At March 31, 2012

 

(In thousands)

 

0-59 Days
Delinquent and
Accruing

 

60-89 Days
Delinquent
and Accruing

 

90 Days or More
Delinquent and
Accruing

 

Total 60+ Days
Delinquent and
Accruing

 

Total
Performing

 

Non-Accrual

 

Total

 

Consumer real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First mortgage lien

 

$

4,471,774

 

$

34,977

 

$

53,115

 

$

88,092

 

$

4,559,866

 

$

125,895

 

$

4,685,761

 

Junior lien

 

2,091,176

 

6,525

 

9,038

 

15,563

 

2,106,739

 

23,409

 

2,130,148

 

Total consumer real estate

 

6,562,950

 

41,502

 

62,153

 

103,655

 

6,666,605

 

149,304

 

6,815,909

 

Commercial real estate

 

3,098,204

 

978

 

2,089

 

3,067

 

3,101,271

 

119,904

 

3,221,175

 

Commercial business

 

229,783

 

4

 

354

 

358

 

230,141

 

15,773

 

245,914

 

Total commercial

 

3,327,987

 

982

 

2,443

 

3,425

 

3,331,412

 

135,677

 

3,467,089

 

Leasing and equipment finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Middle market

 

1,617,075

 

1,232

 

54

 

1,286

 

1,618,361

 

12,195