XNYS:TCB TCF Financial Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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

June 30, 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

 

 

July 19, 2012

Common Stock, $.01 par value

 

 

162,937,366  shares

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

Part I. Financial Information

 

Pages

 

 

 

 

 

 

Item 1. Financial Statements

 

 

Consolidated Statements of Financial Condition at June 30, 2012 and December 31, 2011

 

1

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011

 

2

 

 

 

 

 

 

Consolidated Statements of Equity for the Six Months Ended June 30, 2012 and 2011

 

3

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011

 

4

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

5

 

 

 

 

 

 

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

 

35

 

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

61

 

 

 

 

 

 

Item 4. Controls and Procedures

 

62

 

 

 

 

 

 

Supplementary Information

 

63

 

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

 

Items 1-6

 

64

 

 

 

 

 

 

Signatures

 

66

 

 

 

 

 

 

Index to Exhibits

 

67

 



 

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)

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

865,257

 

$

1,389,704

 

Investments

 

120,814

 

157,780

 

Securities available for sale

 

757,233

 

2,324,038

 

Loans and leases held for sale

 

9,664

 

14,321

 

Loans and leases:

 

 

 

 

 

Consumer real estate

 

6,811,784

 

6,895,291

 

Commercial

 

3,523,070

 

3,449,492

 

Leasing and equipment finance

 

3,151,105

 

3,142,259

 

Inventory finance

 

1,457,263

 

624,700

 

Auto finance

 

262,188

 

3,628

 

Other

 

29,094

 

34,885

 

Total loans and leases

 

15,234,504

 

14,150,255

 

Allowance for loan and lease losses

 

(274,161

)

(255,672

)

Net loans and leases

 

14,960,343

 

13,894,583

 

Premises and equipment, net

 

442,311

 

436,281

 

Goodwill

 

225,640

 

225,640

 

Other assets

 

489,335

 

537,041

 

Total assets

 

$

17,870,597

 

$

18,979,388

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,701,917

 

$

4,629,749

 

Savings

 

6,227,133

 

5,855,263

 

Money market

 

880,545

 

651,377

 

Certificates of deposit

 

1,894,711

 

1,065,615

 

Total deposits

 

13,704,306

 

12,202,004

 

Short-term borrowings

 

7,487

 

6,416

 

Long-term borrowings

 

2,075,923

 

4,381,664

 

Total borrowings

 

2,083,410

 

4,388,080

 

Accrued expenses and other liabilities

 

326,973

 

510,677

 

Total liabilities

 

16,114,689

 

17,100,761

 

Equity:

 

 

 

 

 

Preferred stock, par value $.01 per share, 30,000,000 shares authorized; and 6,900 shares issued

 

166,721

 

-

 

Common stock, par value $.01 per share, 280,000,000 shares authorized; 162,790,655 and 160,366,380 shares issued, respectively

 

1,628

 

1,604

 

Additional paid-in capital

 

738,437

 

715,247

 

Retained earnings, subject to certain restrictions

 

860,560

 

1,127,823

 

Accumulated other comprehensive income

 

15,703

 

56,826

 

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

 

(42,078

)

(33,367

)

Total TCF Financial Corporation stockholders’ equity

 

1,740,971

 

1,868,133

 

Non-controlling interest in subsidiaries

 

14,937

 

10,494

 

Total equity

 

1,755,908

 

1,878,627

 

Total liabilities and equity

 

$

17,870,597

 

$

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
June 30,

 

 

Six Months Ended
June 30,

 

(In thousands, except per-share data)

 

2012

 

2011

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

 

 

 

 

 

Loans and leases

$

 

208,766

 

$

213,823

 

$

 

414,750

 

$

428,496

 

Securities available for sale

 

5,816

 

20,639

 

 

24,928

 

40,068

 

Investments and other

 

3,633

 

1,836

 

 

6,066

 

3,637

 

Total interest income

 

218,215

 

236,298

 

 

445,744

 

472,201

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

Deposits

 

10,197

 

11,430

 

 

19,258

 

23,434

 

Borrowings

 

9,794

 

48,718

 

 

48,089

 

98,577

 

Total interest expense

 

19,991

 

60,148

 

 

67,347

 

122,011

 

Net interest income

 

198,224

 

176,150

 

 

378,397

 

350,190

 

Provision for credit losses

 

54,106

 

44,005

 

 

102,648

 

89,279

 

Net interest income after provision for credit losses

 

144,118

 

132,145

 

 

275,749

 

260,911

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

48,090

 

56,396

 

 

89,946

 

109,909

 

Card revenue

 

13,530

 

28,219

 

 

26,737

 

54,803

 

ATM revenue

 

6,276

 

7,091

 

 

12,475

 

13,796

 

Subtotal

 

67,896

 

91,706

 

 

129,158

 

178,508

 

Leasing and equipment finance

 

23,207

 

22,279

 

 

46,074

 

49,029

 

Gains on sales of auto loans

 

5,496

 

-

 

 

7,746

 

-

 

Other

 

3,168

 

384

 

 

5,523

 

1,078

 

Fees and other revenue

 

99,767

 

114,369

 

 

188,501

 

228,615

 

Gain (loss) on securities, net

 

13,116

 

(227

)

 

89,727

 

(227

)

Total non-interest income

 

112,883

 

114,142

 

 

278,228

 

228,388

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

97,787

 

89,082

 

 

193,754

 

178,439

 

Occupancy and equipment

 

32,731

 

30,783

 

 

64,977

 

62,942

 

FDIC insurance

 

8,469

 

7,542

 

 

14,855

 

14,737

 

Advertising and marketing

 

5,404

 

3,479

 

 

8,021

 

6,639

 

Deposit account premiums

 

1,690

 

6,166

 

 

7,661

 

9,364

 

Other

 

36,956

 

37,067

 

 

74,252

 

71,633

 

Subtotal

 

183,037

 

174,119

 

 

363,520

 

343,754

 

Loss on termination of debt

 

-

 

-

 

 

550,735

 

-

 

Foreclosed real estate and repossessed assets, net

 

12,059

 

12,617

 

 

23,106

 

25,485

 

Operating lease depreciation

 

6,417

 

7,859

 

 

13,148

 

15,787

 

Other credit costs, net

 

1,476

 

496

 

 

1,188

 

3,044

 

Total non-interest expense

 

202,989

 

195,091

 

 

951,697

 

388,070

 

Income (loss) before income tax expense

 

54,012

 

51,196

 

 

(397,720

)

101,229

 

Income tax expense (benefit)

 

20,542

 

19,086

 

 

(149,702

)

37,858

 

Income (loss) after income tax expense

 

33,470

 

32,110

 

 

(248,018

)

63,371

 

Income attributable to non-controlling interest

 

1,939

 

1,686

 

 

3,345

 

2,675

 

Net income (loss) available to common stockholders

$

 

31,531

 

$

30,424

 

$

 

(251,363

)

$

60,696

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for securities gains included in net income

$

 

-

 

$

-

 

$

 

(76,967

)

$

-

 

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

 

19,868

 

31,084

 

 

12,100

 

10,014

 

Foreign currency hedge

 

268

 

(93

)

 

(136

)

(600

)

Foreign currency translation adjustment

 

(324

)

120

 

 

61

 

534

 

Recognized postretirement prior service cost and transition obligation

 

(7

)

1

 

 

(14

)

2

 

Income tax (expense) benefit

 

(7,375

)

(11,362

)

 

23,833

 

(3,458

)

Total other comprehensive income (loss)

 

12,430

 

19,750

 

 

(41,123

)

6,492

 

Comprehensive income (loss) attributable to common stockholders

$

 

43,961

 

$

50,174

 

$

 

(292,486

)

$

67,188

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

Basic

$

 

.20

 

$

.19

 

$

 

(1.58

)

$

.40

 

Diluted

 

.20

 

.19

 

 

(1.58

)

.40

 

Dividends declared per common share

$

 

.05

 

$

.05

 

$

 

.10

 

$

.10

 

 

See accompanying notes to consolidated financial statements.

 

2



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(Unaudited)

 

 

 

TCF Financial Corporation

 

 

 

 

 

(Dollars in thousands)

 

Number of
Common
Shares Issued

 

Preferred
Stock

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Treasury
Stock
and Other

 

Total

 

Non-
controlling
Interests

 

Total
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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after income tax expense

 

-

 

-

 

-

 

-

 

60,696

 

-

 

-

 

60,696

 

2,675

 

63,371

 

Other comprehensive income

 

-

 

-

 

-

 

-

 

-

 

6,492

 

-

 

6,492

 

-

 

6,492

 

Comprehensive income

 

-

 

-

 

-

 

-

 

60,696

 

6,492

 

-

 

67,188

 

2,675

 

69,863

 

Public offering of common stock

 

15,081,968

 

-

 

151

 

219,515

 

-

 

-

 

-

 

219,666

 

-

 

219,666

 

Net investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

2,205

 

2,205

 

Dividends on common stock

 

-

 

-

 

-

 

-

 

(14,975

)

-

 

-

 

(14,975

)

-

 

(14,975

)

Grants of restricted stock

 

1,188,000

 

-

 

12

 

(158

)

-

 

-

 

146

 

-

 

-

 

-

 

Common shares purchased by TCF employee benefit plans

 

641,799

 

-

 

7

 

9,907

 

-

 

-

 

-

 

9,914

 

-

 

9,914

 

Cancellation of shares of restricted stock

 

(27,850

)

-

 

-

 

(177

)

15

 

-

 

-

 

(162

)

-

 

(162

)

Cancellation of common shares for tax withholding

 

(184,325

)

-

 

(3

)

(2,788

)

-

 

-

 

-

 

(2,791

)

-

 

(2,791

)

Amortization of stock compensation

 

-

 

-

 

-

 

5,259

 

-

 

-

 

-

 

5,259

 

-

 

5,259

 

Stock compensation tax benefits

 

-

 

-

 

-

 

477

 

-

 

-

 

-

 

477

 

-

 

477

 

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

 

-

 

-

 

-

 

10,273

 

-

 

-

 

(10,273

)

-

 

-

 

-

 

Balance, June 30, 2011

 

159,664,604

 

$

-

 

$

1,597

 

$

702,192

 

$

1,094,892

 

$

(9,200

)

$

(33,242

)

$

1,756,239

 

$

13,380

 

$

1,769,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income after income tax benefit

 

-

 

-

 

-

 

-

 

(251,363

)

-

 

-

 

(251,363

)

3,345

 

(248,018

)

Other comprehensive loss

 

-

 

-

 

-

 

-

 

-

 

(41,123

)

-

 

(41,123

)

-

 

(41,123

)

Comprehensive (loss) income

 

-

 

-

 

-

 

-

 

(251,363

)

(41,123

)

-

 

(292,486

)

3,345

 

(289,141

)

Investment by non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,098

 

1,098

 

Dividends on common stock

 

-

 

-

 

-

 

-

 

(15,905

)

-

 

-

 

(15,905

)

-

 

(15,905

)

Issuance of preferred stock

 

-

 

166,721

 

-

 

-

 

-

 

-

 

-

 

166,721

 

-

 

166,721

 

Grants of restricted stock

 

1,654,525

 

-

 

17

 

(17

)

-

 

-

 

-

 

-

 

-

 

-

 

Common shares purchased by TCF employee benefit plans

 

960,076

 

-

 

9

 

10,632

 

-

 

-

 

-

 

10,641

 

-

 

10,641

 

Cancellation of shares of restricted stock

 

(31,432

)

-

 

-

 

(72

)

5

 

-

 

-

 

(67

)

-

 

(67

)

Cancellation of common shares for tax withholding

 

(158,894

)

-

 

(2

)

(1,707

)

-

 

-

 

-

 

(1,709

)

-

 

(1,709

)

Amortization of stock compensation

 

-

 

-

 

-

 

5,862

 

-

 

-

 

-

 

5,862

 

-

 

5,862

 

Stock option expirations

 

-

 

-

 

-

 

(56

)

-

 

-

 

-

 

(56

)

-

 

(56

)

Stock compensation tax benefits

 

-

 

-

 

-

 

(163

)

-

 

-

 

-

 

(163

)

-

 

(163

)

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

 

-

 

-

 

-

 

8,711

 

-

 

-

 

(8,711

)

-

 

-

 

-

 

Balance, June 30, 2012

 

162,790,655

 

$

166,721

 

$

1,628

 

$

738,437

 

$

860,560

 

$

15,703

 

$

(42,078

)

$

1,740,971

 

$

14,937

 

$

1,755,908

 

 

See accompanying notes to consolidated financial statements.

 

3



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended June 30,

 

(In thousands)

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net (loss) income available to common stockholders

$

 

(251,363

)

$

60,696

 

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

 

 

 

 

 

Provision for credit losses

 

102,648

 

89,279

 

Depreciation and amortization

 

38,425

 

36,647

 

Proceeds from sales of loans and leases held for sale

 

47,164

 

-

 

Originations of auto loans held for sale, net of repayments

 

(55,278

)

-

 

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

 

(90,781

)

78,132

 

Gains on sales of assets, net

 

(100,761

)

(7,499

)

Loss on termination of debt

 

550,735

 

-

 

Net income attributable to non-controlling interest

 

3,345

 

2,675

 

Other, net

 

11,488

 

14,491

 

Total adjustments

 

506,985

 

213,725

 

Net cash provided by operating activities

 

255,622

 

274,421

 

Cash flows from investing activities:

 

 

 

 

 

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

 

(995,598

)

300,961

 

Purchases of equipment for lease financing

 

(467,809

)

(417,862

)

Purchase of leasing and equipment finance portfolios

 

-

 

(9,735

)

Purchase of inventory finance portfolios

 

(37,526

)

-

 

Proceeds from sales of loans

 

172,090

 

4,013

 

Proceeds from sales of lease receivables

 

51,733

 

50,944

 

Proceeds from sales of securities available for sale

 

1,901,460

 

-

 

Proceeds from sales of other securities

 

13,116

 

-

 

Purchases of securities available for sale

 

(455,336

)

(512,762

)

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

 

132,471

 

264,125

 

Purchases of Federal Home Loan Bank stock

 

(141,509

)

(4,439

)

Redemption of Federal Home Loan Bank stock

 

181,561

 

22,250

 

Proceeds from sales of real estate owned

 

57,412

 

56,698

 

Purchases of premises and equipment

 

(26,928

)

(15,602

)

Other, net

 

11,637

 

18,359

 

Net cash provided by (used in) investing activities

 

396,774

 

(243,050

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

1,487,306

 

358,758

 

Net increase (decrease) in short-term borrowings

 

957

 

(117,276

)

Proceeds from long-term borrowings

 

1,169,294

 

1,347

 

Payments on long-term borrowings

 

(3,996,664

)

(402,884

)

Net proceeds from public offering of preferred stock

 

166,721

 

-

 

Net proceeds from public offering of common stock

 

-

 

219,666

 

Net investment by non-controlling interest

 

1,098

 

2,205

 

Dividends paid on common stock

 

(15,905

)

(14,975

)

Stock compensation tax (expenses) benefits

 

(163

)

477

 

Common shares sold to TCF employee benefit plans

 

10,513

 

9,914

 

Net cash (used in) provided by financing activities

 

(1,176,843

)

57,232

 

Net (decrease) increase in cash and due from banks

 

(524,447

)

88,603

 

Cash and due from banks at beginning of period

 

1,389,704

 

663,901

 

Cash and due from banks at end of period

$

 

865,257

 

$

752,504

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

$

 

72,183

 

$

118,117

 

Income taxes, net

 

14,579

 

519

 

Transfer of loans to other assets

$

 

80,574

 

$

93,100

 

 

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 in the United States (“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”), a wholly-owned subsidiary of TCF, 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 June 30, 2012 included net interest income, non-interest income and net income of Gateway One totaling $4.5 million, $7 million, and $295 thousand, respectively. TCF’s Consolidated Statements of Comprehensive Income for the six months ended June 30, 2012 included net interest income, non-interest income and net loss of Gateway One totaling $6.3 million, $10.9 million, and $1.5 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.

 

5



 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands, except per-share data)

 

June 30, 2011

 

June 30, 2011

 

Interest income

$

 

238,125

 

$

475,866

 

Net interest income

 

177,717

 

353,322

 

Non-interest income

 

118,847

 

236,014

 

Net income available to common stockholders

 

31,425

 

61,761

 

Basic net income per common share

$

 

.19

 

$

.40

 

Diluted net income per common share

$

 

.19

 

$

.40

 

 

The total 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 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

 

3,879

 

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

 

(6,072

)

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

 

 

At the time of acquisition, all of Gateway One’s loans held for investment, which was 22.1% of the total loans at the time of acquisition or $3.9 million, had evidence of deteriorated credit quality, at June 30, 2012 $2.1 million remained. 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 Lending segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

 

Pursuant to the terms of the acquisition agreement, three key members of Gateway One’s management team were required to utilize a portion of the consideration paid to them by TCF to acquire Gateway One to separately purchase TCF common stock in the aggregate amount of $2.6 million. 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

 

6



 

cause, and has been accounted for separately from the acquisition. Due to the fact that this portion of the purchase consideration is tied to continuing employment, and at risk, 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.

 

(3) Cash and Due from Banks

 

At June 30, 2012 and December 31, 2011, TCF was required by Federal Reserve Board regulations to maintain reserves of $87.9 million and $42.1 million, respectively, in cash on hand or at the Federal Reserve Bank.

 

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 $19.4 million and $17.5 million was included within cash and due from banks at June 30, 2012 and December 31, 2011, respectively.

 

(4) Investments

 

The carrying values of investments consist of the following.

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2012

 

2011

 

Federal Home Loan Bank stock, at cost

 

$

79,034

 

$

119,086

 

Federal Reserve Bank stock, at cost

 

35,316

 

31,711

 

Other

 

6,464

 

6,983

 

Total investments

 

$

120,814

 

$

157,780

 

 

The investments in Federal Home Loan Bank (“FHLB”) stock are required investments related to TCF’s current borrowings from the FHLB of Des Moines.  FHLBs obtain their funding primarily through issuance of consolidated obligations of the FHLB 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 of 1977, as amended.

 

During the first six months of 2012, TCF recorded impairment charges of $356 thousand on other investments, which had a carrying value of $6.5 million at June 30, 2012. TCF did not record any impairment charges during the three months ended June 30, 2012. During the second quarter and first six months of 2011, TCF recorded impairment charges of $16 thousand on other investments, which had a carrying value of $7.4 million at June 30, 2011.

 

7



 

(5)  Securities Available for Sale

 

Securities available for sale consist of the following.

 

 

 

June 30, 2012

 

December 31, 2011

 

(Dollars in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises and federal agencies

$

731,382

 

$

23,511

 

$

-

 

$

754,893

 

$

2,233,307

 

$

89,029

 

$

-

 

$

2,322,336 

 

Other

 

140

 

-

 

-

 

140

 

152

 

-

 

-

 

152 

 

Other securities

 

1,742

 

458

 

-

 

2,200

 

1,742

 

-

 

192

 

1,550 

 

Total

$

733,264

 

$

23,969

 

$

-

 

$

757,233

 

$

2,235,201

 

$

89,029

 

$

192

 

$

2,324,038 

 

Weighted-average yield

 

3.16

%

 

 

 

 

 

 

3.79

%

 

 

 

 

 

 

 

Gains on securities available for sale of $76.6 million were recognized during the first six months of 2012, resulting from sales of mortgage-backed securities during the first quarter of 2012.  Impairment charges of $211 thousand were recognized on other securities during the second quarter and first six months of 2011. No impairment charges were recorded during the second quarter and first six months of 2012.

 

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 at December 31, 2011. There were no securities available for sale in a gross unrealized loss position at June 30, 2012. 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

 

(In thousands)

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

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 June 30, 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

 

$

101

 

$

101

 

Due in 1-5 years

 

117

 

123

 

Due in 5-10 years

 

125

 

125

 

Due after 10 years

 

731,279

 

754,784

 

No stated maturity

 

1,642

 

2,100

 

Total

 

$

733,264

 

$

757,233

 

 

8



 

(6) Loans and Leases

 

The following table sets forth information about loans and leases.

 

 

 

At

 

At

 

 

 

 

 

June 30,

 

December 31,

 

Percentage

 

(Dollars in thousands)

 

2012

 

2011

 

Change

 

Consumer real estate:

 

 

 

 

 

 

 

First mortgage lien

 

$

4,610,837

 

$

4,742,423

 

(2.8)

%

Junior lien

 

2,200,947

 

2,152,868

 

2.2

 

Total consumer real estate

 

6,811,784

 

6,895,291

 

(1.2)

 

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

3,133,812

 

3,039,488

 

3.1

 

Construction and development

 

116,685

 

159,210

 

(26.7)

 

Total commercial real estate

 

3,250,497

 

3,198,698

 

1.6

 

Commercial business

 

272,573

 

250,794

 

8.7

 

Total commercial

 

3,523,070

 

3,449,492

 

2.1

 

Leasing and equipment finance:(1)

 

 

 

 

 

 

 

Equipment finance loans

 

1,186,762

 

1,110,803

 

6.8

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases

 

1,962,041

 

2,039,096

 

(3.8)

 

Sales-type leases

 

29,244

 

29,219

 

.1

 

Lease residuals

 

125,954

 

129,100

 

(2.4)

 

Unearned income and deferred lease costs

 

(152,896

)

(165,959

)

7.9

 

Total lease financings

 

1,964,343

 

2,031,456

 

(3.3)

 

Total leasing and equipment finance

 

3,151,105

 

3,142,259

 

.3

 

Inventory finance

 

1,457,263

 

624,700

 

133.3

 

Auto finance

 

262,188

 

3,628

 

N.M.

 

Other

 

29,094

 

34,885

 

(16.6)

 

Total loans and leases

 

$

15,234,504

 

$

14,150,255

 

7.7

%

 

N.M. Not Meaningful.

(1)  Operating leases of $65.2 million and $69.6 million at June 30, 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 Consolidated Statements of Financial Condition.  During the three months ended June 30, 2012 and 2011, TCF sold $23.9 million and $18.2 million, respectively, of minimum lease payment receivables, received cash of $23.6 million and $18.5 million, respectively, and recognized a net loss of $314 thousand and net gain of $276 thousand, respectively. During the six months ended June 30, 2012 and 2011, TCF sold $56.6 million and $44.8 million, respectively, of minimum lease payment receivables, received cash of $57.1 million and $50.9 million, respectively, and recognized a net gain of $494 thousand and $6.1 million, respectively. At June 30, 2012 and December 31, 2011, TCF’s lease residuals reported within the table above include $12.8 million and $9.1 million, respectively, related to all historical sales of minimum lease payment receivables.

 

During the three months ended June 30, 2012, TCF sold $144.1 million of consumer auto loans with servicing retained and received cash of $141.1 million, resulting in gains of $5.5 million.  Related to these sales, TCF retained an interest-only strip of $10.1 million.  During the six months ended June 30, 2012, TCF sold $216.1 million of consumer auto loans with servicing retained and received cash of $211.3 million, resulting in gains of $7.7 million.  Related to these sales, TCF retained an interest-only strip of $14.7 million.  At June 30, 2012, interest-only strips and contractual recourse liabilities totaled $30.7 million and $4.7 million, respectively. None of the recourse liabilities outstanding at June 30, 2012 related to consumer auto loans sold during the three or six months ended June 30, 2012.  At December 31, 2011, interest-only strips and contractual recourse liabilities totaled $22.4 million and $6 million, respectively.  No servicing assets or liabilities related to consumer auto loans 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 $508.5 million and $387.1 million at June 30, 2012 and December 31, 2011,

 

9



 

respectively.  Excluding loans in bankruptcy and loans in the process of repossession, .1% of the auto loans serviced for third parties were 60 or more days past due at June 30, 2012.

 

(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 June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

183,825

 

$

50,444

 

$

21,537

 

$

7,556

 

$

1,019

 

$

912

 

$

265,293

 

Charge-offs

 

(35,980

)

(8,693

)

(2,667

)

(283

)

(82

)

(2,128

)

(49,833

)

Recoveries

 

1,124

 

238

 

1,494

 

58

 

1

 

2,059

 

4,974

 

Net charge-offs

 

(34,856

)

(8,455

)

(1,173

)

(225

)

(81

)

(69

)

(44,859

)

Provision for credit losses

 

39,118

 

8,710

 

5,086

 

(223

)

1,356

 

59

 

54,106

 

Transfers and other

 

-

 

-

 

-

 

(36

)

(343

)

-

 

(379

)

Balance, at end of quarter

 

$

188,087

 

$

50,699

 

$

25,450

 

$

7,072

 

$

1,951

 

$

902

 

$

274,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of quarter

 

$

174,097

 

$

50,119

 

$

26,272

 

$

3,344

 

$

-

 

$

1,476

 

$

255,308

 

Charge-offs

 

(37,344

)

(3,030

)

(4,855

)

(336

)

-

 

(2,892

)

(48,457

)

Recoveries

 

673

 

346

 

1,377

 

8

 

-

 

2,208

 

4,612

 

Net charge-offs

 

(36,671

)

(2,684

)

(3,478

)

(328

)

-

 

(684

)

(43,845

)

Provision for credit losses

 

38,290

 

3,348

 

1,817

 

(79

)

-

 

629

 

44,005

 

Other

 

-

 

-

 

-

 

4

 

-

 

-

 

4

 

Balance, at end of quarter

 

$

175,716

 

$

50,783

 

$

24,611

 

$

2,941

 

$

-

 

$

1,421

 

$

255,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Consumer
Real Estate

 

Commercial

 

Leasing and
Equipment
Finance

 

Inventory
Finance

 

Auto
Finance

 

Other

 

Total

 

At or For the Six Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of year

 

$

183,435

 

$

46,954

 

$

21,173

 

$

2,996

 

$

-

 

$

1,114

 

$

255,672

 

Charge-offs

 

(73,142

)

(10,343

)

(4,443

)

(953

)

(84

)

(5,544

)

(94,509

)

Recoveries

 

2,597

 

364

 

3,119

 

85

 

1

 

4,550

 

10,716

 

Net charge-offs

 

(70,545

)

(9,979

)

(1,324

)

(868

)

(83

)

(994

)

(83,793

)

Provision for credit losses

 

75,197

 

13,724

 

5,601

 

4,968

 

2,376

 

782

 

102,648

 

Transfers and other

 

-

 

-

 

-

 

(24

)

(342

)

-

 

(366

)

Balance, at end of period

 

$

188,087

 

$

50,699

 

$

25,450

 

$

7,072

 

$

1,951

 

$

902

 

$

274,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Six Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at beginning of year

 

$

172,850

 

$

62,478

 

$

26,301

 

$

2,537

 

$

-

 

$

1,653

 

$

265,819

 

Charge-offs

 

(73,532

)

(20,942

)

(8,805

)

(571

)

-

 

(5,711

)

(109,561

)

Recoveries

 

1,558

 

480

 

2,538

 

35

 

-

 

5,293

 

9,904

 

Net charge-offs

 

(71,974

)

(20,462

)

(6,267

)

(536

)

-

 

(418

)

(99,657

)

Provision for credit losses

 

74,840

 

8,767

 

4,577

 

909

 

-

 

186

 

89,279

 

Other

 

-

 

-

 

-

 

31

 

-

 

-

 

31

 

Balance, at end of period

 

$

175,716

 

$

50,783

 

$

24,611

 

$

2,941

 

$

-

 

$

1,421

 

$

255,472

 

 

10



 

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

allowance methodology.

 

 

 

At June 30, 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

 

$

186,739

 

$

25,722

 

$

17,925

 

$

6,659

 

$

1,951

 

$

902

 

$

239,898

 

Individually evaluated for loss potential

 

1,348

 

24,977

 

7,525

 

413

 

-

 

-

 

34,263

 

Total

 

$

188,087

 

$

50,699

 

$

25,450

 

$

7,072

 

$

1,951

 

$

902

 

$

274,161

 

Loans and leases outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for loss potential

 

$

6,804,456

 

$

2,943,859

 

$

3,115,652

 

$

1,446,930

 

$

260,101

 

$

29,094

 

$

14,600,092

 

Individually evaluated for loss potential

 

7,328

 

579,211

 

30,646

 

10,333

 

-

 

-

 

627,518

 

Loans acquired with deteriorated credit quality

 

-

 

-

 

4,807

 

-

 

2,087

 

-

 

6,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,811,784

 

$

3,523,070

 

$

3,151,105

 

$

1,457,263

 

$

262,188

 

$

29,094

 

$

15,234,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2011