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
September 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
(Registrants 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 (Do not check if a smaller reporting company) |
Smaller reporting company o |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
|
|
Outstanding at |
Class |
|
October 21, 2010 |
Common Stock, $.01 par value |
|
142,644,421 shares |
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PART 1 - FINANCIAL INFORMATION
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
|
|
At |
|
At |
|
||
|
|
September 30, |
|
December 31, |
|
||
(Dollars in thousands, except per-share data) |
|
2010 |
|
2009 |
|
||
|
|
(Unaudited) |
|
|
|
||
Assets |
|
|
|
|
|
||
|
|
|
|
|
|
||
Cash and due from banks |
|
$ |
386,671 |
|
$ |
299,127 |
|
Investments |
|
169,877 |
|
163,692 |
|
||
Securities available for sale |
|
1,947,462 |
|
1,910,476 |
|
||
Loans and leases: |
|
|
|
|
|
||
Consumer real estate and other |
|
7,280,454 |
|
7,331,991 |
|
||
Commercial real estate |
|
3,323,018 |
|
3,269,003 |
|
||
Commercial business |
|
340,035 |
|
449,516 |
|
||
Leasing and equipment finance |
|
3,157,472 |
|
3,071,429 |
|
||
Inventory finance |
|
795,622 |
|
468,805 |
|
||
Total loans and leases |
|
14,896,601 |
|
14,590,744 |
|
||
Allowance for loan and lease losses |
|
(253,120 |
) |
(244,471 |
) |
||
Net loans and leases |
|
14,643,481 |
|
14,346,273 |
|
||
Premises and equipment, net |
|
446,398 |
|
447,930 |
|
||
Goodwill |
|
152,599 |
|
152,599 |
|
||
Other assets |
|
567,120 |
|
565,078 |
|
||
Total assets |
|
$ |
18,313,608 |
|
$ |
17,885,175 |
|
|
|
|
|
|
|
||
Liabilities and Equity |
|
|
|
|
|
||
|
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
||
Checking |
|
$ |
4,352,506 |
|
$ |
4,400,290 |
|
Savings |
|
5,424,679 |
|
5,339,955 |
|
||
Money market |
|
639,007 |
|
640,569 |
|
||
Certificates of deposit |
|
1,045,327 |
|
1,187,505 |
|
||
Total deposits |
|
11,461,519 |
|
11,568,319 |
|
||
Short-term borrowings |
|
344,681 |
|
244,604 |
|
||
Long-term borrowings |
|
4,581,511 |
|
4,510,895 |
|
||
Total borrowings |
|
4,926,192 |
|
4,755,499 |
|
||
Accrued expenses and other liabilities |
|
419,935 |
|
381,602 |
|
||
Total liabilities |
|
16,807,646 |
|
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; 142,685,276 and 130,339,500 shares issued |
|
1,427 |
|
1,303 |
|
||
Additional paid-in capital |
|
454,139 |
|
297,429 |
|
||
Retained earnings, subject to certain restrictions |
|
1,041,331 |
|
946,002 |
|
||
Accumulated other comprehensive income (loss) |
|
22,458 |
|
(18,545 |
) |
||
Treasury stock at cost, 54,413 and 1,136,688 shares, and other |
|
(23,400 |
) |
(50,827 |
) |
||
Total TCF Financial Corporation stockholders equity |
|
1,495,955 |
|
1,175,362 |
|
||
Non-controlling interest in subsidiaries |
|
10,007 |
|
4,393 |
|
||
Total equity |
|
1,505,962 |
|
1,179,755 |
|
||
Total liabilities and equity |
|
$ |
18,313,608 |
|
$ |
17,885,175 |
|
See accompanying notes to consolidated financial statements.
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
(In thousands, except per-share data) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income: |
|
|
|
|
|
|
|
|
|
||||
Loans and leases |
|
$ |
219,974 |
|
$ |
217,307 |
|
$ |
663,151 |
|
$ |
642,084 |
|
Securities available for sale |
|
19,901 |
|
20,474 |
|
62,373 |
|
69,392 |
|
||||
Investments and other |
|
1,232 |
|
1,217 |
|
3,609 |
|
3,210 |
|
||||
Total interest income |
|
241,107 |
|
238,998 |
|
729,133 |
|
714,686 |
|
||||
Interest expense: |
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
13,974 |
|
27,512 |
|
47,859 |
|
100,941 |
|
||||
Borrowings |
|
53,378 |
|
49,997 |
|
156,358 |
|
150,380 |
|
||||
Total interest expense |
|
67,352 |
|
77,509 |
|
204,217 |
|
251,321 |
|
||||
Net interest income |
|
173,755 |
|
161,489 |
|
524,916 |
|
463,365 |
|
||||
Provision for credit losses |
|
59,287 |
|
75,544 |
|
158,791 |
|
181,147 |
|
||||
Net interest income after provision for credit losses |
|
114,468 |
|
85,945 |
|
366,125 |
|
282,218 |
|
||||
Non-interest income: |
|
|
|
|
|
|
|
|
|
||||
Fees and service charges |
|
67,684 |
|
77,433 |
|
211,701 |
|
212,033 |
|
||||
Card revenue |
|
27,779 |
|
26,393 |
|
83,442 |
|
77,957 |
|
||||
ATM revenue |
|
7,985 |
|
7,861 |
|
22,851 |
|
23,432 |
|
||||
Subtotal |
|
103,448 |
|
111,687 |
|
317,994 |
|
313,422 |
|
||||
Leasing and equipment finance |
|
24,912 |
|
15,173 |
|
65,792 |
|
44,705 |
|
||||
Other |
|
1,077 |
|
1,197 |
|
4,767 |
|
2,475 |
|
||||
Fees and other revenue |
|
129,437 |
|
128,057 |
|
388,553 |
|
360,602 |
|
||||
Gains on securities, net |
|
8,505 |
|
|
|
7,938 |
|
22,104 |
|
||||
Total non-interest income |
|
137,942 |
|
128,057 |
|
396,491 |
|
382,706 |
|
||||
Non-interest expense: |
|
|
|
|
|
|
|
|
|
||||
Compensation and employee benefits |
|
90,282 |
|
90,680 |
|
265,490 |
|
267,622 |
|
||||
Occupancy and equipment |
|
32,091 |
|
31,619 |
|
95,583 |
|
95,193 |
|
||||
FDIC premiums |
|
5,486 |
|
5,085 |
|
16,186 |
|
13,821 |
|
||||
Advertising and marketing |
|
3,354 |
|
4,766 |
|
9,908 |
|
13,345 |
|
||||
Deposit account premiums |
|
3,340 |
|
7,472 |
|
15,616 |
|
21,335 |
|
||||
Other |
|
39,481 |
|
34,736 |
|
108,944 |
|
102,625 |
|
||||
Subtotal |
|
174,034 |
|
174,358 |
|
511,727 |
|
513,941 |
|
||||
Foreclosed real estate and repossessed assets, net |
|
9,588 |
|
8,461 |
|
27,604 |
|
19,349 |
|
||||
Operating lease depreciation |
|
8,965 |
|
3,734 |
|
28,817 |
|
11,618 |
|
||||
Other credit costs, net |
|
(834 |
) |
3,714 |
|
4,476 |
|
7,751 |
|
||||
FDIC special assessment |
|
|
|
|
|
|
|
8,362 |
|
||||
Total non-interest expense |
|
191,753 |
|
190,267 |
|
572,624 |
|
561,021 |
|
||||
Income before income tax expense |
|
60,657 |
|
23,735 |
|
189,992 |
|
103,903 |
|
||||
Income tax expense |
|
22,852 |
|
6,491 |
|
71,754 |
|
36,469 |
|
||||
Income after income tax expense |
|
37,805 |
|
17,244 |
|
118,238 |
|
67,434 |
|
||||
Income (loss) attributable to non-controlling interest |
|
912 |
|
(207 |
) |
2,399 |
|
(207 |
) |
||||
Net income |
|
36,893 |
|
17,451 |
|
115,839 |
|
67,641 |
|
||||
Preferred stock dividends |
|
|
|
|
|
|
|
6,378 |
|
||||
Non-cash deemed preferred stock dividend |
|
|
|
|
|
|
|
12,025 |
|
||||
Net income available to common stockholders |
|
$ |
36,893 |
|
$ |
17,451 |
|
$ |
115,839 |
|
$ |
49,238 |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per common share: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
.26 |
|
$ |
.14 |
|
$ |
.84 |
|
$ |
.39 |
|
Diluted |
|
$ |
.26 |
|
$ |
.14 |
|
$ |
.84 |
|
$ |
.39 |
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends declared per common share |
|
$ |
.05 |
|
$ |
.05 |
|
$ |
.15 |
|
$ |
.35 |
|
See accompanying notes to consolidated financial statements.
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
(Unaudited)
|
|
TCF Financial Corporation |
|
|
|
|
|
|||||||||||||||||||||||
(Dollars in thousands) |
|
Number of |
|
Preferred |
|
Common |
|
Additional |
|
Retained |
|
Accumulated |
|
Treasury |
|
Total |
|
Non-controlling |
|
Total |
|
|||||||||
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 (loss) after income tax expense |
|
|
|
|
|
|
|
|
|
67,641 |
|
|
|
|
|
67,641 |
|
(207 |
) |
67,434 |
|
|||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
4,497 |
|
|
|
4,497 |
|
|
|
4,497 |
|
|||||||||
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
67,641 |
|
4,497 |
|
|
|
72,138 |
|
(207 |
) |
71,931 |
|
|||||||||
Investment by non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,811 |
|
3,811 |
|
|||||||||
Dividends on preferred stock |
|
|
|
710 |
|
|
|
|
|
(6,378 |
) |
|
|
|
|
(5,668 |
) |
|
|
(5,668 |
) |
|||||||||
Dividends on common stock |
|
|
|
|
|
|
|
|
|
(44,440 |
) |
|
|
|
|
(44,440 |
) |
|
|
(44,440 |
) |
|||||||||
Non-cash deemed preferred stock dividend |
|
|
|
12,025 |
|
|
|
|
|
(12,025 |
) |
|
|
|
|
|
|
|
|
|
|
|||||||||
Redemption of preferred stock |
|
|
|
(361,172 |
) |
|
|
|
|
|
|
|
|
|
|
(361,172 |
) |
|
|
(361,172 |
) |
|||||||||
Grants of restricted stock, 549,920 shares |
|
|
|
|
|
|
|
(14,241 |
) |
|
|
|
|
14,241 |
|
|
|
|
|
|
|
|||||||||
Treasury shares sold to TCF
employee |
|
|
|
|
|
|
|
(14,150 |
) |
|
|
|
|
29,299 |
|
15,149 |
|
|
|
15,149 |
|
|||||||||
Exercise of stock options, 108,800 shares |
|
|
|
|
|
|
|
(1,279 |
) |
|
|
|
|
2,817 |
|
1,538 |
|
|
|
1,538 |
|
|||||||||
Cancellation of shares of restricted stock |
|
(448,500 |
) |
|
|
(4 |
) |
(481 |
) |
191 |
|
|
|
|
|
(294 |
) |
|
|
(294 |
) |
|||||||||
Cancellation of common shares for |
|
(17,670 |
) |
|
|
|
|
(235 |
) |
|
|
|
|
|
|
(235 |
) |
|
|
(235 |
) |
|||||||||
Amortization of stock compensation |
|
|
|
|
|
|
|
6,515 |
|
|
|
|
|
|
|
6,515 |
|
|
|
6,515 |
|
|||||||||
Stock compensation tax expense |
|
|
|
|
|
|
|
(1,072 |
) |
|
|
|
|
|
|
(1,072 |
) |
|
|
(1,072 |
) |
|||||||||
Change in shares held in trust for |
|
|
|
|
|
|
|
(1,341 |
) |
|
|
|
|
1,341 |
|
|
|
|
|
|
|
|||||||||
Balance, September 30, 2009 |
|
130,373,208 |
|
$ |
|
|
$ |
1,304 |
|
$ |
304,190 |
|
$ |
932,882 |
|
$ |
805 |
|
$ |
(62,946 |
) |
$ |
1,176,235 |
|
$ |
3,604 |
|
$ |
1,179,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
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 |
|
|
|
|
|
|
|
|
|
115,839 |
|
|
|
|
|
115,839 |
|
2,399 |
|
118,238 |
|
|||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
41,003 |
|
|
|
41,003 |
|
|
|
41,003 |
|
|||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
115,839 |
|
41,003 |
|
|
|
156,842 |
|
2,399 |
|
159,241 |
|
|||||||||
Public offering of common stock |
|
12,322,250 |
|
|
|
124 |
|
164,443 |
|
|
|
|
|
|
|
164,567 |
|
|
|
164,567 |
|
|||||||||
Investment by non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,215 |
|
3,215 |
|
|||||||||
Dividends on common stock |
|
|
|
|
|
|
|
|
|
(20,538 |
) |
|
|
|
|
(20,538 |
) |
|
|
(20,538 |
) |
|||||||||
Grants of restricted stock, 324,663 shares |
|
|
|
|
|
|
|
(8,407 |
) |
|
|
|
|
8,407 |
|
|
|
|
|
|
|
|||||||||
Common shares purchased by TCF employee benefit plans |
|
177,011 |
|
|
|
2 |
|
2,623 |
|
|
|
|
|
|
|
2,625 |
|
|
|
2,625 |
|
|||||||||
Treasury shares sold to TCF
employee |
|
|
|
|
|
|
|
(7,893 |
) |
|
|
|
|
19,619 |
|
11,726 |
|
|
|
11,726 |
|
|||||||||
Cancellation of shares of restricted stock |
|
(21,223 |
) |
|
|
|
|
(221 |
) |
28 |
|
|
|
|
|
(193 |
) |
|
|
(193 |
) |
|||||||||
Cancellation of common shares for |
|
(132,262 |
) |
|
|
(2 |
) |
(1,891 |
) |
|
|
|
|
|
|
(1,893 |
) |
|
|
(1,893 |
) |
|||||||||
Amortization of stock compensation |
|
|
|
|
|
|
|
7,168 |
|
|
|
|
|
|
|
7,168 |
|
|
|
7,168 |
|
|||||||||
Stock compensation tax benefits |
|
|
|
|
|
|
|
289 |
|
|
|
|
|
|
|
289 |
|
|
|
289 |
|
|||||||||
Change in shares held in trust for |
|
|
|
|
|
|
|
599 |
|
|
|
|
|
(599 |
) |
|
|
|
|
|
|
|||||||||
Balance, September 30, 2010 |
|
142,685,276 |
|
$ |
|
|
$ |
1,427 |
|
$ |
454,139 |
|
$ |
1,041,331 |
|
$ |
22,458 |
|
$ |
(23,400 |
) |
$ |
1,495,955 |
|
$ |
10,007 |
|
$ |
1,505,962 |
|
See accompanying notes to consolidated financial statements.
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
||||
(In thousands) |
|
2010 |
|
2009 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income |
|
$ |
115,839 |
|
$ |
67,641 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Provision for credit losses |
|
158,791 |
|
181,147 |
|
||
Depreciation and amortization |
|
65,686 |
|
46,959 |
|
||
Net increase in other assets and accrued expenses and other liabilities |
|
26,574 |
|
19,656 |
|
||
Gains on sales of assets, net |
|
(9,553 |
) |
(22,305 |
) |
||
Other, net |
|
11,620 |
|
9,908 |
|
||
Total adjustments |
|
253,118 |
|
235,365 |
|
||
Net cash provided by operating activities |
|
368,957 |
|
303,006 |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Principal collected on loans and leases |
|
3,673,922 |
|
2,369,555 |
|
||
Originations and purchases of loans |
|
(3,417,903 |
) |
(2,451,930 |
) |
||
Purchases of equipment for lease financing |
|
(570,420 |
) |
(562,834 |
) |
||
Purchase of leasing and equipment finance portfolios |
|
(186,779 |
) |
(329,432 |
) |
||
Purchase of inventory finance portfolios |
|
(168,612 |
) |
(42,871 |
) |
||
Proceeds from sales of securities available for sale |
|
284,681 |
|
1,097,711 |
|
||
Purchases of securities available for sale |
|
(498,822 |
) |
(1,312,101 |
) |
||
Proceeds from maturities of and principal collected on securities available for sale |
|
245,635 |
|
274,455 |
|
||
Purchases of Federal Home Loan Bank stock |
|
(10,008 |
) |
|
|
||
Redemption of Federal Home Loan Bank stock |
|
11,135 |
|
|
|
||
Proceeds from sales of real estate owned |
|
64,924 |
|
34,532 |
|
||
Purchases of premises and equipment |
|
(28,491 |
) |
(31,510 |
) |
||
Acquisition of Fidelity National Capital, Inc. |
|
|
|
(57,728 |
) |
||
Other, net |
|
25,186 |
|
21,686 |
|
||
Net cash used by investing activities |
|
(575,552 |
) |
(990,467 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Net (decrease) increase in deposits |
|
(106,800 |
) |
1,382,659 |
|
||
Net increase (decrease) in short-term borrowings |
|
100,077 |
|
(205,464 |
) |
||
Proceeds from long-term borrowings |
|
166,785 |
|
18,202 |
|
||
Payments on long-term borrowings |
|
(31,733 |
) |
(132,584 |
) |
||
Net proceeds from public offering of common stock |
|
164,567 |
|
|
|
||
Redemption of preferred stock |
|
|
|
(361,172 |
) |
||
Net investment by non-controlling interest |
|
3,215 |
|
3,811 |
|
||
Dividends paid on common stock |
|
(20,538 |
) |
(44,440 |
) |
||
Dividends paid on preferred stock |
|
|
|
(7,925 |
) |
||
Common shares sold to TCF employee benefit plans |
|
11,726 |
|
15,149 |
|
||
Other, net |
|
6,840 |
|
6,508 |
|
||
Net cash provided by financing activities |
|
294,139 |
|
674,744 |
|
||
Net increase (decrease) in cash and due from banks |
|
87,544 |
|
(12,717 |
) |
||
Cash and due from banks at beginning of period |
|
299,127 |
|
342,380 |
|
||
Cash and due from banks at end of period |
|
$ |
386,671 |
|
$ |
329,663 |
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
||
Cash paid for: |
|
|
|
|
|
||
Interest on deposits and borrowings |
|
$ |
195,605 |
|
$ |
255,513 |
|
Income taxes |
|
$ |
70,636 |
|
$ |
9,536 |
|
Transfer of loans and leases to other assets |
|
$ |
151,995 |
|
$ |
113,957 |
|
See accompanying notes to consolidated financial statements.
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 Managements 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.
(In thousands) |
|
At |
|
At |
|
||
Federal Home Loan Bank stock, at cost: |
|
|
|
|
|
||
Des Moines |
|
$ |
126,889 |
|
$ |
128,016 |
|
Chicago |
|
4,617 |
|
4,617 |
|
||
Subtotal |
|
131,506 |
|
132,633 |
|
||
Federal Reserve Bank stock, at cost |
|
30,692 |
|
22,972 |
|
||
Other |
|
7,679 |
|
8,087 |
|
||
Total investments |
|
$ |
169,877 |
|
$ |
163,692 |
|
The investments in Federal Home Loan Bank (FHLB) stock are required investments related to TCFs 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 others debt. Therefore, TCFs 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 first nine months of 2010, TCF recorded an impairment charge of $241 thousand on other investments, which had a carrying value of $7.7 million at September 30, 2010, as full recovery is not expected.
(3) Securities Available for Sale
Securities available for sale consist of the following.
|
|
At September 30, 2010 |
|
At December 31, 2009 |
|
||||||||||||||||||||
(Dollars in thousands) |
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
|
||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
U.S. Government sponsored |
|
$ |
1,699,305 |
|
$ |
63,983 |
|
$ |
|
|
$ |
1,763,288 |
|
$ |
1,903,201 |
|
$ |
21,138 |
|
$ |
19,130 |
|
$ |
1,905,209 |
|
Other |
|
228 |
|
|
|
|
|
228 |
|
263 |
|
|
|
|
|
263 |
|
||||||||
U.S. Treasury Bills |
|
180,974 |
|
|
|
3 |
|
180,971 |
|
|
|
|
|
|
|
|
|
||||||||
Other securities |
|
3,408 |
|
|
|
433 |
|
2,975 |
|
4,783 |
|
221 |
|
|
|
5,004 |
|
||||||||
Total |
|
$ |
1,883,915 |
|
$ |
63,983 |
|
$ |
436 |
|
$ |
1,947,462 |
|
$ |
1,908,247 |
|
$ |
21,359 |
|
$ |
19,130 |
|
$ |
1,910,476 |
|
Weighted-average yield |
|
3.98 |
% |
|
|
|
|
|
|
4.54 |
% |
|
|
|
|
|
|
At both September 30, 2010 and December 31, 2009, TCF had $1.8 billion of securities available for sale pledged as collateral to secure certain borrowings and deposits.
During the first nine months of 2010, TCF recorded an impairment charge of $1.4 million on other securities as full recovery is not expected. The other securities had a fair value of $3 million at September 30, 2010.
The following table shows the securities available for sale portfolios gross unrealized losses and fair value, aggregated by investment category and length of time 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 |
|
||||||||||||
(In thousands) |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
||||||
At September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. Treasury Bills |
|
$ |
180,971 |
|
$ |
3 |
|
$ |
|
|
$ |
|
|
$ |
180,971 |
|
$ |
3 |
|
Other securities |
|
2,975 |
|
433 |
|
|
|
|
|
2,975 |
|
433 |
|
||||||
Total |
|
$ |
183,946 |
|
$ |
436 |
|
$ |
|
|
$ |
|
|
$ |
183,946 |
|
$ |
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
At December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. Government sponsored |
|
$ |
1,082,197 |
|
$ |
19,130 |
|
$ |
|
|
$ |
|
|
$ |
1,082,197 |
|
$ |
19,130 |
|
The amortized cost and fair value of securities available for sale at September 30, 2010, by contractual maturity, are shown below.
(In thousands) |
|
Amortized |
|
Fair Value |
|
|||
Due in one year or less |
|
$ |
181,024 |
|
$ |
181,021 |
|
|
Due in 1-5 years |
|
234 |
|
235 |
|
|||
Due in 5-10 years |
|
362 |
|
376 |
|
|||
Due after 10 years |
|
1,699,137 |
|
1,763,106 |
|
|||
No stated maturity |
|
3,158 |
|
2,724 |
|
|||
Total |
|
$ |
1,883,915 |
|
$ |
1,947,462 |
|
|
(4) Loans and Leases
The following table sets forth information about loans and leases.
(Dollars in thousands) |
|
At |
|
At |
|
Percentage |
|
|||
Consumer real estate and other: |
|
|
|
|
|
|
|
|
||
Consumer real estate: |
|
|
|
|
|
|
|
|
||
First mortgage lien |
|
$ |
4,951,772 |
|
$ |
4,961,347 |
|
(.2 |
)% |
|
Junior lien |
|
2,285,066 |
|
2,319,222 |
|
(1.5 |
) |
|
||
Total consumer real estate |
|
7,236,838 |
|
7,280,569 |
|
(.6 |
) |
|
||
Other |
|
43,616 |
|
51,422 |
|
(15.2 |
) |
|
||
Total consumer real estate and other |
|
7,280,454 |
|
7,331,991 |
|
(.7 |
) |
|
||
Commercial: |
|
|
|
|
|
|
|
|
||
Commercial real estate: |
|
|
|
|
|
|
|
|
||
Permanent |
|
3,137,025 |
|
3,016,518 |
|
4.0 |
|
|
||
Construction and development |
|
185,993 |
|
252,485 |
|
(26.3 |
) |
|
||
Total commercial real estate |
|
3,323,018 |
|
3,269,003 |
|
1.7 |
|
|
||
Commercial business |
|
340,035 |
|
449,516 |
|
(24.4 |
) |
|
||
Total commercial |
|
3,663,053 |
|
3,718,519 |
|
(1.5 |
) |
|
||
Leasing and equipment finance (1): |
|
|
|
|
|
|
|
|
||
Equipment finance loans |
|
904,607 |
|
868,830 |
|
4.1 |
|
|
||
Lease financings: |
|
|
|
|
|
|
|
|
||
Direct financing leases |
|
2,330,187 |
|
2,305,945 |
|
1.1 |
|
|
||
Sales-type leases |
|
27,014 |
|
24,714 |
|
9.3 |
|
|
||
Lease residuals |
|
109,448 |
|
106,391 |
|
2.9 |
|
|
||
Unearned income and deferred lease costs |
|
(213,784 |
) |
(234,451 |
) |
8.8 |
|
|
||
Total lease financings |
|
2,252,865 |
|
2,202,599 |
|
2.3 |
|
|
||
Total leasing and equipment finance |
|
3,157,472 |
|
3,071,429 |
|
2.8 |
|
|
||
Inventory finance |
|
795,622 |
|
468,805 |
|
69.7 |
|
|
||
Total loans and leases |
|
$ |
14,896,601 |
|
$ |
14,590,744 |
|
2.1 |
|
|
(1) Operating leases of $82.2 million at September 30, 2010 and $105.9 million at December 31, 2009 are included in other assets in the Consolidated Statements of Financial Condition.
Included within the loans and leases above are certain loans that have been modified in order to retain customers or maximize collection of loan balances. If, for economic or legal reasons related to the customers financial difficulties, TCF grants a concession that it would not have otherwise considered, the modified loan is classified as a restructured loan. All restructured loans are considered to be impaired. TCF held restructured consumer loans of $341.1 million and $267.9 million at September 30, 2010 and December 31, 2009, respectively. Of these loans, $315.6 million and $252.5 million were accruing at September 30, 2010 and December 31, 2009, respectively. TCF also held $14.8 million and $9.6 million of restructured commercial loans at September 30, 2010 and December 31, 2009, respectively. Of these loans, $5.5 million were accruing at September 30, 2010. There were no accruing restructured commercial loans at December 31, 2009. The amount of additional funds committed to borrowers who have restructured loans was $40 thousand at September 30, 2010 and $3 million at December 31, 2009.
(5) Acquired Loans and Leases
During the first nine months of 2010, TCF paid $355.4 million to acquire loans and leases having contractual remaining cash flows of $367 million. At the time of acquisition, the expected principal cash flows to be collected over the life of the contracts and minimum lease payments was $355.2 million. However, for these loans and leases, it was probable that TCF would collect all contractual remaining cash flows of $367 million based on customer payments or indemnifications from the sellers or, in the case of inventory finance receivables, from program manufacturers.
During the first nine months of 2009, TCF paid $372.3 million to acquire loans and leases having contractual remaining cash flows of $427.7 million. At the time of acquisition, the expected principal, minimum lease payment and residual cash flows to be collected over the life of the contracts was $371.4 million. For these loans and leases, it was probable that TCF would not collect all of the contractual amounts due but was probable that TCF would collect the expected cash flows. These loans and leases were initially recorded at fair value and a non-accretable discount was established for the difference between the contractual cash flows and the expected cash flows determined at the time of acquisition. Non-accretable discounts of $5.4 million and $10.2 million remained on these portfolios at September 30, 2010 and December 31, 2009, respectively. In the future, if TCF is unable to collect the expected cash flows or revises its expectations below the current level, an allowance for credit losses will be established on these acquired portfolios.
The excess of expected principal cash flows to be collected over the initial fair value of the acquired portfolios is referred to as the accretable yield and is accreted into interest income over the estimated life of the acquired portfolios using the effective yield method. The accretable yield is affected by changes in interest rate indices for variable rate acquired portfolios, changes in prepayment assumptions and changes in the expected principal and interest payments over the estimated life of the loan. These loans and leases are classified as accruing and interest income continues to be recognized unless expected losses exceed the non-accretable discount.
The following table provides a summary of accretable yield activity for all acquired loan and lease portfolios during the three and nine months ended September 30, 2010 and 2009.
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||||
(In thousands) |
|
2010 |
|
|
2009 |
|
2010 |
|
|
2009 |
|
||||
Balance at beginning of period |
|
$ |
1,405 |
|
|
$ |
1,023 |
|
$ |
1,903 |
|
|
$ |
|
|
Portfolio acquisitions |
|
214 |
|
|
862 |
|
214 |
|
|
2,070 |
|
||||
Accretion |
|
(316 |
) |
|
(133 |
) |
(814 |
) |
|
(318 |
) |
||||
Balance at end of period |
|
$ |
1,303 |
|
|
$ |
1,752 |
|
$ |
1,303 |
|
|
$ |
1,752 |
|
Within the loan and lease portfolios acquired in 2009, there were certain loans which had experienced deterioration in credit quality at the time of acquisition. These loans had outstanding principal balances of $15.8 million and $21.6 million at September 30, 2010 and December 31, 2009, respectively. The non-accretable discount on loans acquired with deteriorated credit quality was $834 thousand and $1 million at September 30, 2010 and December 31, 2009, respectively. The remaining accretion for these loans was $251 thousand at September 30, 2010 and $376 thousand at December 31, 2009. Accretion of $125 thousand and $108 thousand was recorded to income during the nine months ended September 30, 2010 and 2009, respectively.
(6) Long-term Borrowings
The following table sets forth information about long-term borrowings.
|
|
|
|
At September 30, 2010 |
|
At December 31, 2009 |
|
||||||
(Dollars in thousands) |
|
Stated |
|
Amount |
|
Weighted- |
|
Amount |
|
Weighted- |
|
||
FHLB advances and securities sold
under |
|
2010 |
|
$ |
100,000 |
|
6.02% |
|
$ |
100,000 |
|
6.02% |
|
|
|
2011 |
|
300,000 |
|
4.64 |
|
300,000 |
|
4.64 |
|
||
|
|
2015 |
|
900,000 |
|
4.18 |
|
900,000 |
|
4.18 |
|
||
|
|
2016 |
|
1,100,000 |
|
4.49 |
|
1,100,000 |
|
4.49 |
|
||
|
|
2017 |
|
1,250,000 |
|
4.60 |
|
1,250,000 |
|
4.60 |
|
||
|
|
2018 |
|
300,000 |
|
3.51 |
|
300,000 |
|
3.51 |
|
||
Sub-total |
|
|
|
3,950,000 |
|
4.43 |
|
3,950,000 |
|
4.43 |
|
||
Subordinated bank notes |
|
2014 |
|
71,020 |
|
1.95 |
|
71,020 |
|
1.91 |
|
||
|
|
2015 |
|
50,000 |
|
1.88 |
|
49,969 |
|
5.37 |
|
||
|
|
2016 |
|
74,572 |
|
5.63 |
|
74,522 |
|
5.63 |
|
||
Sub-total |
|
|
|
195,592 |
|
3.33 |
|
195,511 |
|
4.21 |
|
||
Junior subordinated notes (trust preferred) |
|
2068 |
|
110,746 |
|
12.82 |
|
110,441 |
|
11.20 |
|
||
Senior unsecured term note |
|
2012 |
|
89,683 |
|
4.08 |
|
|
|
|
|
||
Discounted lease rentals |
|
2010 |
|
27,282 |
|
5.33 |
|
108,795 |
|
5.42 |
|
||
|
|
2011 |
|
84,403 |
|
5.35 |
|
69,420 |
|
5.55 |
|
||
|
|
2012 |
|
61,024 |
|
5.36 |
|
43,968 |
|
5.62 |
|
||
|
|
2013 |
|
37,199 |
|
5.32 |
|
25,657 |
|
5.72 |
|
||
|
|
2014 |
|
15,385 |
|
5.12 |
|
6,500 |
|
5.84 |
|
||
|
|
2015 |
|
4,605 |
|
5.01 |
|
402 |
|
5.89 |
|
||
|
|
2016 |
|
3,805 |
|
4.98 |
|
201 |
|
5.91 |
|
||
|
|
2017 |
|
1,787 |
|
4.98 |
|
|
|
|
|
||
Sub-total |
|
|
|
235,490 |
|
5.32 |
|
254,943 |
|
5.53 |
|
||
Total long-term borrowings |
|
|
|
$ |
4,581,511 |
|
4.61 |
|
$ |
4,510,895 |
|
4.65 |
|
Included in FHLB advances and repurchase agreements at September 30, 2010 are $500 million of fixed-rate FHLB advances and repurchase agreements, which are callable quarterly by counterparties at par until maturity. In addition, TCF has $350 million of FHLB advances and $400 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.
The next call year and stated maturity year for the callable FHLB advances and repurchase agreements outstanding at September 30, 2010 were as follows.
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
||
Year |
|
Next Call |
|
|
Weighted- |
|
Stated |
|
|
Weighted- |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
2010 |
|
$ |
850,000 |
|
|
4.32 |
% |
$ |
|
|
|
|
% |
2011 |
|
400,000 |
|
|
3.84 |
|
200,000 |
|
|
4.85 |
|
||
2015 |
|
|
|
|
|
|
400,000 |
|
|
4.17 |
|
||
2016 |
|
|
|
|
|
|
100,000 |
|
|
4.82 |
|
||
2017 |
|
|
|
|
|
|
250,000 |
|
|
4.13 |
|
||
2018 |
|
|
|
|
|
|
300,000 |
|
|
3.51 |
|
||
Total |
|
$ |
1,250,000 |
|
|
4.16 |
|
$ |
1,250,000 |
|
|
4.16 |
|
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 September 30, 2010.
(7) Equity
Treasury stock and other consists of the following.
(In thousands) |
|
At |
|
At |
|
||
Treasury stock, at cost |
|
$ |
(1,409 |
) |
$ |
(29,435 |
) |
Shares held in trust for deferred |
|
(21,991 |
) |
(21,392 |
) |
||
Total |
|
$ |
(23,400 |
) |
$ |
(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 September 30, 2010, TCF had 5.4 million shares in its stock repurchase program authorized by its Board of Directors.
At September 30, 2010, TCF had outstanding 3,199,998 warrants to purchase common stock with a strike price of $16.93 per share. Upon completion of the U.S. Treasurys secondary public offering of the warrants issued under the Capital Purchase Program (CPP) in December of 2009, the warrants became publicly traded on the New York Stock Exchange under the symbol TCB WS. As a result, TCF has no further obligations to the Federal Government in connection with the CPP.
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 percent and 45 percent ownership interest, respectively, in Red Iron. As TCF has a controlling financial interest in Red Iron, its financial results are consolidated in TCFs financial statements. Toros interest is reported as a non-controlling interest within equity and qualifies as tier 1 regulatory capital.
TCF continues to be well-capitalized based on the capital requirements determined by the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC). The following table sets forth TCFs and TCF National Banks 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 TCFs tier 1 and total risk-based capital are primarily the result of the 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. Increases since December 31, 2009 in TCF National Banks tier 1 leverage, tier 1 risk-based and total risk-based capital levels are primarily due to infusions of capital from TCF as well as increased retained earnings.
|
|
Actual |
|
Minimum |
|
Well-Capitalized |
|
|||||||||
(Dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|||
As of September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 leverage capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF |
|
$ |
1,447,070 |
|
8.11 |
% |
$ |
535,039 |
|
3.00 |
% |
N.A. |
|
N.A. |
|
|
TCF National Bank |
|
1,490,689 |
|
8.36 |
|
534,736 |
|
3.00 |
|
$ |
891,227 |
|
5.00 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF |
|
1,447,070 |
|
10.35 |
|
559,367 |
|
4.00 |
|
839,051 |
|
6.00 |
|
|||
TCF National Bank |
|
1,490,689 |
|
10.67 |
|
558,959 |
|
4.00 |
|
838,438 |
|
6.00 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF |
|
1,780,484 |
|
12.73 |
|
1,118,734 |
|
8.00 |
|
1,398,418 |
|
10.00 |
|
|||
TCF National Bank |
|
1,823,977 |
|
13.05 |
|
1,117,918 |
|
8.00 |
|
1,397,397 |
|
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 |
|
(1) The minimum and well capitalized capital requirements are determined by the Federal Reserve Board for TCF and by the OCC for TCF National Bank.
N.A. Not Applicable.
(8) Foreign Exchange Contracts
Forward foreign exchange contracts to sell Canadian dollars are used to manage the foreign exchange risk associated with certain assets and liabilities of TCFs wholly-owned Canadian subsidiary, TCF Commercial Finance Canada, Inc. Forward foreign exchange contracts represent agreements to exchange Canadian dollars for U.S. dollars at an agreed-upon price on an agreed-upon settlement date. All forward foreign exchange contracts are recognized within other assets or other liabilities at fair value, with changes reflected in earnings, and typically settle within 30 days. At September 30, 2010, TCF had not designated any of these contracts as hedges.
The following table summarizes the forward foreign exchange contracts, recorded at fair value, that are reflected within other assets and other liabilities on TCFs Consolidated Statements of Financial Condition.
|
|
At September 30, 2010 |
|
|||||||
(In thousands) |
|
Notional |
|
Receivables |
|
Payables |
|
|||
Forward foreign exchange contracts |
|
$ |
160,000 |
|
$ |
77 |
|
$ |
150 |
|
Netting adjustments (1) |
|
|
|
(7 |
) |
(7 |
) |
|||
Carrying value of contracts |
|
|
|
$ |
70 |
|
$ |
143 |
|
|
(1) Foreign exchange contract receivables and payables, and the related cash collateral received and paid are netted when a legally enforceable master netting agreement exists between TCF and a counterparty.
The value of forward foreign exchange contracts will vary over their contractual lives as the related currency exchange rates fluctuate.
The following table summarizes the net impact of foreign exchange activity on other non-interest expense within the Consolidated Statements of Income.
|
|
September 30, 2010 |
|
|
|
||||
(In thousands) |
|
Three Months |
|
Nine Months |
|
|
|
||
Foreign exchange gains |
|
$ |
108 |
|
$ |
56 |
|
|
|
Forward foreign exchange contract losses |
|
(86 |
) |
(86 |
) |
|
|
||
Net effect |
|
$ |
22 |
|
$ |
(30 |
) |
|
|
TCF executes all of its foreign exchange contracts in the over-the-counter market with large, international financial institutions. These contracts also include credit risk-related contingent features, primarily in the form of International Swaps and Derivatives Association, Inc. (ISDA) master agreements that enhance the creditworthiness of these instruments as compared to other obligations of the respective counterparty with whom TCF has transacted. These contingent features may be for the benefit of TCF, as well as its counterparties with respect to changes in TCFs creditworthiness. At September 30, 2010, TCF had received $220 thousand of U.S. Treasury securities as collateral in the normal course of business under such agreements. The amount of collateral required depends on the contract and is determined daily based on market and currency exchange rate conditions.
In connection with certain over-the-counter forward foreign exchange contracts, TCF could be required to provide additional collateral or to terminate transactions with certain counterparties in the event that, among other things, TCF National Banks long-term debt is rated less than BB- by Standard and Poors ratings group. At September 30, 2010, approximately $1.8 million of additional collateral would be required if the credit risk-related contingent features were triggered. There were no forward foreign exchange contracts containing credit risk related features in a net liability position at September 30, 2010.
(9) 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 and liabilities recorded at fair value on a recurring basis.
Securities Available for Sale Securities available for sale consist primarily of U.S. Government sponsored enterprise securities and U.S. Treasury Bills. The fair value of U.S. Government sponsored enterprise securities is 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. The fair value of U.S. Treasury Bills is recorded using prices obtained from independent asset pricing services that obtain prices from brokers and active market participants, and are classified as Level 1 assets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and comparisons to current market trading activity. However, management does not adjust these prices.
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 and observable market information, which is adjusted for security specific information, such as financial statement strength, earnings history, disclosed fair value measurements, recorded impairments and key financial ratios, to determine fair value. During the first nine months of 2010, a $1.4 million impairment charge was recorded on other securities available for sale and is included in gains on securities, net in the Consolidated Statements of Income.
Assets Held in Trust for Deferred Compensation 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.
Forward Foreign Exchange Contracts TCFs forward foreign exchange contracts are executed in over-the-counter (OTC) markets and are valued using a cash flow model that includes key inputs such as foreign-exchange rates and, in accordance with generally accepted accounting principles, an assessment of the risk of counterparty non-performance. The risk of counterparty non-performance is based on external assessments of credit risk. The majority of these contracts are based on observable transactions, but not quoted markets, and are classified as Level 2 assets and liabilities. As permitted under generally accepted accounting principles, TCF has elected to net derivative receivables and derivative payables and the related cash collateral received and paid, when a legally enforceable master netting agreement exists. For purposes of the table below, the derivative receivable and payable balances are presented gross of this netting adjustment.
The table below presents the balances of assets and liabilities 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 September 30, 2010: |
|
|
|
|
|
|
|
|
|
||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
||||
U.S.
Government sponsored |
|
$ |
|
|
$ |
1,763,288 |
|
$ |
|
|
$ |
1,763,288 |
|
Other |
|
|
|
|
|
228 |
|
228 |
|
||||
U.S. Treasury Bills |
|
180,971 |
|
|
|
|
|
180,971 |
|
||||
Other securities |
|
|
|
|
|
2,975 |
|
2,975 |
|
||||
Forward foreign currency contracts |
|
|
|
77 |
|
|
|
77 |
|
||||
Assets
held in trust for deferred |
|
8,141 |
|
|
|
|
|
8,141 |
|
||||
Total assets |
|
$ |
189,112 |
|
$ |
1,763,365 |
|
$ |
3,203 |
|
$ |
1,955,680 |
|
Forward foreign currency contracts |
|
$ |
|
|
$ |
150 |
|
$ |
|
|
$ |
150 |
|
Total liabilities |
|
$ |
|
|
$ |
150 |
|
$ |
|
|
$ |
150 |
|
|
|
|
|
|
|
|
|
|
|
||||
At December 31, 2009: |
|
|
|
|
|
|
|
|
|
||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
||||
U.S. Government sponsored |
|
$ |
|
|
$ |
1,905,209 |
|
$ |
|
|
$ |
1,905,209 |
|
Other |
|
|
|
|
|
263 |
|
263 |
|
||||
Other securities |
|
|
|
|
|
5,004 |
|
5,004 |
|
||||
Assets held in trust for deferred |
|
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 TCFs obligation to the participants in these plans.
The change in the balance sheet carrying values associated with Company determined market priced financial assets carried at fair value, from $5.3 million at December 31, 2009 to $3.2 million at September 30, 2010, was the result of impairment charges totaling $1.4 million recorded through gains on securities, net, decreases in fair values of $656 thousand recorded through other comprehensive income and reductions due to principal paydowns of $34 thousand.
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 brokers price opinions, or automated valuation methods, less estimated selling costs. Certain properties require assumptions that are not observable in an active market in the determination of fair value. The fair value of repossessed and returned equipment is based on available pricing guides, auction results or price opinions, less estimated selling costs. Assets that are acquired through foreclosure, repossession or return are initially recorded at the lower of the loan or lease carrying amount or fair value less estimated selling costs at the time of transfer to real estate owned or repossessed and returned equipment. Long-lived assets held for
sale were written down $12.7 million, which is included in foreclosed real estate and repossessed assets, net expense, during the nine months ended September 30, 2010.
The table below presents the balances of assets at September 30, 2010 and December 31, 2009 which were measured at fair value on a non-recurring basis.
(In thousands) |
|
Readily Available |
|
Observable Market |
|
Company |
|
Total at Fair |
|
||||
At September 30, 2010: |
|
|
|
|
|
|
|
|
|
||||
Loans (4) |
|
$ |
|
|
$ |
|
|
$ |
58,530 |
|
$ |
58,530 |
|
Real estate owned (5) |
|
|
|
|
|
120,144 |
|
120,144 |
|
||||
Repossessed and returned equipment (5) |
|
|
|
9,107 |
|
1,712 |
|
10,819 |
|
||||
Investments (6) |
|
|
|
|
|
4,606 |
|
4,606 |
|
||||
Total |
|
$ |
|
|
$ |
9,107 |
|
$ |
184,992 |
|
$ |
194,099 |
|
At December 31, 2009: |
|
|
|
|
|
|
|
|
|
||||
Loans (4) |
|
$ |
|
|
$ |
|
|
$ |
62,794 |
|
$ |
62,794 |
|
Real estate owned (5) |
|
|
|
|
|
71,272 |
|
71,272 |
|
||||
Repossessed and returned equipment (5) |
|
|
|
14,861 |
|
527 |
|
15,388 |
|
||||
Total |
|
$ |
|
|
$ |
14,861 |
|
$ |
134,593 |
|
$ |
149,454 |
|
(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 assumptions that are not observable in an active market.
(4) Represents the carrying value of loans which are based on the appraisal value of the collateral.
(5) Amounts do not include assets held at cost at September 30, 2010 and December 31, 2009, respectively.
(6) Represents the carrying value of other investments which were recorded at fair value determined by using quoted prices, when available, and incorporating results of internal pricing techniques and observable market information during the three months ended September 30, 2010.
(10) Fair Values of Financial Instruments
TCF is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. These fair value estimates were made at September 30, 2010 and December 31, 2009 based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, given there is no active market or observable market transactions for many of TCFs financial instruments, the Company has made many estimates of fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values.
The carrying amounts and fair values of the Companys remaining financial instruments are set forth in the following table. This information represents only a portion of TCFs balance sheet and not the estimated value of the Company as a whole. Non-financial instruments such as the value of TCFs branches and core deposits, leasing operations and the future revenues from TCFs customers are not reflected in this disclosure. Therefore, this information is of limited use in assessing the value of TCF.
|
|
At September 30, |
|
At December 31, |
|
||||||||
|
|
2010 |
|
2009 |
|
||||||||
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
||||
(In thousands) |
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
||||
Financial instrument assets: |
|
|
|
|
|
|
|
|
|
||||
Cash and due from banks |
|
$ |
386,671 |
|
$ |
386,671 |
|
$ |
299,127 |
|
$ |
299,127 |
|
Investments |
|
169,877 |
|
169,877 |
|
163,692 |
|
163,692 |
|
||||
Securities available for sale |
|
1,947,462 |
|
1,947,462 |
|
1,910,476 |
|
1,910,476 |
|
||||
Loans: |
|
|
|
|
|
|
|
|
|
||||
Consumer real estate and other |
|
7,280,454 |
|
7,010,507 |
|
7,331,991 |
|
7,090,772 |
|
||||
Commercial real estate |
|
3,323,018 |
|
3,162,339 |
|
3,269,003 |
|
3,112,313 |
|
||||
Commercial business |
|
340,035 |
|
325,883 |
|
449,516 |
|
424,122 |
|
||||
Equipment finance loans |
|
904,607 |
|
917,593 |
|
868,830 |
|
878,168 |
|
||||
Inventory finance loans |
|
795,622 |
|
792,767 |
|
468,805 |
|
468,746 |
|
||||
Allowance for loan and lease losses (1) |
|
(253,120 |
) |
|
|
(244,471 |
) |
|
|
||||
Forward foreign currency contracts |
|
70 |
|
70 |
|
|
|
|
|
||||
Total financial instrument assets |
|
$ |
14,894,696 |
|
$ |
14,713,169 |
|
$ |
14,516,969 |
|
$ |
14,347,416 |
|
Financial instrument liabilities: |
|
|
|
|
|
|
|
|
|
||||
Checking, savings and money market deposits |
|
$ |
10,416,192 |
|
$ |
10,416,192 |
|
$ |
10,380,814 |
|
$ |
10,380,814 |
|
Certificates of deposit |
|
1,045,327 |
|
1,047,587 |
|
1,187,505 |
|
1,191,176 |
|
||||
Short-term borrowings |
|
344,681 |
|
344,681 |
|
244,604 |
|
244,604 |
|
||||
Long-term borrowings |
|
4,581,511 |
|
5,144,082 |
|
4,510,895 |
|
4,816,727 |
|
||||
Forward foreign currency contracts |
|
143 |
|
143 |
|
|
|
|
|
||||
Total financial instrument liabilities |
|
$ |
16,387,854 |
|
$ |
16,952,685 |
|
$ |
16,323,818 |
|
$ |
16,633,321 |
|
Financial instruments with off-balance-sheet risk: (2) |
|
|
|
|
|
|
|
|
|
||||
Commitments to extend credit (3) |
|
$ |
34,675 |
|
$ |
34,675 |
|
$ |
35,860 |
|
$ |
35,860 |
|
Standby letters of credit (4) |
|
(82 |
) |
(82 |
) |
(55 |
) |
(55 |
) |
||||
Total financial instruments with off-balance-sheet risk |
|
$ |
34,593 |
|
$ |
34,593 |
|
$ |
35,805 |
|
$ |
35,805 |
|
(1) Expected credit losses are included in the estimated fair values.
(2) Positive amounts represent assets, negative amounts represent liabilities.
(3) Carrying amounts are included in other assets.
(4) Carrying amounts are included in accrued expenses and other liabilities.
The carrying amounts of cash and due from banks and accrued interest payable and receivable approximate their fair values due to the short period of time until their expected realization. Securities available for sale and assets held in trust for deferred compensation plans are carried at fair value. Certain financial instruments, including lease financings, discounted lease rentals and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements. The following methods and assumptions are used by TCF in estimating fair value for its remaining financial instruments, all of which are issued or held for purposes other than trading.
Investments The carrying value of investments in FHLB stock and Federal Reserve Bank stock approximates fair value. The fair value of other investments is estimated based on discounting cash flows at current market rates and consideration of credit exposure.
Loans The fair value of loans is estimated based on discounted expected cash flows. These cash flows include assumptions for prepayment estimates over the loans remaining life, consideration of the current interest rate environment compared to the weighted average rate of each portfolio, a credit risk component
based on the historical and expected performance of each portfolio and a liquidity adjustment related to the current market environment.
Forward Foreign Currency Contracts Forward foreign currency contract assets and liabilities are carried at fair value, which is net of the related cash collateral received and paid, when a legally enforceable master netting agreement exists between TCF and the counterparty.
Deposits The fair value of checking, savings and money market deposits is deemed equal to the amount payable on demand. The fair value of certificates of deposit is estimated based on discounted cash flows using currently offered market rates. The intangible value of long-term relationships with depositors is not taken into account in the fair values disclosed.
Borrowings The carrying amounts of short-term borrowings approximate their fair values. The fair values of TCFs long-term borrowings are estimated based on observable market prices and discounted cash flows using interest rates for borrowings of similar remaining maturities and characteristics.
Financial Instruments with Off-Balance Sheet Risk The fair value of TCFs commitments to extend credit and standby letters of credit are estimated using fees currently charged to enter into similar agreements, as commitments and standby letters of credit similar to TCFs are not actively traded. Substantially all commitments to extend credit and standby letters of credit have floating rates and do not expose TCF to interest rate risk; therefore fair value is approximately equal to carrying value.
(11) Stock Compensation
The following table reflects TCFs restricted stock and stock option transactions under the TCF Financial Incentive Stock Program during the nine months ended September 30, 2010.
|
|
Restricted Stock |
|
Stock Options |
|
|||||||||||
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
|||
|
|
Shares |
|
|
Grant Date Fair Value |
|
Shares |
|
|
Price Range |
|
Exercise Price |
|
|||
Outstanding at December 31, 2009 |
|
1,870,845 |
|
|
$ |
14.06 |
|
2,208,619 |
|
|
$ |
12.85 - $15.75 |
|
$ |
14.44 |
|
Granted |
|
287,433 |
|
|
13.36 |
|
|
|
|
|
|
|
|
|||
Forfeited |
|
(17,500 |
) |
|
19.10 |
|
|
|
|
|
|
|
|
|||
Vested |
|
(377,403 |
) |
|
13.49 |
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2010 |
|
1,763,375 |
|
|
$ |
13.86 |
|
2,208,619 |
|
|
$ |
12.85 - $15.75 |
|
$ |
14.44 |
|
Exercisable at September 30, 2010 |
|
N.A. |
|
|
N.A. |
|
|
|
|
$ |
|
|
$ |
|
|
Unrecognized stock compensation for restricted stock and stock options was $14.4 million with a weighted-average remaining amortization period of 1.2 years at September 30, 2010. As of September 30, 2010, the weighted average remaining contractual life of stock options outstanding was 7.51 years.
(12) Employee Benefit Plans
The following tables set forth the net periodic benefit cost included in compensation and employee benefits expense for TCFs Pension Plan and Postretirement Plan for the three and nine months ended September 30, 2010 and 2009.
|
|
Pension Plan |
|
||||||||||
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
(In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Interest cost |
|
$ |
638 |
|
$ |
729 |
|
$ |
1,915 |
|
$ |
2,188 |
|
Expected return on plan assets |
|
(1,236 |
) |
(1,282 |
) |
(3,709 |
) |
(3,847 |
) |
||||
Amortization of prior service cost |
|
8 |
|
|
|
23 |
|
|
|
||||
Recognized actuarial loss |
|
391 |
|
316 |
|
1,173 |
|
947 |
|
||||
Settlement expense |
|
580 |
|
883 |
|
1,466 |
|
2,648 |
|
||||
Net periodic benefit cost |
|
$ |
381 |
|
$ |
646 |
|
$ |
868 |
|
$ |
1,936 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Postretirement Plan |
|
||||||||||
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
(In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Interest cost |
|
$ |
114 |
|
$ |
123 |
|
$ |
342 |
|
$ |
371 |
|
Service cost |
|
|
|
2 |
|
1 |
|
5 |
|
||||
Amortization of transition obligation |
|
1 |
|
1 |
|
3 |
|
3 |
|
||||
Recognized actuarial loss |
|
79 |
|
63 |
|
236 |
|
189 |
|
||||
Net periodic benefit cost |
|
$ |
194 |
|
$ |
189 |
|
$ |
582 |
|
$ |
568 |
|
During the first nine months of 2010, TCF made no cash contributions to the Pension Plan. TCF made a cash contribution of $2.5 million for the same 2009 period. During the third quarter and first nine months of 2010, TCF paid $136 thousand and $431 thousand, respectively, for benefits of the Postretirement Plan, compared with $146 thousand and $458 thousand for the same 2009 periods.
(13) Business Segments
Retail Banking, Wholesale Banking, Treasury Services and Support Services have been identified as reportable operating segments. Retail Banking includes branch banking and retail lending. Wholesale Banking includes commercial banking, leasing and equipment finance and inventory finance. Treasury Services includes the Companys investment and borrowing portfolios and management of capital, debt and market risks, including interest-rate and liquidity risks. Support Services include holding company and corporate functions that provide data processing, bank operations and other professional services to the operating segments. TCF evaluates performance and allocates resources based on the net income of each segment. TCF generally accounts for inter-segment sales and transfers at cost. The business segments follow generally accepted accounting principles as described in the Summary of Significant Accounting Policies in the most recent Annual Report on Form 10-K.
The following tables set forth certain information for TCFs reportable segments, including a reconciliation of TCFs consolidated totals.
|
|
Retail |
|
Wholesale |
|
Treasury |
|
Support |
|
|
|
|
|
||||||
(In thousands) |
|
Banking |
|
Banking |
|
Services |
|
Services |
|
Eliminations |
|
Consolidated |
|
||||||
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
$ |
103,416 |
|
$ |
112,203 |
|
$ |
25,488 |
|
$ |
|
|
$ |
|
|
$ |
241,107 |
|
Non-interest income |
|
102,371 |
|
26,985 |
|
9,576 |
|
(990 |
) |
|
|
137,942 |
|
||||||
Total |
|
$ |
205,787 |
|
$ |
139,188 |
|
$ |
35,064 |
|
$ |
(990 |
) |
$ |
|
|
$ |
379,049 |
|
Net interest income (loss) |
|
$ |
113,047 |
|
$ |
61,780 |
|
$ |
(785 |
) |
$ |
(287 |
) |
$ |
|
|
$ |
173,755 |
|
Provision for credit losses |
|
36,451 |
|
22,668 |
|
168 |
|
|
|
|
|
59,287 |
|
||||||
Non-interest income |
|
102,371 |
|
26,985 |
|
9,576 |
|
33,116 |
|
(34,106 |
) |
137,942 |
|
||||||
Non-interest expense |
|
141,055 |
|
45,541 |
|
2,047 |
|
37,216 |
|
(34,106 |
) |
191,753 |
|
||||||
Income tax expense (benefit) |
|
14,557 |
|
7,149 |
|
2,769 |
|
(1,623 |
) |
|
|
22,852 |
|
||||||
Income (loss) after income tax expense |
|
23,355 |
|
13,407 |
|
3,807 |
|
(2,764 |
) |
|
|
37,805 |
|
||||||
Income
attributable to |
|
|
|
912 |
|
|
|
|
|
|
|
912 |
|
||||||
Net income (loss) |
|
$ |
23,355 |
|
$ |
12,495 |
|
$ |
3,807 |
|
$ |
(2,764 |
) |
$ |
|
|
$ |
36,893 |
|
Total assets |
|
$ |
7,648,368 |
|
$ |
7,860,769 |
|
$ |
6,091,722 |
|
$ |
93,556 |
|
$ |
(3,380,807 |
) |
$ |
18,313,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
$ |
108,147 |
|
$ |
103,837 |
|
$ |
27,014 |
|
$ |
|
|
$ |
|
|
$ |
238,998 |
|
Non-interest income |
|
110,847 |
|
17,054 |
|
25 |
|
131 |
|
|
|
128,057 |
|
||||||
Total |
|
$ |
218,994 |
|
$ |
120,891 |
|
$ |
27,039 |
|
$ |
131 |
|
$ |
|
|
$ |
367,055 |
|
Net interest income |
|
$ |
99,318 |
|
$ |
53,423 |
|
$ |
8,621 |
|
$ |
127 |
|
$ |
|
|
$ |
161,489 |
|
Provision for credit losses |
|
54,311 |
|
21,233 |
|
|
|
|
|
|
|
75,544 |
|
||||||
Non-interest income |
|
110,847 |
|
17,054 |
|
25 |
|
31,226 |
|
(31,095 |
) |
128,057 |
|
||||||
Non-interest expense |
|
148,127 |
|
37,810 |
|
2,404 |
|
33,021 |
|
(31,095 |
) |
190,267 |
|
||||||
Income tax expense (benefit) |
|
3,314 |
|
4,140 |
|
2,652 |
|
(3,615 |
) |
|
|
6,491 |
|
||||||
Income after income tax expense |
|
4,413 |
|
7,294 |
|
3,590 |
|
1,947 |
|
|
|
17,244 |
|
||||||
Loss attributable to non-controlling interest |
|
|
|
(207 |
) |
|
|
|
|
|
|
(207 |
) |
||||||
Net income |
|
$ |
4,413 |
|
$ |
7,501 |
|
$ |
3,590 |
|
$ |
1,947 |
|
$ |
|
|
$ |
17,451 |
|
Total assets |
|
$ |
7,540,267 |
|
$ |
7,263,104 |
|
$ |
5,602,028 |
|
$ |
132,407 |
|
$ |
(2,794,797 |
) |
$ |
17,743,009 |
|
|
|
Retail |
|
Wholesale |
|
Treasury |
|
Support |
|
|
|
|
|
||||||
(In thousands) |
|
Banking |
|
Banking |
|
Services |
|
Services |
|
Eliminations |
|
Consolidated |
|
||||||
For the Nine Months Ended September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
$ |
310,389 |
|
$ |
339,060 |
|
$ |
79,684 |
|
$ |
|
|
$ |
|
|
$ |
729,133 |
|
Non-interest income |
|
314,790 |
|
73,280 |
|
9,630 |
|
(1,209 |
) |
|
|
396,491 |
|
||||||
Total |
|
$ |
625,179 |
|
$ |
412,340 |
|
$ |
89,314 |
|
$ |
(1,209 |
) |
$ |
|
|
$ |
1,125,624 |
|
Net interest income (loss) |
|
$ |
330,981 |
|
$ |
185,216 |
|
$ |
9,542 |
|
$ |
(823 |
) |
$ |
|
|
$ |
524,916 |
|
Provision for credit losses |
|
100,540 |
|
57,064 |
|
1,187 |
|
|
|
|
|
158,791 |
|
||||||
Non-interest income |
|
314,790 |
|
73,280 |
|
9,630 |
|
102,379 |
|
(103,588 |
) |
396,491 |
|
||||||
Non-interest expense |
|
419,607 |
|
141,123 |
|
6,047 |
|
109,435 |
|
(103,588 |
) |
572,624 |
|
||||||
Income tax expense (benefit) |
|
48,495 |
|
21,142 |
|
5,194 |
|
(3,077 |
) |
|
|
71,754 |
|
||||||
Income (loss) after income tax expense |
|
77,129 |
|
39,167 |
|
6,744 |
|
(4,802 |
) |
|
|
118,238 |
|
||||||
Income
attributable to |
|
|
|
2,399 |
|
|
|
|
|
|
|
2,399 |
|
||||||
Net income (loss) |
|
$ |
77,129 |
|
$ |
36,768 |
|
$ |
6,744 |
|
$ |
(4,802 |
) |
$ |
|
|
$ |
115,839 |
|
Total assets |
|
$ |
7,648,368 |
|
$ |
7,860,769 |
|
$ |
6,091,722 |
|
$ |
93,556 |
|
$ |
(3,380,807 |
) |
$ |
18,313,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
For the Nine Months Ended September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
$ |
326,581 |
|
$ |
298,266 |
|
$ |
89,839 |
|
$ |
|
|
$ |
|
|
$ |
714,686 |
|
Non-interest income |
|
310,289 |
|
49,305 |
|
22,744 |
|
368 |
|
|
|
382,706 |
|
||||||
Total |
|
$ |
636,870 |
|
$ |
347,571 |
|
$ |
112,583 |
|
$ |
368 |
|
$ |
|
|
$ |
1,097,392 |
|
Net interest income |
|
$ |
297,198 |
|
$ |
148,567 |
|
$ |
17,220 |
|
$ |
380 |
|
$ |
|
|
$ |
463,365 |
|
Provision for credit losses |
|
117,493 |
|
62,235 |
|
1,419 |
|
|
|
|
|
181,147 |
|
||||||
Non-interest income |
|
310,289 |
|
49,305 |
|
22,744 |
|
92,710 |
|
(92,342 |
) |
382,706 |
|
||||||
Non-interest expense |
|
446,003 |
|
104,633 |
|
6,487 |
|
96,240 |
|
(92,342 |
) |
561,021 |
|
||||||
Income tax expense (benefit) |
|
17,610 |
|
10,992 |
|
12,947 |
|
(5,080 |
) |
|
|
36,469 |
|
||||||
Income after income tax expense |
|
26,381 |
|
20,012 |
|
19,111 |
|
1,930 |
|
|
|
67,434 |
|
||||||
Loss attributable to non-controlling interest |
|
|
|
(207 |
) |
|
|
|
|
|
|
(207 |
) |
||||||
Net income |
|
$ |
26,381 |
|
$ |
20,219 |
|
$ |
19,111 |
|
$ |
1,930 |
|
$ |
|
|
$ |
67,641 |
|
Total assets |
|
$ |
7,540,267 |
|
$ |
7,263,104 |
|
$ |
5,602,028 |
|
$ |
132,407 |
|
$ |
(2,794,797 |
) |
$ |
17,743,009 |
|
(14) Earnings Per Common Share
The computation of basic and diluted earnings per common share is presented in the following table.
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
(Dollars in thousands, except per-share data) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Basic Earnings Per Common Share |
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
36,893 |
|
$ |
17,451 |
|
$ |
115,839 |
|
$ |
67,641 |
|
Preferred stock dividends |
|
|
|
|
|
|
|
(6,378 |
) |
||||
Non-cash deemed preferred stock dividend |
|
|
|
|
|
|
|
(12,025 |
) |
||||
Net income available to common stockholders |
|
36,893 |
|
17,451 |
|
115,839 |
|
49,238 |
|
||||
Earnings allocated to participating securities |
|
171 |
|
56 |
|
590 |
|
157 |
|
||||
Earnings allocated to common stock |
|
$ |
36,722 |
|
$ |
17,395 |
|
$ |
115,249 |
|
$ |
49,081 |
|
Weighted-average shares outstanding |
|
141,795,410 |
|
127,890,748 |
|
138,868,180 |
|
127,369,072 |
|
||||
Restricted stock |
|
(1,111,731 |
) |
(1,079,289 |
) |
(1,044,624 |
) |
(965,882 |
) |
||||
Weighted-average common shares outstanding for basic earnings per common share |
|
140,683,679 |
|
126,811,459 |
|
137,823,556 |
|
126,403,190 |
|
||||
Basic earnings per share |
|
$ |
.26 |
|
$ |
.14 |
|
$ |
.84 |
|
$ |
.39 |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted Earnings Per Common Share |
|
|
|
|
|
|
|
|
|
||||
Earnings allocated to common stock |
|
$ |
36,722 |
|
$ |
17,395 |
|
$ |
115,249 |
|
$ |
49,081 |
|
Weighted-average number of common shares outstanding adjusted for effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding used in basic earnings per common share calculation |
|
140,683,679 |
|
126,811,459 |
|
137,823,556 |
|
126,403,190 |
|
||||
Net dilutive effect of: |
|
|
|
|
|
|
|
|
|
||||
Non-participating restricted stock |
|
79,435 |
|
18,342 |
|
38,270 |
|
|
|
||||
Stock options |
|
159,145 |
|
3,054 |
|
142,395 |
|
240 |
|
||||
Warrants |
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding for diluted earnings per common share |
|
140,922,259 |
|
126,832,855 |
|
138,004,221 |
|
126,403,430 |
|
||||
Diluted earnings per share |
|
$ |
.26 |
|
$ |
.14 |
|
$ |
.84 |
|
$ |
.39 |
|
All shares of restricted stock are deducted from weighted-average shares outstanding for the computation of basic earnings per common share. Shares of performance-based non-participating restricted stock are included in the calculation of diluted earnings per common share, using the treasury stock method, at the beginning of the quarter in which the performance goals have been achieved. All other shares of non-participating restricted stock, which vest over specified time periods, stock options, and warrants, are included in the calculation of diluted earnings per common share, using the treasury stock method.
For the quarter ended September 30, 2010, 295 thousand shares related to non-participating restricted stock and stock options and 3.2 million warrants were outstanding and not included in the computation of diluted earnings per common share because they were anti-dilutive. For the quarter ended September 30, 2009, 1.9 million shares related to non-participating restricted stock and stock options and 3.2 million warrants were outstanding and not included in the computation of diluted earnings per common share because they were anti-dilutive.
(15) Comprehensive Income
Comprehensive income is the total of net income and other comprehensive income. The following table summarizes the components of comprehensive income.
|
|
Three
Months Ended |
|
Nine
Months Ended |
|
||||||||
(In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Net income |
|
$ |
36,893 |
|
$ |
17,451 |
|
$ |
115,839 |
|
$ |
67,641 |
|
Other comprehensive income (losses): |
|
|
|
|
|
|
|
|
|
||||
Unrealized gains arising during the period on securities available for sale |
|
3,708 |
|
23,887 |
|
70,869 |
|
25,341 |
|
||||
Recognized pension and postretirement actuarial losses, settlement expense, prior service cost and transition obligation |
|
1,059 |
|
1,263 |
|
2,901 |
|
3,787 |
|
||||
Reclassification adjustment for securities gains included in net income |
|
(9,552 |
) |
|
|
(9,552 |
) |
(22,306 |
) |
||||
Foreign currency translation adjustment |
|
447 |
|
115 |
|
127 |
|
124 |
|
||||
Income tax expense (benefit) |
|
1,750 |
|
(9,164 |
) |
(23,342 |
) |
(2,449 |
) |
||||
Total other comprehensive (loss) income |
|
(2,588 |
) |
16,101 |
|
41,003 |
|
4,497 |
|
||||
Comprehensive income |
|
$ |
34,305 |
|
$ |
33,552 |
|
$ |
156,842 |
|
$ |
72,138 |
|
(16) Other Expense
Other expense consists of the following.
|
|
Three
Months Ended |
|
Nine
Months Ended |
|
||||||||
(In thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Professional fees |
|
$ |
6,480 |
|
$ |
1,708 |
|
$ |
12,040 |
|
$ |
5,986 |
|
Card processing and issuance |
|
4,906 |
|
4,829 |
|
14,383 |
|
14,603 |
|
||||
Deposit account losses |
|
3,848 |
|
3,514 |
|
9,569 |
|
10,191 |
|
||||
Telecommunications |
|
2,929 |
|
3,161 |
|
8,984 |
|
8,917 |
|
||||
Outside processing |
|
2,866 |
|
2,587 |
|
8,534 |
|
7,893 |
|
||||
Office supplies |
|
1,955 |
|
2,218 |
|
6,361 |
|
6,916 |
|
||||
Postage and courier |
|
1,827 |
|
3,551 |
|
5,410 |
|
10,394 |
|
||||
ATM processing |
|
1,431 |
|
1,724 |
|
4,603 |
|
5,076 |
|
||||
Other |
|
13,239 |
|
11,444 |
|
39,060 |
|
32,649 |
|
||||
Total other expense |
|
$ |
39,481 |
|
$ |
34,736 |
|
$ |
108,944 |
|
$ |
102,625 |
|
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
TCF Financial Corporation (TCF or the Company), a Delaware corporation, is a bank holding company based in Wayzata, Minnesota. Its principal subsidiary, TCF National Bank, is headquartered in South Dakota. TCF had 440 banking offices in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota at September 30, 2010.
TCF provides convenient financial services through multiple channels in its primary banking markets. TCF has developed products and services designed to meet the needs of all consumers. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week and on most holidays, extensive full-service supermarket branches, automated teller machine (ATM) networks and telephone and internet banking. TCFs philosophy is to generate interest income, fees and other revenue through business lines that emphasize well-secured, higher yielding assets and low or no interest-cost deposits. The Companys growth strategies include the development of new products and services, new branch expansion and acquisitions. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives.
TCFs core businesses include Retail Banking, Wholesale Banking and Treasury Services. Retail Banking includes branch banking and retail lending. Wholesale Banking includes commercial banking, leasing and equipment finance and inventory finance. TCF refers to its combined leasing and equipment finance and inventory finance businesses as Specialty Finance. Treasury Services includes the Companys investment and borrowing portfolios and management of capital, debt and market risks, including interest-rate and liquidity risks.
TCFs lending strategy is to originate high credit quality and primarily secured loans and leases. TCFs retail lending operation offers fixed- and variable-rate loans and lines of credit secured by residential real estate properties. Commercial loans are generally made on properties or to customers located within its primary banking markets. The leasing and equipment finance businesses consist of TCF Equipment Finance, a company that delivers equipment finance solutions to businesses in select markets, and Winthrop Resources, a company that primarily leases technology and data processing equipment. TCFs leasing and equipment finance businesses have equipment installations in all 50 states and, to a limited extent, in foreign countries. TCF Inventory Finance originates commercial variable-rate loans which are secured by equipment under a floorplan arrangement and supported by repurchase agreements from original equipment manufacturers to businesses in the United States and Canada.
Net interest income, the difference between interest income earned on loans and leases, securities available for sale, investments and other interest-earning assets and interest paid on deposits and borrowings, represented 56 percent of TCFs total revenue for the three months ended September 30, 2010. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings. TCF manages the risk of changes in interest rates on its net interest income through an Asset/Liability Management Committee and through related interest-rate risk monitoring and management policies. Non-interest income is also a significant source of revenue for TCF. Key drivers of non-interest income are the number of deposit accounts and related volume of customer transaction activity. See Consolidated Non-Interest Income Fees and Charges, and Card Revenues, Recent Legislative Developments, and Forward-Looking Information Risks Related to New Product Introduction.
The following portions of Managements Discussion and Analysis of Financial Condition and Results of Operations focus in more detail on the results of operations for the three and nine months ended September 30, 2010 and 2009 and on information about TCFs balance sheet, credit quality, liquidity, funding sources, capital and other matters.
RESULTS OF OPERATIONS
Performance Summary
TCFs diluted earnings per common share was 26 cents and 84 cents for the third quarter and first nine months of 2010, respectively, compared with 14 cents and 39 cents for the same 2009 periods. Net income was $36.9 million and $115.8 million for the third quarter and first nine months of 2010, respectively, compared with $17.5 million and $67.6 million for the same 2009 periods. In the second quarter of 2009, TCF recorded a non-cash deemed dividend on the redemption of preferred stock of 10 cents per common share.
For the third quarter and first nine months of 2010, return on average assets was .84 percent and .87 percent, respectively, compared with .39 percent and .52 percent for the same 2009 periods. Return on average common equity was 9.95 percent and 11.11 percent for the third quarter and first nine months of 2010, respectively, compared with 6.03 percent and 5.73 percent for the same 2009 periods.
Operating Segment Results
See Note 13 of Notes to Consolidated Financial Statements for the financial results of TCFs operating segments.
RETAIL BANKING, consisting of branch banking and retail lending, reported net income of $23.4 million and $77.1 million for the third quarter and first nine months of 2010, respectively, compared with $4.4 million and $26.4 million for the same 2009 periods. Retail Banking net interest income for the third quarter and first nine months of 2010 was $113 million and $331 million, respectively, compared with $99.3 million and $297.2 million for the same 2009 periods. The increase in net interest income from the third quarter and first nine months of 2009 is primarily due to lower average costs of deposits in branch banking.
The Retail Banking provision for credit losses was $36.5 million and $100.5 million for the third quarter and first nine months of 2010, respectively, compared with $54.3 million and $117.5 million for the same 2009 periods. The decrease from the third quarter of 2009 was primarily due to decreased provisions for restructured consumer real estate loans and decreased levels of provision in excess of net charge-offs in the consumer real estate portfolio. See Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Consolidated Provision for Credit Losses for further discussion.
Retail Banking non-interest income totaled $102.4 million for the third quarter of 2010, down 7.6 percent from $110.8 million for the same 2009 period. The decrease is primarily due to the implementation of a new Federal Reserve rule which became effective August 15, 2010 requiring customers to opt-in to the authorization and payment of overdrafts in order for banks to collect overdraft fees in connection with the banks payment of certain debit card and ATM transactions, partially offset by an increase in monthly service charges on retail checking accounts effective March 15, 2010. Retail Banking non-interest income totaled $314.8 million for the first nine months of 2010, up 1.5 percent from $310.3 million for the same 2009 period. The increase is primarily due to increases in card revenue.
Retail Banking non-interest expense for the third quarter and first nine months of 2010 was $141.1 million and $419.6 million, respectively, compared with $148.1 million and $446 million for the same 2009 periods. The decrease in non-interest expense was primarily due to decreased compensation and employee benefit expense due to headcount reductions, decreased deposit account premiums and the FDIC special assessment in the second quarter of 2009.
WHOLESALE BANKING, an operating segment composed of commercial banking, leasing and equipment finance and inventory finance, reported net income of $12.5 million and $36.8 million for the third quarter and first nine months of 2010, respectively, compared with $7.5 million and $20.2 million for the same 2009 periods. Net interest income for the third quarter and first nine months of 2010 was $61.8 million and $185.2 million, compared with $53.4 million and $148.6 million for the same 2009 periods. The increase in net interest income for the first nine months of 2010 as compared to the first nine months of 2009 was primarily due to an increase in average loans and leases from the Specialty Finance businesses.
The provision for credit losses for Wholesale Banking was $22.7 million and $57.1 million for the third quarter and first nine months of 2010, respectively, compared with $21.2 million and $62.2 million for the same 2009 periods. Wholesale Banking net charge-offs totaled $21.5 million and $52.8 million during the third quarter and first nine months of 2010, respectively, compared with $21.3 million and $57.3 million during the same 2009 periods. The decrease in net charge-offs from the first nine months of 2009 is primarily due to a decrease in commercial real estate net charge-offs in Michigan.
Wholesale Banking non-interest income for the third quarter and first nine months of 2010 totaled $27 million and $73.3 million, respectively, up from $17.1 million and $49.3 million for the same 2009 periods, primarily due to an increase in operating lease revenue resulting from the acquisition of Fidelity National Capital, Inc. (FNCI) in the third quarter of 2009.
Wholesale Banking non-interest expense totaled $45.5 million and $141.1 million for the third quarter and first nine months of 2010, compared with $37.8 million and $104.6 million for the same 2009 periods. The increase in non-interest expense was primarily the result of increased compensation expense and operating lease depreciation related to an acquisition and increased expense for foreclosed real estate and repossessed assets.
TREASURY SERVICES reported net income of $3.8 million and $6.7 million for the third quarter and first nine months of 2010, respectively, compared with net income of $3.6 million and $19.1 million for the same 2009 periods. The decrease was primarily due to $22.3 million of gains on securities, net in the first nine months of 2009, compared with $9.6 million of gains in the first nine months of 2010.
Consolidated Net Interest Income
Net interest income for the third quarter of 2010 totaled $173.8 million, up from $161.5 million for the third quarter of 2009 and down from $176.5 million for the second quarter of 2010. Net interest income for the first nine months of 2010 totaled $524.9 million, up from $463.4 million for the first nine months of 2009. The increase in net interest income from the third quarter of 2009 was primarily due to lower average costs of deposits and growth in loans and leases, partially offset by increased levels of non-accrual and restructured loans and leases. The decrease in net interest income from the second quarter of 2010 was primarily due to decreased yields on Wholesale Banking balances, which includes commercial banking, leasing and equipment finance and inventory finance loans and leases, a change in the mix of consumer loans with lower yielding variable-rate loans replacing higher-yielding fixed rate loans, a decrease in the yield of the investment portfolio due to a change in the mix and a higher average balance of non-accrual loans; partially offset by lower average costs of deposits. The increase in net interest income from the first nine months of 2009 was primarily due to an $850.9 million, or 6.2 percent, increase in average loans and leases and a 37 basis point increase in net interest margin.
Net interest margin for the third quarter of 2010 was 4.12 percent, up from 3.92 percent for the third quarter of 2009 and down from 4.18 percent for the second quarter of 2010. Net interest margin for the first nine months of 2010 was 4.17 percent, up from 3.80 percent for the first nine months of 2009. The increase in net interest margin from the third quarter and first nine months of 2009 was primarily due to lower average costs of deposits, partially offset by lower yields on new loan and lease production and the impact of higher balances of non-accrual loans and leases. The decrease in net interest margin from the second quarter of 2010 was primarily due to decreased yields on Wholesale Banking balances and variable-rate consumer real estate loans and changes in the earning asset mix, partially offset by lower average costs of deposits.
Achieving net interest income growth over time is primarily dependent on TCFs ability to generate higher-yielding assets funded by low or no interest-cost deposits. While interest rates and consumer preferences continue to change over time, TCF is currently slightly asset sensitive as measured by its interest rate gap (the difference between interest-earning assets and interest-bearing liabilities maturing, repricing, or prepaying during the next twelve months). Being asset sensitive generally means that TCFs net interest income may increase in rising interest rate environments. Since TCF is primarily deposit funded, the degree of the impact to net interest income is controlled by TCF, but impacted by how competitors price comparable products. See Managements Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Condition Analysis Deposits and Item 3. Quantitative and Qualitative Disclosures about Market Risk for further discussion on TCFs interest rate risk position.
The following table summarizes TCFs average balances, interest, yields and rates on major categories of TCFs interest-earning assets and interest-bearing liabilities for the three months ended September 30, 2010 and 2009.
|
|
Three Months Ended September 30, |
|
||||||||||||||
|
|
2010 |
|
2009 |
|
||||||||||||
(Dollars in thousands) |
|
Average |
|
Interest (1) |
|
Average |
|
Average |
|
Interest (1) |
|
Average |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments and other |
|
$ |
309,027 |
|
$ |
1,232 |
|
1.59 |
% |
$ |
389,583 |
|
$ |
1,217 |
|
1.24 |
% |
U.S. Government sponsored entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
1,796,348 |
|
19,873 |
|
4.43 |
|
1,432,670 |
|
17,185 |
|
4.80 |
|
||||
Debentures |
|
|
|
|
|
|
|
600,098 |
|
3,283 |
|
2.19 |
|
||||
U.S. Treasury Bills |
|
69,705 |
|
23 |
|
.13 |
|
|
|
|
|
|
|
||||
Other securities |
|
452 |
|
5 |
|
4.40 |
|
489 |
|
6 |
|
4.91 |
|
||||
Total securities available for sale (3) |
|
1,866,505 |
|
19,901 |
|
4.26 |
|
2,033,257 |
|
20,474 |
|
4.03 |
|
||||
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed-rate |
|
5,019,925 |
|
77,934 |
|
6.16 |
|
5,394,711 |
|
86,440 |
|
6.36 |
|
||||
Variable-rate (4) |
|
2,213,091 |
|
29,893 |
|
5.36 |
|
1,873,913 |
|
27,024 |
|
5.72 |
|
||||
Consumer - other |
|
25,130 |
|
565 |
|
8.92 |
|
35,016 |
|
756 |
|
8.57 |
|
||||
Total consumer real estate and other |
|
7,258,146 |
|
108,392 |
|
5.93 |
|
7,303,640 |
|
114,220 |
|
6.21 |
|
||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed- and adjustable-rate |
|
2,830,748 |
|
42,126 |
|
5.90 |
|
2,645,261 |
|
40,233 |
|
6.03 |
|
||||
Variable-rate (4) |
|
496,669 |
|
5,442 |
|
4.35 |
|
548,425 |
|
5,744 |
|
4.16 |
|
||||
Total commercial real estate |
|
3,327,417 |
|
47,568 |
|
5.67 |
|
3,193,686 |
|
45,977 |
|
5.71 |
|
||||
Commercial business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed- and adjustable-rate |
|
125,206 |
|
1,492 |
|
4.73 |
|
166,008 |
|
2,378 |
|
5.68 |
|
||||
Variable-rate (4) |
|
221,225 |
|
1,941 |
|
3.48 |
|
311,033 |
|
2,879 |
|
3.67 |
|
||||
Total commercial business |
|
346,431 |
|
3,433 |
|
3.93 |
|
477,041 |
|
5,257 |
|
4.37 |
|
||||
Total commercial |
|
3,673,848 |
|
51,001 |
|
5.51 |
|
3,670,727 |
|
51,234 |
|
5.54 |
|
||||
Leasing and equipment finance |
|
3,002,714 |
|
48,067 |
|
6.40 |
|
2,811,165 |
|
47,625 |
|
6.78 |
|
||||
Inventory finance |
|
655,485 |
|
12,514 |
|
7.57 |
|
185,914 |
|
4,228 |
|
9.10 |
|
||||
Total loans and leases (5) |
|
14,590,193 |
|
219,974 |
|
5.99 |
|
13,971,446 |
|
217,307 |
|
6.18 |
|
||||
Total interest-earning assets |
|
16,765,725 |
|
241,107 |
|
5.72 |
|
16,394,286 |
|
238,998 |
|
5.80 |
|
||||
Other assets (6) |
|
1,268,697 |
|
|
|
|
|
1,132,239 |
|
|
|
|
|
||||
Total assets |
|
$ |
18,034,422 |
|
|
|
|
|
$ |
17,526,525 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail |
|
$ |
1,408,984 |
|
|
|
|
|
$ |
1,380,591 |
|
|
|
|
|
||
Small business |
|
659,165 |
|
|
|
|
|
591,451 |
|
|
|
|
|
||||
Commercial and custodial |
|
279,475 |
|
|
|
|
|
277,135 |
|
|
|
|
|
||||
Total non-interest bearing deposits |
|
2,347,624 |
|
|
|
|
|
2,249,177 |
|
|
|
|
|
||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Checking |
|
2,014,550 |
|
1,454 |
|
.29 |
|
1,800,583 |
|
1,770 |
|
.39 |
|
||||
Savings |
|
5,426,481 |
|
9,095 |
|
.66 |
|
5,071,509 |
|
13,663 |
|
1.07 |
|
||||
Money market |
|
654,030 |
|
1,074 |
|
.65 |
|
723,098 |
|
1,638 |
|
.90 |
|
||||
Subtotal |
|
8,095,061 |
|
11,623 |
|
.57 |
|
7,595,190 |
|
17,071 |
|
.89 |
|
||||
Certificates of deposit |
|
1,006,685 |
|
2,351 |
|
.93 |
|
1,757,884 |
|
10,442 |
|
2.36 |
|
||||
Total interest-bearing deposits |
|
9,101,746 |
|
13,974 |
|
.61 |
|
9,353,074 |
|
27,513 |
|
1.17 |
|
||||
Total deposits |
|
11,449,370 |
|
13,974 |
|
.48 |
|
11,602,251 |
|
27,513 |
|
.94 |
|
||||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term borrowings |
|
40,646 |
|
84 |
|
.82 |
|
25,267 |
|
14 |
|
.22 |
|
||||
Long-term borrowings |
|
4,587,964 |
|
53,294 |
|
4.61 |
|
4,306,009 |
|
49,982 |
|
4.61 |
|
||||
Total borrowings |
|
4,628,610 |
|
53,378 |
|
4.58 |
|
4,331,276 |
|
49,996 |
|
4.58 |
|
||||
Total interest-bearing liabilities |
|
13,730,356 |
|
67,352 |
|
1.95 |
|
13,684,350 |
|
77,509 |
|
2.25 |
|
||||
Total deposits and borrowings |
|
16,077,980 |
|
67,352 |
|
1.66 |
|
15,933,527 |
|
77,509 |
|
1.93 |
|
||||
Other liabilities |
|
463,492 |
|
|
|
|
|
435,215 |
|
|
|
|
|
||||
Total liabilities |
|
16,541,472 |
|
|
|
|
|
16,368,742 |
|
|
|
|
|
||||
Total TCF Financial Corp. stockholders equity |
|
1,483,565 |
|
|
|
|
|
1,157,509 |
|
|
|
|
|
||||
Non-controlling interest in subsidiaries |
|
9,385 |
|
|
|
|
|
274 |
|
|
|
|
|
||||
Total equity |
|
1,492,950 |
|
|
|
|
|
1,157,783 |
|
|
|
|
|
||||
Total liabilities and equity |
|
$ |
18,034,422 |
|
|
|
|
|
$ |
17,526,525 |
|
|
|
|
|
||
Net interest income and margin |
|
|
|
$ |
173,755 |
|
4.12 |
% |
|
|
$ |
161,489 |
|
3.92 |
% |
(1) Tax-exempt income was not significant and thus yields on interest-earning assets and net interest margin have not been presented on a tax equivalent basis. Tax-exempt income of approximately $917,000 and $347,000 was recognized during the three months ended September 30, 2010 and 2009, respectively.
(2) Annualized.
(3) Average balances and yields of securities available for sale are based upon the historical amortized cost and excludes equity securities.
(4) Certain variable-rate loans have contractual interest rate floors.
(5) Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.
(6) Includes operating leases.
The following table summarizes TCFs average balances, interest, yields and rates on major categories of TCFs interest-earning assets and interest-bearing liabilities for the nine months ended September 30, 2010 and 2009.
|
|
Nine Months Ended September 30, |
|
||||||||||||||
|
|
2010 |
|
2009 |
|
||||||||||||
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
||||
|
|
|
|
|
|
Yields |
|
|
|
|
|
Yields |
|
||||
|
|
Average |
|
|
|
and |
|
Average |
|
|
|
and |
|
||||
(Dollars in thousands) |
|
Balance |
|
Interest (1) |
|
Rates (2) |
|
Balance |
|
Interest (1) |
|
Rates (2) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments and other |
|
$ |
314,003 |
|
$ |
3,609 |
|
1.53 |
% |
$ |
442,428 |
|
$ |
3,210 |
|
.97 |
% |
U.S. Government sponsored entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities |
|
1,846,895 |
|
62,327 |
|
4.50 |
|
1,695,377 |
|
63,195 |
|
4.97 |
|
||||
Debentures |
|
|
|
|
|
|
|
381,022 |
|
6,177 |
|
2.16 |
|
||||
U.S. Treasury Bills |
|
28,212 |
|
30 |
|
.14 |
|
|
|
|
|
|
|
||||
Other securities |
|
462 |
|
16 |
|
4.63 |
|
497 |
|
20 |
|
5.37 |
|
||||
Total securities available for sale (3) |
|
1,875,569 |
|
62,373 |
|
4.43 |
|
2,076,896 |
|
69,392 |
|
4.45 |
|
||||
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed-rate |
|
5,152,532 |
|
238,612 |
|
6.19 |
|
5,441,462 |
|
263,858 |
|
6.48 |
|
||||
Variable-rate (4) |
|
2,089,381 |
|
85,700 |
|
5.48 |
|
1,844,579 |
|
79,807 |
|
5.78 |
|
||||
Consumer - other |
|
27,687 |
|
1,766 |
|
8.53 |
|
36,920 |
|
2,357 |
|
8.54 |
|
||||
Total consumer real estate and other |
|
7,269,600 |
|
326,078 |
|
6.00 |
|
7,322,961 |
|
346,022 |
|
6.32 |
|
||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed- and adjustable-rate |
|
2,812,765 |
|
125,694 |
|
5.97 |
|
2,529,735 |
|
114,404 |
|
6.05 |
|
||||
Variable-rate (4) |
|
495,167 |
|
16,151 |
|
4.36 |
|
571,724 |
|
17,093 |
|
4.00 |
|
||||
Total commercial real estate |
|
3,307,932 |
|
141,845 |
|
5.73 |
|
3,101,459 |
|
131,497 |
|
5.67 |
|
||||
Commercial business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed- and adjustable-rate |
|
147,156 |
|
5,896 |
|
5.36 |
|
171,450 |
|
7,392 |
|
5.76 |
|
||||
Variable-rate (4) |
|
244,107 |
|
6,734 |
|
3.69 |
|
315,230 |
|
7,798 |
|
3.31 |
|
||||
Total commercial business |
|
391,263 |
|
12,630 |
|
4.32 |
|
486,680 |
|
15,190 |
|
4.17 |
|
||||
Total commercial |
|
3,699,195 |
|
154,475 |
|
5.58 |
|
3,588,139 |
|
146,687 |
|
5.47 |
|
||||
Leasing and equipment finance |
|
3,022,487 |
|
147,271 |
|
6.50 |
|
2,751,935 |
|
142,063 |
|
6.88 |
|
||||
Inventory finance |
|
634,182 |
|
35,327 |
|
7.45 |
|
111,479 |
|
7,312 |
|
8.75 |
|
||||
Total loans and leases (5) |
|
14,625,464 |
|
663,151 |
|
6.06 |
|
13,774,514 |
|
642,084 |
|
6.23 |
|
||||
Total interest-earning assets |
|
16,815,036 |
|
729,133 |
|
5.79 |
|
16,293,838 |
|
714,686 |
|
5.86 |
|
||||
Other assets (6) |
|
1,235,115 |
|
|
|
|
|
1,144,931 |
|
|
|
|
|
||||
Total assets |
|
$ |
18,050,151 |
|
|
|
|
|
$ |
17,438,769 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail |
|
$ |
1,450,749 |
|
|
|
|
|
$ |
1,418,244 |
|
|
|
|
|
||
Small business |
|
629,530 |
|
|
|
|
|
575,558 |
|
|
|
|
|
||||
Commercial and custodial |
|
282,569 |
|
|
|
|
|
255,066 |
|
|
|
|
|
||||
Total non-interest bearing deposits |
|
2,362,848 |
|
|
|
|
|
2,248,868 |
|
|
|
|
|
||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Checking |
|
2,081,403 |
|
4,991 |
|
.32 |
|
1,780,380 |
|
6,407 |
|
.48 |
|
||||
Savings |
|
5,416,757 |
|
31,431 |
|
.78 |
|
4,569,882 |
|
46,072 |
|
1.35 |
|
||||
Money market |
|
661,035 |
|
3,489 |
|
.71 |
|
686,830 |
|
5,718 |
|
1.11 |
|
||||
Subtotal |
|
8,159,195 |
|
39,911 |
|
.65 |
|
7,037,092 |
|
58,197 |
|
1.11 |
|
||||
Certificates of deposit |
|
1,058,840 |
|
7,948 |
|
1.00 |
|
2,100,342 |
|
42,745 |
|
2.72 |
|
||||
Total interest-bearing deposits |
|
9,218,035 |
|
47,859 |
|
.69 |
|
9,137,434 |
|
100,942 |
|
1.48 |
|
||||
Total deposits |
|
11,580,883 |
|
47,859 |
|
.55 |
|
11,386,302 |
|
100,942 |
|
1.19 |
|
||||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term borrowings |
|
87,642 |
|
265 |
|
.40 |
|
32,739 |
|
132 |
|
.54 |
|
||||
Long-term borrowings |
|
4,524,832 |
|
156,093 |
|
4.61 |
|
4,326,634 |
|
150,247 |
|
4.64 |
|
||||
Total borrowings |
|
4,612,474 |
|
156,358 |
|
4.53 |
|
4,359,373 |
|
150,379 |
|
4.61 |
|
||||
Total interest-bearing liabilities |
|
13,830,509 |
|
204,217 |
|
1.97 |
|
13,496,807 |
|
251,321 |
|
2.49 |
|
||||
Total deposits and borrowings |
|
16,193,357 |
|
204,217 |
|
1.69 |
|
15,745,675 |
|
251,321 |
|
2.13 |
|
||||
Other liabilities |
|
456,796 |
|
|
|
|
|
406,271 |
|
|
|
|
|
||||
Total liabilities |
|
16,650,153 |
|
|
|
|
|
16,151,946 |
|
|
|
|
|
||||
Total TCF Financial Corp. stockholders equity |
|
1,390,462 |
|
|
|
|
|
1,286,731 |
|
|
|
|
|
||||
Non-controlling interest in subsidiaries |
|
9,536 |
|
|
|
|
|
92 |
|
|
|
|
|
||||
Total equity |
|
1,399,998 |
|
|
|
|
|
1,286,823 |
|
|
|
|
|
||||
Total liabilities and equity |
|
$ |
18,050,151 |
|
|
|
|
|
$ |
17,438,769 |
|
|
|
|
|
||
Net interest income and margin |
|
|
|
$ |
524,916 |
|
4.17 |
% |
|
|
$ |
463,365 |
|
3.80 |
% |
(1) Tax-exempt income was not significant and thus yields on interest-earning assets and net interest margin have not been presented on a tax equivalent basis. Tax-exempt income of approximately $2,265,000 and $1,020,000 was recognized during the nine months ended September 30, 2010 and 2009, respectively.
(2) Annualized.
(3) Average balances and yields of securities available for sale are based upon the historical amortized cost and excludes equity securities.
(4) Certain variable-rate loans have contractual interest rate floors.
(5) Average balances of loans and leases include non-accrual loans and leases, and are presented net of unearned income.
(6) Includes operating leases.
Consolidated Provision for Credit Losses
The following table summarizes the composition of TCFs provision for credit losses and percentage of the total provision expense for the three and nine months ended September 30, 2010 and 2009.
|
|
Three Months Ended |
|
||||||||||||||
|
|
September 30, |
|
Change |
|
||||||||||||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
$ |
|
|
% |
|
|||||||
Consumer real estate and other |
|
$ |
36,664 |
|
61.8 |
% |
$ |
54,901 |
|
72.7 |
% |
$ |
(18,237 |
) |
|
(33.2 |
)% |
Commercial |
|
17,154 |
|
28.9 |
|
10,751 |
|
14.2 |
|
6,403 |
|
|
59.6 |
|
|||
Leasing and equipment finance |
|
5,204 |
|
8.8 |
|
9,618 |
|
12.7 |
|
(4,414 |
) |
|
(45.9 |
) |
|||
Inventory finance |
|
265 |
|
.5 |
|
274 |
|
.4 |
|
(9 |
) |
|
(3.3 |
) |
|||
Total |
|
$ |
59,287 |
|
100.0 |
|
$ |
75,544 |
|
100.0 |
|
$ |
(16,257 |
) |
|
(21.5 |
) |
|
|
Nine Months Ended |
|
||||||||||||||
|
|
September 30, |
|
Change |
|
||||||||||||
|
|
2010 |
|
2009 |
|
$ |
|
|
% |
|
|||||||
Consumer real estate and other |
|
$ |
101,293 |
|
63.8 |
% |
$ |
119,383 |
|
65.9 |
% |
$ |
(18,090 |
) |
|
(15.2 |
)% |
Commercial |
|
35,888 |
|
22.6 |
|
32,159 |
|
17.8 |
|
3,729 |
|
|
11.6 |
|
|||
Leasing and equipment finance |
|
19,742 |
|
12.4 |
|
28,711 |
|
15.8 |
|
(8,969 |
) |
|
(31.2 |
) |
|||
Inventory finance |
|
1,868 |
|
1.2 |
|
894 |
|
.5 |
|
974 |
|
|
108.9 |
|
|||
Total |
|
$ |
158,791 |
|
100.0 |
|
$ |
181,147 |
|
100.0 |
|
$ |
(22,356 |
) |
|
(12.3 |
) |
TCF recorded provision expense of $59.3 million and $158.8 million in the third quarter and first nine months of 2010, respectively, compared with $75.5 million and $181.1 million in the same 2009 periods. The composition of the provision for credit losses in the third quarter of 2010 was driven by decreased levels of provision in excess of net charge-offs in the consumer real estate portfolio.
Net loan and lease charge-offs for the third quarter and first nine months of 2010 were $57.8 million, or 1.58 percent of average loans and leases (annualized) and $150.1 million, or 1.37 percent (annualized), respectively, compared with $53.3 million, or 1.52 percent (annualized) and $137.9 million, or 1.33 percent (annualized), in the same periods of 2009.
Consumer real estate net charge-offs for the third quarter and first nine months of 2010 were $34.5 million and $93.2 million, respectively, compared with $29.9 million and $75.2 million for the same 2009 periods. The higher consumer real estate net charge-offs were primarily due to continued weak residential real estate market conditions and persistent high unemployment in TCFs markets, particularly in the Chicago market. Commercial net charge-offs for the third quarter and first nine months of 2010 were $12.8 million and $29.8 million, respectively, compared with $11.3 million and $37.4 million in the same 2009 periods. Leasing and equipment finance net charge-offs for the third quarter and first nine months of 2010 were $8.7 million and $22.8 million, respectively, compared with $9.4 million and $19.6 million in the same 2009 periods.
The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses. The determination of the allowance for loan and lease losses and the related provision for credit losses is a critical accounting estimate which involves a number of factors such as historical trends in net charge-offs, delinquencies in the loan and lease portfolio, value of collateral, general economic conditions and managements assessment of credit risk in the current loan and lease portfolio. See also Managements Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Condition Analysis Allowance for Loan and Lease Losses.
Consolidated Non-Interest Income
Non-interest income is a significant source of revenue for TCF and is an important factor in TCFs results of operations. Providing a wide range of retail banking services is an integral component of TCFs business philosophy and a major strategy for generating additional non-interest income. Total non-interest income totaled $137.9 million and $396.5 million for the third quarter and first nine months of 2010, respectively, compared with $128.1 million and $382.7 million for the same 2009 periods.
Fees and Service Charges
Fees and service charges totaled $67.7 million and $211.7 million for the third quarter and first nine months of 2010, respectively, compared with $77.4 million and $212 million for the same 2009 periods. The decrease in fees and service charges for the third quarter and first nine months of 2010, compared with the same 2009 periods was primarily due to a decrease in checking account fees.
New regulations that became effective on August 15, 2010, for accounts opened prior to July 1, 2010, require consumer checking account customers to elect if they want TCF to authorize debit card and ATM transactions if, at the time of authorization, there are insufficient funds in the account to cover the transaction (opt-in). TCF has had a process in place to discuss this service with new and existing consumer checking account customers since early 2010. As of the effective date, any account that had not elected to opt-in was deemed by regulation to have declined the service. The opt-in election is revocable by customers at any time. Customers who have not elected to opt-in may see an increase in the number of denied transactions on their ATM or debit card transactions. These denied transactions may impact consumer payment behavior and reduce fees and service charges and card revenue. See Forward-Looking Information Risks Related to New Product Introduction.
Card Revenues
Card revenues totaled $27.8 million and $83.4 million for the third quarter and first nine months of 2010, respectively, compared with $26.4 million and $78 million for the same 2009 periods. The increase in card revenue was primarily the result of an increase in average spending per active account and a small increase in interchange rates, partially offset by a decrease in active accounts.
|
|
Three Months Ended |
|
|||||||||
|
|
September 30, |
|
Change |
|
|||||||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
Amount |
|
% |
|
|||
Average active card users |
|
785,735 |
|
847,873 |
|
(62,138 |
) |
(7.3 |
) |
|||
Average number of transactions per card per month |
|
22.8 |
|
20.8 |
|
2.0 |
|
9.6 |
|
|||
Sales volume |
|
$ |
1,871,057 |
|
$ |
1,817,922 |
|
$ |
53,135 |
|
2.9 |
|
Average transaction size (in dollars) |
|
$ |
35 |
|
$ |
34 |
|
$ |
1 |
|
2.9 |
|
Average interchange rate |
|
1.40 |
% |
1.36 |
% |
|
|
4 |
bps |
|
|
Nine Months Ended |
|
|||||||||
|
|
September 30, |
|
Change |
|
|||||||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
Amount |
|
% |
|
|||
Average active card users |
|
819,967 |
|
838,881 |
|
(18,914 |
) |
(2.3 |
) |
|||
Average number of transactions per card per month |
|
21.9 |
|
20.6 |
|
1.3 |
|
6.3 |
|
|||
Sales volume |
|
$ |
5,721,309 |
|
$ |
5,423,542 |
|
$ |
297,767 |
|
5.5 |
|
Average transaction size (in dollars) |
|
$ |
35 |
|
$ |
35 |
|
$ |
|
|
|
|
Average interchange rate |
|
1.38 |
% |
1.35 |
% |
|
|
3 |
bps |
TCF is the 11th largest issuer of Visa Classic debit cards in the United States, based on sales volume for the three months ended June 30, 2010, as published by Visa. TCF earns interchange revenue from customer card transactions paid primarily by merchants, not by TCFs customers. Card products represent 25 percent of banking fee revenue for the three months ended September 30, 2010 and revenue from such products changes based on customer payment trends and the number of deposit accounts using the cards. Visa has significant litigation against it regarding interchange pricing and there is a risk this revenue could be impacted by any settlement or adverse rulings in such litigation. Card revenues are anticipated to be further impacted by the Durbin Amendment (the Amendment) to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Act or Dodd-Frank Act), which directs the Federal Reserve to establish rules by April 21, 2011, required to take effect by July 21, 2011, related to debit-card interchange fees. If a regulation is adopted which precludes the recovery of costs other than those permitted by the Amendment, the reduction in TCFs average interchange rate after July 21, 2011 could approach 80 percent. TCF has filed a lawsuit against the FRB challenging the constitutionality of the Amendment on the grounds that it violates TCFs due process rights as it requires TCF to offer the debit card product below cost and thus not earn a full return on invested capital, denies TCF equal protection under the law by exempting institutions with assets less than $10 billion and violates TCFs rights under the takings clause by causing TCF to bear a substantial competitive and financial burden without just compensation.
ATM Revenue
ATM revenue was $8 million and $22.9 million for the third quarter and first nine months of 2010, respectively, compared with $7.9 million and $23.4 million for the same 2009 periods. The decrease in ATM revenue for the first nine months of 2010, compared with the same 2009 period was primarily due to a decrease in fee generating transactions by TCF customers using non-TCF ATMs.
Leasing and Equipment Finance Revenue
Leasing and equipment finance revenue totaled $24.9 million and $65.8 million for the third quarter and first nine months of 2010, respectively, compared with $15.2 million and $44.7 million for the same 2009 periods. The increase in leasing and equipment finance revenue was primarily due to increased operating lease revenue primarily from the acquisition of FNCI late in the third quarter of 2009.
Other Income
Other non-interest income was $1.1 million and $4.8 million for the third quarter and first nine months of 2010, respectively, compared with $1.2 million and $2.5 million from the same 2009 periods. The increase from the first nine months of 2009 was primarily due to the increased level of fees in the inventory finance business.
Gains on Securities, Net
During the third quarter and first nine months of 2010, net gains on available for sale securities were $8.5 million and $7.9 million, respectively, and were comprised of $9.6 million of gains on sales of $275.1 million of mortgage-backed securities, partially offset by impairment charges on other investment securities of $1 million and $1.6 million during the third quarter and first nine months of 2010, respectively. During the first nine months of 2009, gains on available for sale securities were $22.3 million on sales of $945.2 million of securities, partially offset by an impairment charge of $201 thousand. There were no sales of securities during the same period in 2009.
Consolidated Non-Interest Expense
Non-interest expense totaled $191.8 million for the third quarter of 2010, up $1.5 million, or .8 percent, from $190.3 million for the same 2009 period. For the first nine months of 2010, non-interest expense totaled $572.6 million, up $11.6 million, or 2.1 percent, from $561 million for the same 2009 period.
Compensation and Employee Benefits
Compensation and employee benefits expense for the third quarter of 2010 decreased $398 thousand, or .4 percent, from the third quarter of 2009. For the first nine months of 2010, compensation and employee benefits expense decreased $2.1 million, or .8 percent, from the first nine months of 2009. The decrease for the first nine months of 2010, compared with the same 2009 period was primarily due to headcount reductions in Branch Banking and decreased employee medical plan expenses, partially offset by increased costs in the Specialty Finance businesses as a result of expansion and growth.
FDIC Premiums
FDIC premium expense totaled $5.5 million and $16.2 million for the third quarter and first nine months of 2010, respectively, compared with $5.1 million and $13.8 million for the same 2009 periods. The increase was primarily due to higher deposit insurance rates. The FDIC has recently issued proposals related to risk-based setting of deposit insurance rates that were proposed to be effective for January 1, 2011 and TCFs insurance cost could increase significantly as a result. Also, the Act instructs the FDIC to change the assessment base from deposits to assets without changing the total premiums collected by the fund. The combined effect of the proposed new risk-based formula and changes of the assessment base is unknown at this time.
Deposit Account Premiums
Deposit account premium expense totaled $3.3 million and $15.6 million for the third quarter and first nine months of 2010, respectively, compared with $7.5 million and $21.3 million for the same 2009 periods. The decreases were primarily due to revised marketing strategies and lower checking account production.
Other Non-Interest Expense
Other non-interest expense totaled $39.5 million and $108.9 million for the third quarter and first nine months of 2010, respectively, compared with $34.7 million and $102.6 million for the same 2009 periods. The increases were primarily attributable to increased consulting costs related to the administration of the companys Bank Secrecy Act program and, to a lesser extent, other legal costs including the challenge of the Amendment of the Dodd-Frank Act.
Foreclosed Real Estate and Repossessed Assets, Net
Foreclosed real estate and repossessed asset expenses totaled $9.6 million and $27.6 million for the third quarter and first nine months of 2010, respectively, compared with $8.5 million and $19.3 million for the same 2009 periods, primarily due to an increase in the number of consumer real estate properties owned and the associated expenses.
Operating Lease Depreciation
Operating lease depreciation expense totaled $9 million and $28.8 million for the third quarter and first nine months of 2010, respectively, compared with $3.7 million and $11.6 million for the same 2009 periods. The increase was primarily due to the acquisition of FNCI near the end of the third quarter of 2009.
Other Credit Costs, Net
Other credit costs, net is comprised of consumer real estate loan pool insurance, write-downs on carrying values of operating leases due to customer defaults and reserve requirements for expected losses on unfunded commitments. Other credit costs, net provided a benefit of $834 thousand and expense of $4.5 million for the third quarter and first nine months of 2010, respectively, compared with expense of $3.7 million and $7.8 million for the same 2009 periods. The decrease for the third quarter and first nine months of 2010 as compared to the same 2009 periods was primarily attributable to a decrease in reserves on commercial letters of credit due to the elimination of an exposure on an impaired loan in Michigan and lower premium costs related to consumer real estate loan pool insurance.
Income Taxes
TCF recorded income tax expense of $22.9 million for the third quarter of 2010, or 37.7 percent of income before income tax expense, compared with $6.5 million, or 27.4 percent, for the comparable 2009 period. For the first nine months of 2010, income tax expense totaled $71.8 million, or 37.8 percent of income before income tax expense, compared with $36.5 million, or 35.1 percent, for the comparable 2009 period. The higher effective income tax rate for the third quarter of 2010, as compared to the third quarter of 2009, was primarily due to a net $3 million decrease in income tax expense related to favorable developments in uncertain tax positions, partially offset by an increase in the annual effective income tax rate in the third quarter of 2009. Excluding these items, the annual effective income tax rate for the third quarter of 2009 was 38.8 percent.
The determination of current and deferred income taxes is a critical accounting estimate which is based on complex analyses of many factors including interpretation of income tax laws, the evaluation of uncertain tax positions, differences between the tax and financial reporting basis of assets and liabilities (temporary differences), estimates of amounts due or owed such as the timing of reversal of temporary differences and current financial accounting standards. Additionally, there can be no assurance that estimates and interpretations used in determining income tax liabilities may not be challenged by taxing authorities. Actual results could differ significantly from the estimates and tax law interpretations used in determining the current and deferred income tax liabilities.
In addition, under generally accepted accounting principles, deferred income tax assets and liabilities are recorded at the income tax rates expected to apply to taxable income in the periods in which the deferred income tax assets or liabilities are expected to be realized. If such rates change, deferred income tax assets and liabilities must be adjusted in the period of change through a charge or credit to the Consolidated Statements of Income. Also, if current period income tax rates change, the impact on the annual effective income tax rate is applied year-to-date in the period of enactment.
As discussed under Item 1A. Risk Factors, in TCFs Annual Report on Form 10-K, TCF uses a REIT and related companies in the management of qualified real estate secured assets. In the third quarter of 2009, TCF received notice from a state taxing authority challenging use of the REIT and related companies based on a recent court decision unrelated to TCF and unrelated to the laws in place for the years in the notice. In May 2010, the states Supreme Court unanimously overturned the lower courts decision on which the state taxing authority relied. In September 2010, the state taxing authority informed TCF it was conceding its position and withdrawing its notice. This closure had no effect on TCFs liability for uncertain tax positions.
CONSOLIDATED FINANCIAL CONDITION ANALYSIS
Securities Available for Sale
At September 30, 2010, the net unrealized pre-tax gain on TCFs securities available for sale portfolio was $63.5 million, compared with a net unrealized pre-tax gain of $2.2 million at December 31, 2009. TCFs securities available for sale consist primarily of U.S. Government sponsored enterprise mortgage-backed securities and U.S. Treasury Bills.
Loans and Leases
The following table sets forth information about loans and leases held in TCFs portfolio.
|
|
At |
|
At |
|
|
|
|
||
|
|
September 30, |
|
December 31, |
|
|
Percentage |
|
||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
|
Change |
|
||
Consumer real estate and other: |
|
|
|
|
|
|
|
|
||
Consumer real estate: |
|
|
|
|
|
|
|
|
||
First mortgage lien |
|
$ |
4,951,772 |
|
$ |
4,961,347 |
|
|
(.2 |
)% |
Junior lien |
|
2,285,066 |
|
2,319,222 |
|
|
(1.5 |
) |
||
Total consumer real estate |
|
7,236,838 |
|
7,280,569 |
|
|
(.6 |
) |
||
Other |
|
43,616 |
|
51,422 |
|
|
(15.2 |
) |
||
Total consumer real estate and other |
|
7,280,454 |
|
7,331,991 |
|
|
(.7 |
) |
||
Commercial: |
|
|
|
|
|
|
|
|
||
Commercial real estate: |
|
|
|
|
|
|
|
|
||
Permanent |
|
3,137,025 |
|
3,016,518 |
|
|
4.0 |
|
||
Construction and development |
|
185,993 |
|
252,485 |
|
|
(26.3 |
) |
||
Total commercial real estate |
|
3,323,018 |
|
3,269,003 |
|
|
1.7 |
|
||
Commercial business |
|
340,035 |
|
449,516 |
|
|
(24.4 |
) |
||
Total commercial |
|
3,663,053 |
|
3,718,519 |
|
|
(1.5 |
) |
||
Leasing and equipment finance (1): |
|
|
|
|
|
|
|
|
||
Equipment finance loans |
|
904,607 |
|
868,830 |
|
|
4.1 |
|
||
Lease financings: |
|
|
|
|
|
|
|
|
||
Direct financing leases |
|
2,330,187 |
|
2,305,945 |
|
|
1.1 |
|
||
Sales-type leases |
|
27,014 |
|
24,714 |
|
|
9.3 |
|
||
Lease residuals |
|
109,448 |
|
106,391 |
|
|
2.9 |
|
||
Unearned income and deferred lease costs |
|
(213,784 |
) |
(234,451 |
) |
|
8.8 |
|
||
Total lease financings |
|
2,252,865 |
|
2,202,599 |
|
|
2.3 |
|
||
Total leasing and equipment finance |
|
3,157,472 |
|
3,071,429 |
|
|
2.8 |
|
||
Inventory finance |
|
795,622 |
|
468,805 |
|
|
69.7 |
|
||
Total loans and leases |
|
$ |
14,896,601 |
|
$ |
14,590,744 |
|
|
2.1 |
|
(1) Operating leases of $82.2 million at September 30, 2010 and $105.9 million at December 31, 2009 are included in other assets in the Consolidated Statements of Financial Condition.
Variable-rate loans were approximately 30 percent of the total portfolio as of September 30, 2010, up from 26 percent as of December 31, 2009. Variable-rate consumer real estate loans have interest rates tied to the prime rate, while variable-rate commercial loans have interest rates tied to either the prime rate or LIBOR. At September 30, 2010, $2 billion, or 89 percent, of variable-rate consumer real estate loans and $416 million, or 72 percent, of variable-rate commercial loans were at their contractual interest rate floor. To the extent a loan has an interest rate floor, an increase in interest rates may not result in a change in the interest rate on the variable-rate loan. Substantially all leasing and equipment finance loans have fixed interest rates, while inventory finance loans have variable interest rates. Approximately 75 percent of the consumer real estate portfolio at September 30, 2010 consisted of closed-end loans. TCFs consumer real estate lines of credit require regular payments of interest but do not require regular payments of principal. Consumer real estate outstanding lines of credit were $2.2 billion at September 30, 2010 and December 31, 2009. The average Fair Isaac Company (FICO) credit score at loan origination for the retail lending operation was 726 as of September 30, 2010 and 725 as of December 31, 2009. As part of TCFs credit risk monitoring, TCF obtains updated FICO score information quarterly. The average updated FICO score for the retail lending operation was 725 in the third quarter of 2010 compared with 724 in the fourth quarter 2009.
TCF continues to expand its commercial lending activities, generally to borrowers located in its primary banking markets. With a focus on secured lending, approximately 99 percent of TCFs commercial real estate and commercial business loans at September 30, 2010 were secured either by real estate or other business assets. At September 30, 2010, approximately 93 percent of TCFs commercial real estate loans outstanding were secured by real estate located in its primary banking markets.
The leasing and equipment finance backlog of approved transactions was $359.7 million at September 30, 2010, up from $322.6 million at December 31, 2009.
Allowance for Loan and Lease Losses
Credit risk is the risk of loss from customer default on a loan or lease. TCF has a process to identify and manage its credit risk, which includes initial credit review and approval, periodic monitoring to measure compliance with credit agreements and internal credit policies, utilization of credit insurance on some high loan-to-value consumer real estate loans, monitoring changes in the risk ratings of loans and leases, identification of problem loans and leases, procedures for the collection of problem loans and leases and physical inspections within the inventory finance business. The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The determination of the allowance for loan and lease losses is a critical accounting estimate, which involves managements judgment on a number of factors such as net charge-offs, delinquencies in the loan and lease portfolio, general economic conditions and managements assessment of credit risk inherent in the current loan and lease portfolio. Loans and leases are charged off to the extent they are deemed to be uncollectible. Charge-offs are utilized in the historical data which is used to determine the reserve calculations.
Consumer real estate loans are charged-off to the fair value of underlying collateral, less estimated costs to sell, when they are placed on non-accrual status. Additional review of the fair value of the collateral, less cost to sell, compared with the recorded loan balance occurs upon foreclosure and additional charge-offs are recorded, if necessary. Valuation adjustments made within 90 days of foreclosure are recorded as charge-offs. Subsequent valuation adjustments are recorded as real estate owned expense. Consumer other consists primarily of deposit account overdrafts, which are charged-off no later than 60 days past due. Commercial real estate, commercial business, leasing and equipment finance and inventory finance loans, which are considered collateral dependent, are charged-off to the appraisal value, less estimated costs to sell, when it becomes probable, based on current information and events, all principal and interest amounts will not be collectible in accordance with the contractual terms. Loans which are not dependent on underlying collateral are charged-off when deemed uncollectible based on specific facts and circumstances.
The amount of the allowance for loan and lease losses is highly dependent upon managements estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees or properties. These estimates are reviewed periodically and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known. The Company considers the allowance for loan and lease losses of $253.1 million appropriate to cover losses incurred in the loan and lease portfolios as of September 30, 2010.
No assurance can be given that TCF will not, in any particular period, sustain loan and lease losses that are sizable in relation to the amount reserved, or that subsequent evaluations of the loan and lease portfolio, in light of factors then prevailing, including economic conditions and TCFs ongoing credit review process or regulatory requirements, will not require significant changes in the allowance for loan and lease losses. Among other factors, protracted economic weakness, a continued decline in commercial or residential real estate values in TCFs primary banking markets and continued financial stress on consumers would have an adverse impact on the current adequacy of the allowance for loan and lease losses by increasing credit risk and the risk of potential loss.
The next several pages include detailed information regarding TCFs allowance for loan and lease losses, net charge-offs, non-performing assets, past due loans and leases, loan modifications for borrowers with financial difficulties and classified commercial loans and leases. Included in this data are numerous portfolio ratios that must be carefully reviewed and related to the nature of the underlying loan and lease portfolios before appropriate conclusions can be reached regarding TCF or for purposes of making comparisons to other banks. Most of TCFs non-performing assets and past due loans are secured by real estate. Given the nature of these assets and the related mortgage foreclosure, property sale and, if applicable, mortgage insurance claim processes, it can take 18 months or longer for a loan to migrate from initial delinquency to final disposition. This resolution process generally takes much longer for loans secured by real estate than for unsecured loans or loans secured by other property primarily due to state real estate foreclosure laws. The following table sets forth information detailing the allowance for loan and lease losses and other credit reserves.
|
|
At or For the Three |
|
At or For the Nine |
|
||||||||
|
|
Months Ended September 30, |
|
Months Ended September 30, |
|
||||||||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
251,643 |
|
$ |
193,445 |
|
$ |
244,471 |
|
$ |
172,442 |
|
Charge-offs |
|
(62,945 |
) |
(57,214 |
) |
(167,150 |
) |
(149,557 |
) |
||||
Recoveries |
|
5,135 |
|
3,957 |
|
17,008 |
|
11,700 |
|
||||
Net charge-offs |
|
(57,810 |
) |
(53,257 |
) |
(150,142 |
) |
(137,857 |
) |
||||
Provision for credit losses |
|
59,287 |
|
75,544 |
|
158,791 |
|
181,147 |
|
||||
Balance at end of period |
|
$ |
253,120 |
|
$ |
215,732 |
|
$ |
253,120 |
|
$ |
215,732 |
|
Other credit loss reserves: |
|
|
|
|
|
|
|
|
|
||||
Reserves for unfunded commitments |
|
2,696 |
|
2,871 |
|
2,696 |
|
2,871 |
|
||||
Total credit loss reserves |
|
$ |
255,816 |
|
$ |
218,603 |
|
$ |
255,816 |
|
$ |
218,603 |
|
TCFs methodologies for determining and allocating the allowance for loan and lease losses focus on ongoing reviews of larger individual loans and leases, historical and expected future net charge-offs, delinquencies in the loan and lease portfolio, the level of impaired and non-performing assets, values of underlying loan and lease collateral, the assumed success rate of loan modifications, the overall risk characteristics of the portfolios, changes in character or size of the portfolios, geographic location, prevailing economic conditions and other relevant factors. The various factors used in the methodologies are reviewed on a periodic basis. The total allowance for loan and lease losses is generally available to absorb losses from any segment of the portfolio. The allocation of TCFs allowance for loan and lease losses disclosed in the following table is subject to change based on the changes in criteria used to evaluate the allowance and is not necessarily indicative of the trend of future losses in any particular portfolio.
The allocation of TCFs allowance for loan and lease losses and other credit reserves (Reserves) is as follows.
|
|
At September 30, 2010 |
|
|
At December 31, 2009 |
|
||||||||||||||
|
|
|
|
Total Loans |
|
|
Reserve |
|
|
|
|
Total Loans |
|
|
Reserve |
|
||||
(Dollars in thousands) |
|
Reserves |
|
and Leases |
|
|
Percentage |
|
|
Reserves |
|
and Leases |
|
|
Percentage |
|
||||
Consumer real estate |
|
$ |
169,743 |
|
$ |
7,236,838 |
|
|
2.35 |
% |
|
$ |
164,966 |
|
$ |
7,280,569 |
|
|
2.27 |
% |
Consumer other |
|
2,069 |
|
43,616 |
|
|
4.74 |
|
|
2,476 |
|
51,422 |
|
|
4.82 |
|
||||
Total consumer |
|
171,812 |
|
7,280,454 |
|
|
2.36 |
|
|
167,442 |
|
7,331,991 |
|
|
2.28 |
|
||||
Commercial real estate |
|
41,248 |
|
3,323,018 |
|
|
1.24 |
|
|
37,274 |
|
3,269,003 |
|
|
1.14 |
|
||||
Commercial business |
|
8,336 |
|
340,035 |
|
|
2.45 |
|
|
6,230 |
|
449,516 |
|
|
1.39 |
|
||||
Total commercial |
|
49,584 |
|
3,663,053 |
|
|
1.35 |
|
|
43,504 |
|
3,718,519 |
|
|
1.17 |
|
||||
Leasing and equipment finance |
|
28,974 |
|
3,157,472 |
|
|
.92 |
|
|
32,063 |
|
3,071,429 |
|
|
1.04 |
|
||||
Inventory finance |
|
2,750 |
|
795,622 |
|
|
.35 |
|
|
1,462 |
|
468,805 |
|
|
.31 |
|
||||
Total allowance for loan and lease losses |
|
253,120 |
|
14,896,601 |
|
|
1.70 |
|
|
244,471 |
|
14,590,744 |
|
|
1.68 |
|
||||
Other credit loss reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reserves for unfunded commitments |
|
2,696 |
|
|
|
|
N.M. |
|
|
3,850 |
|
|
|
|
N.M. |
|
||||
Total credit loss reserves |
|
$ |
255,816 |
|
$ |
14,896,601 |
|
|
1.72 |
|
|
$ |
248,321 |
|
$ |
14,590,744 |
|
|
1.70 |
|
N.M. Not Meaningful.
The increase in the consumer real estate allowance was primarily due to increased provision for credit losses as the balance of restructured consumer real estate loans increased. The level of commercial lending allowances is generally volatile due to reserves for specific loans based on individual facts as loans migrate to classified commercial loans or to non-accrual. Charge-offs are taken against such specific reserves. The commercial allowance levels increased from year-end due to these factors. The increase in the inventory finance allowance was primarily due to the growth of the inventory finance business.
The following table sets forth additional information regarding net charge-offs.
|
|
Three Months Ended |
|
|||||||||||
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
||||||||
|
|
Net |
|
|
|
|
|
Net |
|
|
|
|
||
(Dollars in thousands) |
|
Charge-offs |
|
|
Loss Rate (1) |
|
|
Charge-offs |
|
|
Loss Rate (1) |
|
||
Consumer real estate |
|
|
|
|
|
|
|
|
|
|
|
|
||
First mortgage liens |
|
$ |
20,119 |
|
|
1.63 |
% |
|
$ |
15,694 |
|
|
1.27 |
% |
Junior liens |
|
14,374 |
|
|
2.50 |
|
|
14,201 |
|
|
2.44 |
|
||
Total consumer real estate |
|
34,493 |
|
|
1.91 |
|
|
29,895 |
|
|
1.65 |
|
||
Consumer other |
|
1,737 |
|
|
N.M. |
|
|
2,587 |
|
|
N.M. |
|
||
Total consumer real estate and other |
|
36,230 |
|
|
2.00 |
|
|
32,482 |
|
|
1.78 |
|
||
Commercial real estate |
|
12,962 |
|
|
1.56 |
|
|
6,758 |
|
|
.85 |
|
||
Commercial business |
|
(136 |
) |
|
(.16 |
) |
|
4,514 |
|
|
3.78 |
|
||
Total commercial |
|
12,826 |
|
|
1.40 |
|
|
11,272 |
|
|
1.23 |
|
||
Leasing and equipment finance |
|
8,674 |
|
|
1.16 |
|
|
9,409 |
|
|
1.34 |
|
||
Inventory finance |
|
80 |
|
|
.05 |
|
|
94 |
|
|
.20 |
|
||
Total |
|
$ |
57,810 |
|
|
1.58 |
|
|
$ |
53,257 |
|
|
1.52 |
|
(1) Represents the ratio of net charge-offs to average loans and leases, annualized.
N.M. Not Meaningful.
|
|
Nine Months Ended |
|
|||||||||||
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
||||||||
|
|
Net |
|
|
|
|
|
Net |
|
|
|
|
||
(Dollars in thousands) |
|
Charge-offs |
|
|
Loss Rate (1) |
|
|
Charge-offs |
|
|
Loss Rate (1) |
|
||
Consumer real estate |
|
|
|
|
|
|
|
|
|
|
|
|
||
First mortgage liens |
|
$ |
53,162 |
|
|
1.44 |
% |
|
$ |
37,966 |
|
|
1.03 |
% |
Junior liens |
|
40,042 |
|
|
2.32 |
|
|
37,251 |
|
|
2.10 |
|
||
Total consumer real estate |
|
93,204 |
|
|
1.72 |
|
|
75,217 |
|
|
1.38 |
|
||
Consumer other |
|
3,723 |
|
|
N.M. |
|
|
5,538 |
|
|
N.M. |
|
||
Total consumer real estate and other |
|
96,927 |
|
|
1.78 |
|
|
80,755 |
|
|
1.47 |
|
||
Commercial real estate |
|
27,664 |
|
|
1.12 |
|
|
29,929 |
|
|
1.29 |
|
||
Commercial business |
|
2,141 |
|
|
.73 |
|
|
7,440 |
|
|
2.04 |
|
||
Total commercial |
|
29,805 |
|
|
1.07 |
|
|
37,369 |
|
|
1.39 |
|
||
Leasing and equipment finance |
|
22,831 |
|
|
1.01 |
|
|
19,639 |
|
|
.95 |
|
||
Inventory finance |
|
579 |
|
|
.12 |
|
|
94 |
|
|
.11 |
|
||
Total |
|
$ |
150,142 |
|
|
1.37 |
|
|
$ |
137,857 |
|
|
1.33 |
|
(1) Represents the ratio of net charge-offs to average loans and leases, annualized.
N.M. Not Meaningful.
Consumer real estate net charge-offs for the third quarter of 2010 increased $4.6 million, compared to the same 2009 period. During the first nine months of 2010, consumer real estate net charge-offs increased $18 million, compared with the same 2009 period. The increase in consumer real estate net charge-offs was primarily due to an increase in non-performing loans, primarily in the Illinois region. Commercial real estate net charge-offs for the third quarter of 2010 increased $6.2 million, compared with the same 2009 period. During the first nine months of 2010, commercial real estate net charge-offs decreased $2.3 million, compared with the same 2009 period. The decrease in total commercial net charge-offs was primarily due to the decreased severity of charge-offs on commercial business loans during the first nine months of 2010 as compared to the first nine months of 2009. Leasing and equipment finance net charge-offs for the third quarter of 2010 decreased $735 thousand, compared with the same 2009 period. During the first nine months of 2010, leasing and equipment finance net charge-offs increased $3.2 million, compared with the same 2009 period. The increase was primarily due to depressed economic conditions.
Non-Performing Assets
Non-performing assets consist of non-accrual loans and leases and other real estate owned. Non-performing assets are summarized in the following table.
|
|
At |
|
At |
|
|
|
|||
|
|
September 30, |
|
December 31, |
|
|
|
|||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
Change |
|
|||
Non-accrual loans and leases: |
|
|
|
|
|
|
|
|||
Consumer real estate |
|
|
|
|
|
|
|
|||
First mortgage lien |
|
$ |
140,315 |
|
$ |
118,313 |
|
$ |
22,002 |
|
Junior lien |
|
26,225 |
|
20,846 |
|
5,379 |
|
|||
Total consumer real estate |
|
166,540 |
|
139,159 |
|
27,381 |
|
|||
Consumer other |
|
57 |
|
141 |
|
(84 |
) |
|||
Total consumer |
|
166,597 |
|
139,300 |
|
27,297 |
|
|||
Commercial real estate |
|
120,252 |
|
77,627 |
|
42,625 |
|
|||
Commercial business |
|
41,637 |
|
28,569 |
|
13,068 |
|
|||
Total commercial |
|
161,889 |
|
106,196 |
|
55,693 |
|
|||
Leasing and equipment finance |
|
40,455 |
|
50,008 |
|
(9,553 |
) |
|||
Inventory finance |
|
871 |
|
771 |
|
100 |
|
|||
Total non-accrual loans and leases |
|
369,812 |
|
296,275 |
|
73,537 |
|
|||
Other real estate owned: |
|
|
|
|
|
|
|
|||
Residential real estate |
|
88,303 |
|
66,956 |
|
21,347 |
|
|||
Commercial real estate |
|
47,841 |
|
38,812 |
|
9,029 |
|
|||
Total other real estate owned |
|
136,144 |
|
105,768 |
|
30,376 |
|
|||
Total non-performing assets |
|
$ |
505,956 |
|
$ |
402,043 |
|
$ |
103,913 |
|
Non-performing assets as a percentage of: |
|
|
|
|
|
|
|
|||
Loans and leases and other real estate owned |
|
3.37 |
% |
2.74 |
% |
63 |
bps |
|||
Total assets |
|
2.76 |
|
2.25 |
|
51 |
|
|||
Non-performing
assets secured by residential real estate |
|
50.4 |
|
51.3 |
|
(9 |
) |
|||
Other real estate owned: |
|
|
|
|
|
|
|
|||
Residential real estate |
|
|
|
|
|
|
|
|||
Properties owned |
|
480 |
|
298 |
|
182 |
|
|||
Properties subject to redemption |
|
260 |
|
206 |
|
54 |
|
|||
Total residential real estate |
|
740 |
|
504 |
|
236 |
|
|||
Commercial real estate |
|
33 |
|
42 |
|
(9 |
) |
|||
Total other real estate properties |
|
773 |
|
546 |
|
227 |
|
Interest income recognized on loans and leases in non-accrual status totaled $2 million and $4.9 million for the third quarter and first nine months of 2010, respectively, compared with $1.2 million and $2 million for the same 2009 periods. Contractual interest not recognized on non-accrual loans and leases totaled $11 million and $29.7 million for the third quarter and first nine months of 2010, respectively, compared with $8.7 million and $22 million for the same 2009 periods. The increases from the third quarter and first nine months of 2009 were a result of the increase in non-accrual loans and leases.
The changes in the amount of non-accrual loans and leases for the three and nine months ended September 30, 2010 are summarized in the following table.
|
|
|
|
|
|
Leasing and |
|
|
|
|
|
|||||
|
|
|
|
|
|
Equipment |
|
Inventory |
|
|
|
|||||
At or for the three months ended September 30, 2010 |
|
Consumer |
|
Commercial |
|
Finance |
|
Finance |
|
Total |
|
|||||
Balance, beginning of period |
|
$ |
151,104 |
|
$ |
129,266 |
|
$ |
48,777 |
|
$ |
1,035 |
|
$ |
330,182 |
|
Additions |
|
70,146 |
|
62,435 |
|
10,109 |
|
1,239 |
|
143,929 |
|
|||||
Charge-offs |
|
(15,086 |
) |
(13,084 |
) |
(7,812 |
) |
(4 |
) |
(35,986 |
) |
|||||
Transfers to other assets |
|
(21,677 |
) |
(13,787 |
) |
(3,858 |
) |
(135 |
) |
(39,457 |
) |
|||||
Return to accrual status |
|
(14,708 |
) |
|
|
(290 |
) |
(787 |
) |
(15,785 |
) |
|||||
Payments received |
|
(2,521 |
) |
(6,194 |
) |
(6,470 |
) |
(468 |
) |
(15,653 |
) |
|||||
Other, net |
|
(661 |
) |
3,253 |
|
(1 |
) |
(9 |
) |
2,582 |
|
|||||
Balance, end of period |
|
$ |
166,597 |
|
$ |
161,889 |
|
$ |
40,455 |
|
$ |
871 |
|
$ |
369,812 |
|
|
|
|
|
|
|
Leasing and |
|
|
|
|
|
|||||
|
|
|
|
|
|
Equipment |
|
Inventory |
|
|
|
|||||
At or for the nine months ended September 30, 2010 |
|
Consumer |
|
Commercial |
|
Finance |
|
Finance |
|
Total |
|
|||||
Balance, beginning of period |
|
$ |
139,300 |
|
$ |
106,196 |
|
$ |
50,008 |
|
$ |
771 |
|
$ |
296,275 |
|
Additions |
|
184,699 |
|
119,256 |
|
44,791 |
|
4,665 |
|
353,411 |
|
|||||
Charge-offs |
|
(40,047 |
) |
(27,280 |
) |
(20,085 |
) |
(10 |
) |
(87,422 |
) |
|||||
Transfers to other assets |
|
(72,391 |
) |
(19,978 |
) |
(13,394 |
) |
(231 |
) |
(105,994 |
) |
|||||
Return to accrual status |
|
(34,308 |
) |
|
|
(2,116 |
) |
(3,065 |
) |
(39,489 |
) |
|||||
Payments received |
|
(6,665 |
) |
(18,632 |
) |
(18,749 |
) |
(1,291 |
) |
(45,337 |
) |
|||||
Other, net |
|
(3,991 |
) |
2,327 |
|
|
|
32 |
|
(1,632 |
) |
|||||
Balance, end of period |
|
$ |
166,597 |
|
$ |
161,889 |
|
$ |
40,455 |
|
$ |
871 |
|
$ |
369,812 |
|
Charge-offs and allowance recorded to date against the non-accrual loan and lease portfolio as a percentage of the remaining contractual loan balance prior to non-accrual status as of September 30, 2010 is summarized in the following table.
|
|
|
|
Charge-offs |
|
|
|
|
|
|
|||
|
|
Contractual |
|
and Allowance |
|
Net |
|
|
|
|
|||
(Dollars in thousands) |
|
Balance |
|
Recorded |
|
Exposure |
|
|
Impairment (1) |
|
|||
Consumer |
|
$ |
208,397 |
|
$ |
43,087 |
|
$ |
165,310 |
|
|
20.7 |
% |
Commercial |
|
202,350 |
|
56,800 |
|
145,550 |
|
|
28.1 |
|
|||
Leasing and equipment finance |
|
40,455 |
|
11,590 |
|
28,865 |
|
|
28.6 |
|
|||
Inventory finance |
|
871 |
|
170 |
|
701 |
|
|
19.5 |
|
|||
Total at September 30, 2010 |
|
$ |
452,073 |
|
$ |
111,647 |
|
$ |
340,426 |
|
|
24.7 |
|
(1) Represents the ratio of charge-offs and allowance recorded to the contractual loan balances prior to non-accrual status.
The changes in the amount of other real estate owned for the three and nine months ended September 30, 2010 are summarized in the following table.
At or for the three months ended September 30, 2010 |
|
Consumer |
|
Commercial |
|
Total |
|
|||
Balance, beginning of period |
|
$ |
81,895 |
|
$ |
36,036 |
|
$ |
117,931 |
|
Transferred in, net of charge-offs |
|
27,719 |
|
13,787 |
|
41,506 |
|
|||
Sales |
|
(17,399 |
) |
(1,275 |
) |
(18,674 |
) |
|||
Writedowns |
|
(3,179 |
) |
(600 |
) |
(3,779 |
) |
|||
Other, net |
|
(733 |
) |
(107 |
) |
(840 |
) |
|||
Balance, end of period |
|
$ |
88,303 |
|
$ |
47,841 |
|
$ |
136,144 |
|
At or for the nine months ended September 30, 2010 |
|
Consumer |
|
Commercial |
|
Total |
|
|||
Balance, beginning of period |
|
$ |
66,956 |
|
$ |
38,812 |
|
$ |
105,768 |
|
Transferred in, net of charge-offs |
|
89,970 |
|
17,115 |
|
107,085 |
|
|||
Sales |
|
(60,381 |
) |
(3,633 |
) |
(64,014 |
) |
|||
Writedowns |
|
(9,234 |
) |
(1,787 |
) |
(11,021 |
) |
|||
Other, net |
|
992 |
|
(2,666 |
) |
(1,674 |
) |
|||
Balance, end of period |
|
$ |
88,303 |
|
$ |
47,841 |
|
$ |
136,144 |
|
The summary of charge-offs and write-downs recorded to date on other real estate owned compared to the contractual balances prior to non-performing status is summarized in the following table.
|
|
Contractual |
|
|
|
|
|
|
|
|
|||
|
|
Loan Balance |
|
Charge-offs |
|
Other |
|
|
|
|
|||
|
|
Prior to Non- |
|
and Writedowns |
|
Real Estate |
|
|
|
|
|||
(Dollars in thousands) |
|
performing status |
|
Recorded |
|
Owned Balance |
|
|
Impairment (1) |
|
|||
Consumer |
|
$ |
120,184 |
|
$ |
31,881 |
|
$ |
88,303 |
|
|
26.5 |
% |
Commercial |
|
76,880 |
|
29,039 |
|
47,841 |
|
|
37.8 |
|
|||
Total at September 30, 2010 |
|
$ |
197,064 |
|
$ |
60,920 |
|
$ |
136,144 |
|
|
30.9 |
|
(1) Represents the ratio of charge-offs and write-downs recorded to the contractual loan balances prior to non-performing status.
Consumer real estate properties owned increased in the first nine months of 2010 due to the addition of 725 new properties less sales of 543 properties. The increase in consumer real estate properties owned is primarily due to increased delinquencies progressing through the foreclosure process, primarily in the Illinois region. Consumer real estate loans are charged-off to their estimated net realizable values upon entering non-accrual status. Any necessary additional reserves are established for commercial, leasing and equipment finance and inventory finance loans and leases when reported as non-accrual. Other real estate owned is recorded at the lower of cost or fair value less estimated costs to sell the property.
Repossessed and Returned Equipment
At September 30, 2010 and December 31, 2009, TCF had $12.2 million and $17.2 million, respectively, of repossessed and returned equipment held for sale primarily in its Specialty Finance business. The overall economic environment influences the level of repossessed and returned equipment, the demand for these types of used equipment in the marketplace and the fair value or ultimate sales prices at disposition. TCF periodically determines the fair value of this equipment and, if lower than its recorded basis, makes adjustments.
Impaired Loans
Loans that are considered to be impaired, are reviewed regularly by management and are generally placed on non-accrual status when the collection of interest or principal is 90 days or more past due (150 days or more past due or six payments are owed for consumer real estate loans), unless the loan is adequately secured and in the process of collection. Consumer real estate loans are also placed on non-accrual status if, upon notification of bankruptcy, the loan is 60 days or more past due. If the loan is current at notification of bankruptcy, the loan is placed on non-accrual status at 60 days past due or when three payments are owed, or after a partial charge-off, which management feels is appropriate based on the experience of our customers activity and loan type. As of September 30, 2010 and December 31, 2009, approximately 77 percent of TCF consumer real estate customers in bankruptcy were less than 60 days past due on their payments. Collectability and historical performance, including charge-offs and payment performance of each individual loan and customer, are considered in determining the loan classification and required allowance for losses. For the nine months ended September 30, 2010, interest income would have been reduced by approximately $72 thousand, had the accrual of interest income been discontinued upon notification of bankruptcy.
Impaired loans include non-accrual commercial real estate and commercial business loans, equipment finance loans, inventory finance loans and any restructured consumer real estate or commercial loans. Non-accrual impaired loans are included in the previous disclosures of non-performing assets. Impaired loans are summarized in the following table.
|
|
At |
|
At |
|
|
|
|||
|
|
September 30, |
|
December 31, |
|
|
|
|||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
Change |
|
|||
Non-accrual loans (1): |
|
|
|
|
|
|
|
|||
Consumer real estate |
|
$ |
25,489 |
|
$ |
15,416 |
|
$ |
10,073 |
|
Commercial real estate |
|
120,252 |
|
77,627 |
|
42,625 |
|
|||
Commercial business |
|
41,637 |
|
28,569 |
|
13,068 |
|
|||
Leasing and equipment finance |
|
13,825 |
|
14,204 |
|
(379 |
) |
|||
Inventory finance |
|
871 |
|
771 |
|
100 |
|
|||
Subtotal |
|
202,074 |
|
136,587 |
|
65,487 |
|
|||
Accruing restructured consumer real estate |
|
315,588 |
|
252,510 |
|
63,078 |
|
|||
Accruing restructured commercial real estate |
|
5,468 |
|
|
|
5,468 |
|
|||
Total impaired loans |
|
$ |
523,130 |
|
$ |
389,097 |
|
$ |
134,033 |
|
(1) Includes non-accrual loans previously restructured.
The increase in impaired loans from December 31, 2009 was primarily due to a $63.1 million increase in accruing consumer real estate restructured loans and a small number of commercial real estate loans migrating to non-accrual status. There were $304.9 million and $249.6 million of accruing restructured consumer real estate loans less than 90 days past due as of September 30, 2010 and December 31, 2009, respectively. Non-accrual impaired loans included $34.8 million and $25 million of restructured loans at September 30, 2010 and December 31, 2009, respectively. The allowance for loan and lease losses for impaired loans was $55.2 million at September 30, 2010, compared with $40.6 million at December 31, 2009. The average balance of total impaired loans during the three months ended September 30, 2010 was $496.6 million, compared with $342 million during the three months ended December 31, 2009.
Loan Modifications for Borrowers with Financial Difficulties
TCF may modify certain loans to retain customers or to maximize collection of loan balances. TCF has maintained several programs designed to assist consumer real estate customers by extending payment dates or reducing customers contractual payments. All loan modifications are made on a case-by-case basis. Under these programs, TCF typically reduces customers contractual payments for a period of 12 to 18 months. If, for economic or legal reasons related to the customers financial difficulties, TCF grants a concession that it would not have otherwise considered, the loan is classified as a restructured loan. Restructured loans generally continue to accrue interest if the loan was accruing interest at the time of the modification, although at lower rates than the original loans, if customers have demonstrated a willingness and ability to make modified loan payments. At September 30, 2010, all consumer restructured loans were temporary modifications, except for $20 million which were permanent modifications. Temporary modifications are no longer classified as restructured loans once they complete the temporary modification term (typically 12 to 18 months) and the customer makes three consecutive payments under the original contractual terms. If TCF has not granted a concession, the loan is not considered a restructured loan. Modifications which are not classified as restructured loans primarily involve interest rate changes to current market rates for similarly situated borrowers. Loan modifications to borrowers who are not experiencing financial difficulties are not included in the following reporting of loan modifications. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to or greater than the rate that TCF was willing to accept at the time of modification for a new loan with comparable risk and the loans are no longer impaired based on the terms of the restructuring agreements.
The following table summarizes the consumer real estate loans which have been restructured or modified for borrowers experiencing financial difficulties.
|
|
At |
|
At |
|
||||||||
|
|
September 30, |
|
December 31, |
|
||||||||
|
|
2010 |
|
2009 |
|
||||||||
|
|
|
|
|
Over 60-day |
|
|
|
|
Over 60-day |
|
||
|
|
|
|
|
Delinquency as a |
|
|
|
|
Delinquency as a |
|
||
|
|
Principal |
|
|
Percentage of |
|
Principal |
|
|
Percentage of |
|
||
(Dollars in thousands) |
|
Balance |
|
|
Balance |
|
Balance |
|
|
Balance |
|
||
Restructured loans: |
|
|
|
|
|
|
|
|
|
|
|
||
Accruing |
|
$ |
315,588 |
|
|
5.51 |
% |
$ |
252,510 |
|
|
2.48 |
% |
Non-accrual |
|
25,489 |
|
|
N.A. |
|
15,416 |
|
|
N.A. |
|
||
Total restructured loans |
|
341,077 |
|
|
|
|
267,926 |
|
|
|
|
||
Other loan modifications: |
|
|
|
|
|
|
|
|
|
|
|
||
Accruing |
|
16,765 |
|
|
18.77 |
|
32,717 |
|
|
11.19 |
|
||
Non-accrual |
|
3,745 |
|
|
N.A. |
|
1,506 |
|
|
N.A. |
|
||
Total other loan modifications |
|
20,510 |
|
|
|
|
34,223 |
|
|
|
|
||
Total loan modifications |
|
$ |
361,587 |
|
|
|
|
$ |
302,149 |
|
|
|
|
N.A. Not Applicable
Consumer real estate loans that are less than 150 days past due, or six payments owing, at the time of modification remain on accrual status if there is demonstrated performance prior to the modification and payment in full under the modified loan is expected. Otherwise, the loans are placed on non-accrual status and reported as non-performing until there is sustained repayment performance for six consecutive payments. An accruing modified loan is re-aged to current delinquency status after the receipt of three consecutive modified payments.
Restructured loans are considered impaired loans and are evaluated separately in TCFs allowance methodology based on the expected cash flows for loans in this status. Reserves for losses on accruing restructured loans were $34 million, or 10.8 percent of the outstanding balance, at September 30, 2010 and $27 million, or 10.7 percent of the outstanding balance, at December 31, 2009. TCF utilized its historical 16 percent re-default rate on restructured consumer real estate loans in determining its assumed 20 percent re-default rate included in the estimated cash flows. The majority of restructured loans are in the early stages of their modified terms and therefore the ultimate re-default rate used in the estimated cash flows could increase.
The following table summarizes restructured and modified Wholesale Banking loans for borrowers experiencing financial difficulties. The non-accrual restructured and modified loans are also included in the disclosures regarding non-performing assets. The accruing restructured and modified loans are also included in the disclosures regarding classified commercial loans and leases.
|
|
At |
|
At |
|
||||||||
|
|
September 30, |
|
December 31, |
|
||||||||
|
|
2010 |
|
2009 |
|
||||||||
|
|
|
|
|
Over 60-day |
|
|
|
|
Over 60-day |
|
||
|
|
|
|
|
Delinquency as a |
|
|
|
|
Delinquency as a |
|
||
|
|
Principal |
|
|
Percentage of |
|
Principal |
|
|
Percentage of |
|
||
(Dollars in thousands) |
|
Balance |
|
|
Balance |
|
Balance |
|
|
Balance |
|
||
Restructured loans: |
|
|
|
|
|
|
|
|
|
|
|
||
Accruing commercial |
|
$ |
5,468 |
|
|
|
% |
$ |
|
|
|
|
% |
Non-accrual commercial |
|
9,339 |
|
|
N.A. |
|
9,586 |
|
|
N.A. |
|
||
Other loan modifications: |
|
|
|
|
|
|
|
|
|
|
|
||
Accruing: |
|
|
|
|
|
|
|
|
|
|
|
||
Commercial |
|
95,381 |
|
|
|
|
33,272 |
|
|
|
|
||
Leasing and equipment finance |
|
21,736 |
|
|
1.42 |
|
31,925 |
|
|
3.08 |
|
||
Total accruing other loan modifications |
|
117,117 |
|
|
.26 |
|
65,197 |
|
|
1.51 |
|
||
Non-accrual: |
|
|
|
|
|
|
|
|
|
|
|
||
Commercial |
|
1,174 |
|
|
N.A. |
|
|
|
|
N.A. |
|
||
Leasing and equipment finance |
|
6,579 |
|
|
N.A. |
|
2,059 |
|
|
N.A. |
|
||
Total non-accrual other loan modifications |
|
7,753 |
|
|
N.A. |
|
2,059 |
|
|
N.A. |
|
||
Total other loan modifications |
|
124,870 |
|
|
|
|
67,256 |
|
|
|
|
||
Total loan modifications |
|
$ |
139,677 |
|
|
|
|
$ |
76,842 |
|
|
|
|
N.A. Not Applicable
Commercial loan modifications which are not classified as restructured loans primarily involve loans where the effective yield on the modified loan was equal to or greater than the effective yield on the original loan or loans where interest rates were changed to current market rates for borrowers with similar credit characteristics. Loans that are 90 or more days past due and not well secured at the time of modification remain on non-accrual status. Regardless of whether contractual principal and interest payments are well secured at the time of modification, equipment finance loans that are 90 or more days past due remain on non-accrual status. Modified loans on non-accrual status are reported as non-performing loans until there is sustained repayment performance for six months.
Restructured commercial loans are considered impaired loans and are evaluated separately in TCFs allowance methodology based on the expected cash flows for loans in this status. Reserves for losses on non-accruing commercial real estate restructured loans were $753 thousand, or 8.06 percent of the outstanding balance, at September 30, 2010, and $1 million, or 10.81 percent of the outstanding balance at December 31, 2009.
The overall success of the consumer real estate modification program and any other modifications will ultimately be based on the percentage of customers who are able to successfully revert back to original or increased payments after the modification period.
Past Due Loans and Leases
The following table sets forth information regarding TCFs delinquent loan and lease portfolio, excluding non-accrual loans and leases. Delinquent balances are determined based on the contractual terms of the loan or lease.
|
|
At September 30, 2010 |
|
At December 31, 2009 |
|
||||||
|
|
Principal |
|
Percentage of |
|
Principal |
|
Percentage of |
|
||
(Dollars in thousands) |
|
Balances |
|
Loans and Leases |
|
Balances |
|
Loans and Leases |
|
||
Excluding acquired portfolios (1)(2): |
|
|
|
|
|
|
|
|
|
||
60-89 days |
|
$ |
47,404 |
|
.35 |
% |
$ |
50,567 |
|
.36 |
% |
90 days or more |
|
59,700 |
|
.43 |
|
44,700 |
|
.33 |
|
||
Total |
|
$ |
107,104 |
|
.78 |
|
$ |
95,267 |
|
.69 |
|
Including acquired portfolios (1): |
|
|
|
|
|
|
|
|
|
||
60-89 days |
|
$ |
48,640 |
|
.34 |
% |
$ |
54,073 |
|
.38 |
% |
90 days or more |
|
64,082 |
|
.44 |
|
52,056 |
|
.36 |
|
||
Total |
|
$ |
112,722 |
|
.78 |
|
$ |
106,129 |
|
.74 |
|
(1) Excludes non-accrual loans and leases.
(2) Excludes delinquencies and non-accrual loans in acquired portfolios as delinquency and non-accrual migration in these portfolios is not expected to result in losses exceeding the credit reserves netted against the loan balances.
The following table summarizes TCFs over 60-day delinquent loan and lease portfolio by loan type, excluding non-accrual loans and leases.
|
|
At September 30, 2010 |
|
At December 31, 2009 |
|
||||||||
|
|
Principal |
|
|
Percentage |
|
Principal |
|
|
Percentage |
|
||
(Dollars in thousands) |
|
Balances |
|
|
of Portfolio |
|
Balances |
|
|
of Portfolio |
|
||
Consumer real estate |
|
|
|
|
|
|
|
|
|
|
|
||
First mortgage lien |
|
$ |
80,795 |
|
|
1.68 |
% |
$ |
65,074 |
|
|
1.34 |
% |
Junior lien |
|
20,387 |
|
|
.90 |
|
17,942 |
|
|
.78 |
|
||
Total consumer real estate |
|
101,182 |
|
|
1.43 |
|
83,016 |
|
|
1.16 |
|
||
Consumer other |
|
61 |
|
|
.14 |
|
215 |
|
|
.42 |
|
||
Total consumer |
|
101,243 |
|
|
1.42 |
|
83,231 |
|
|
1.16 |
|
||
Commercial real estate |
|
1,260 |
|
|
.04 |
|
22 |
|
|
|
|
||
Commercial business |
|
|
|
|
|
|
46 |
|
|
.01 |
|
||
Total commercial |
|
1,260 |
|
|
.04 |
|
68 |
|
|
|
|
||
Leasing and equipment finance |
|
4,346 |
|
|
.17 |
|
11,263 |
|
|
.44 |
|
||
Inventory finance |
|
255 |
|
|
.04 |
|
705 |
|
|
.19 |
|
||
Subtotal (1) |
|
107,104 |
|
|
.78 |
|
95,267 |
|
|
.69 |
|
||
Delinquencies in acquired portfolios (2) |
|
5,618 |
|
|
.79 |
|
10,862 |
|
|
1.93 |
|
||
Total |
|
$ |
112,722 |
|
|
.78 |
|
$ |
106,129 |
|
|
.74 |
|
(1) Excludes delinquencies and non-accrual loans and leases in acquired portfolios as delinquency and non-accrual migration in these portfolios is not expected to result in losses exceeding the credit reserves netted against the loan balances.
(2) Excludes non-accrual loans and leases. At September 30, 2010 and December 31, 2009, TCF had $711.1 million and $561.7 million of acquired loans and leases, respectively.
The increase in delinquencies from December 31, 2009 was primarily due to increased consumer real estate delinquencies, as there continues to be financial stress on consumers with high levels of under- and un-employment in TCFs banking markets, depressed housing values and prolonged weakness in the overall economy.
Classified Commercial Loans and Leases
In addition to non-performing assets, there were $428.6 million of commercial loans and leases at September 30, 2010, for which management has concerns regarding the ability of the borrowers to meet existing repayment terms, an increase of $58.3 million from December 31, 2009. The increase in classified commercial loans and leases was primarily due to a 22.7 percent increase in classified commercial real estate loans from December 31, 2009. Classified commercial loans and leases exclude non-accrual loans and leases, over 90-day delinquent loans and leases, real estate owned and repossessed assets and include commercial loans and leases primarily classified for regulatory purposes as substandard or doubtful and reflect the distinct possibility, but not probability, that the Company will not be able to collect all amounts due according to the contractual terms of the loan or lease agreement. Although these loans and leases have been identified as classified commercial loans and leases, they may never become delinquent, non-performing or impaired. Additionally, these loans and leases are generally secured by commercial real estate or other assets, thus reducing the potential for loss should they become non-performing. The current level of security is subject to TCFs lien position and current collateral values. Classified commercial loans and leases are considered in the determination of the adequacy of the allowance for loan and lease losses.
Classified commercial loans and leases are summarized as follows.
|
|
At |
|
At |
|
||||||||
|
|
September 30, |
|
December 31, |
|
||||||||
|
|
2010 |
|
2009 |
|
||||||||
|
|
Principal |
|
|
Percentage |
|
Principal |
|
|
Percentage |
|
||
(In thousands) |
|
Balances |
|
|
of Portfolio |
|
Balances |
|
|
of Portfolio |
|
||
Commercial real estate |
|
$ |
354,338 |
|
|
10.7 |
% |
$ |
288,848 |
|
|
8.8 |
% |
Commercial business |
|
29,754 |
|
|
8.8 |
|
42,464 |
|
|
9.5 |
|
||
Leasing and equipment finance |
|
38,053 |
|
|
1.2 |
|
38,998 |
|
|
1.3 |
|
||
Inventory finance |
|
6,491 |
|
|
.8 |
|
|
|
|
|
|
||
Total |
|
$ |
428,636 |
|
|
5.6 |
|
$ |
370,310 |
|
|
5.1 |
|
Deposits
Checking, savings and money market deposits are an important source of low-cost funds and fee income for TCF. Deposits totaled $11.5 billion at September 30, 2010, a decrease of $106.8 million, or .9 percent, from December 31, 2009. The decrease was primarily due to declines in certificates of deposits resulting from pricing strategies to reduce higher cost funds, partially offset by growth in checking and savings balances. TCFs weighted-average rate for deposits, including non-interest bearing deposits, was .48 percent at September 30, 2010, compared with .65 percent at December 31, 2009. The decrease in the weighted-average rate for deposits was due to pricing strategies on certain deposit products and mix changes.
Borrowings and Liquidity
Borrowings totaled $4.9 billion at September 30, 2010, up $170.7 million from December 31, 2009. The weighted-average rate on borrowings was 4.31 percent at September 30, 2010, compared with 4.42 percent at December 31, 2009. The decrease in the weighted-average rate was primarily due to an increase in low rate short-term borrowings. Historically, TCF has borrowed primarily from the FHLB, from institutional sources under repurchase agreements and from other sources. At September 30, 2010, TCF had $2 billion in unused, secured borrowing capacity at the FHLB of Des Moines and $529 million in unused, secured borrowing capacity at the Federal Reserve Discount Window.
See Note 6 of Notes to Consolidated Financial Statements for more information on TCFs long-term borrowings.
Contractual Obligations and Commitments
TCF has certain obligations and commitments to make future payments under contracts. At September 30, 2010, the aggregate contractual obligations (excluding bank deposits) and commitments are as follows.
(In thousands) |
|
Payments Due by Period |
|
|||||||||||||
|
|
|
|
Less than |
|
1-3 |
|
3-5 |
|
More than |
|
|||||
Contractual Obligations |
|
Total |
|
1 year |
|
years |
|
years |
|
5 years |
|
|||||
Total borrowings (1) |
|
$ |
4,926,192 |
|
$ |
837,923 |
|
$ |
199,520 |
|
$ |
446,867 |
|
$ |
3,441,882 |
|
Annual
rental commitments under |
|
219,696 |
|
27,057 |
|
47,228 |
|
40,931 |
|
104,480 |
|
|||||
Campus marketing agreements |
|
47,762 |
|
4,371 |
|
6,286 |
|
5,885 |
|
31,220 |
|
|||||
Construction contracts |
|
305 |
|
305 |
|
|
|
|
|
|
|
|||||
Visa indemnification (2) |
|
2,424 |
|
2,424 |
|
|
|
|
|
|
|
|||||
|
|
$ |
5,196,379 |
|
$ |
872,080 |
|
$ |
253,034 |
|
$ |
493,683 |
|
$ |
3,577,582 |
|
(In thousands) |
|
Amount of Commitment Expiration by Period |
|
|||||||||||||
|
|
|
|
Less than |
|
1-3 |
|
3-5 |
|
More than |
|
|||||
Commitments |
|
Total |
|
1 year |
|
years |
|
years |
|
5 years |
|
|||||
Commitments to lend: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Consumer home equity and other |
|
$ |
1,464,476 |
|
$ |
16,224 |
|
$ |
165,327 |
|
$ |
91,711 |
|
$ |
1,191,214 |
|
Commercial |
|
354,472 |
|
168,882 |
|
70,217 |
|
84,415 |
|
30,958 |
|
|||||
Leasing and equipment finance |
|
124,401 |
|
124,401 |
|
|
|
|
|
|
|
|||||
Total commitments to lend |
|
1,943,349 |
|
309,507 |
|
235,544 |
|
176,126 |
|
1,222,172 |
|
|||||
Standby
letters of credit and guarantees on |
|
31,921 |
|
26,906 |
|
5 |
|
5,010 |
|
|
|
|||||
|
|
$ |
1,975,270 |
|
$ |
336,413 |
|
$ |
235,549 |
|
$ |
181,136 |
|
$ |
1,222,172 |
|
(1) Total borrowings excludes interest.
(2) The payment time is estimated to be less than one year; however, the exact date of the payment cannot be determined.
Commitments to lend are agreements to lend to a customer provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral predominantly consists of residential and commercial real estate.
Campus marketing agreements consist of fixed or minimum obligations for exclusive marketing and naming rights with seven campuses. TCF is obligated to make various annual payments for these rights in the form of royalties and scholarships through 2029. TCF also has various renewal options, which may extend the terms of these agreements. Campus marketing agreements are an important element of TCFs campus banking strategy.
Standby letters of credit and guarantees on industrial revenue bonds are conditional commitments issued by TCF guaranteeing the performance of a customer to a third party. These conditional commitments expire in various years through 2015. The assets held as collateral primarily consist of commercial real estate mortgages. Since the conditions under which TCF is required to fund these commitments may not materialize, the cash requirements are expected to be less than the total outstanding commitments.
Equity
Equity at September 30, 2010 was $1.5 billion, or 8.22 percent of total assets, compared with $1.2 billion, or 6.60 percent of total assets, at December 31, 2009. Tangible realized common equity at September 30, 2010 was $1.3 billion, or 7.27 percent of total tangible assets, compared with $1 billion, or 5.86 percent, at December 31, 2009. Tangible realized common equity is a non-GAAP measure and represents common equity less goodwill, other intangible assets, accumulated other comprehensive income and non-controlling interest in subsidiaries. Tangible assets represent total assets less goodwill and other intangible assets. Management reviews tangible realized common equity to tangible assets as an ongoing measure and has included this information because of current interest by investors, rating agencies and banking regulators. The methodology for calculating tangible realized common equity may vary between companies.
The following table is a reconciliation of the non-GAAP measure of tangible realized common equity to tangible assets to the GAAP measure of total equity to total assets.
|
|
At Sep. 30, |
|
At Dec. 31, |
|
||
(Dollars in thousands) |
|
2010 |
|
2009 |
|
||
Computation of total equity to total assets: |
|
|
|
|
|
||
Total equity |
|
$ |
1,505,962 |
|
$ |
1,179,755 |
|
Total assets |
|
$ |
18,313,608 |
|
$ |
17,885,175 |
|
Total equity to total assets |
|
8.22 |
% |
6.60 |
% |
||
|
|
|
|
|
|
||
Computation of tangible realized common equity to tangible assets: |
|
|
|
|
|
||
Total equity |
|
$ |
1,505,962 |
|
$ |
1,179,755 |
|
Less: Non-controlling interest in subsidiaries |
|
10,007 |
|
4,393 |
|
||
Total TCF Financial Corporation stockholders equity |
|
1,495,955 |
|
1,175,362 |
|
||
Less: |
|
|
|
|
|
||
Accumulated other comprehensive income |
|
22,458 |
|
|
|
||
Goodwill |
|
152,599 |
|
152,599 |
|
||
Other intangibles |
|
1,275 |
|
1,405 |
|
||
Add: |
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
|
18,545 |
|
||
Tangible realized common equity |
|
$ |
1,319,623 |
|
$ |
1,039,903 |
|
|
|
|
|
|
|
||
Total assets |
|
$ |
18,313,608 |
|
$ |
17,885,175 |
|
Less: |
|
|
|
|
|
||
Goodwill |
|
152,599 |
|
152,599 |
|
||
Other intangibles |
|
1,275 |
|
1,405 |
|
||
Tangible assets |
|
$ |
18,159,734 |
|
$ |
17,731,171 |
|
|
|
|
|
|
|
||
Tangible realized common equity to tangible assets |
|
7.27 |
% |
5.86 |
% |
Tier 1 risk-based capital at September 30, 2010 was $1.4 billion, or 10.35 percent of risk-weighted assets, compared to $1.2 billion, or 8.52 percent of risk-weighted assets at December 31, 2009. Tier 1 common capital at September 30, 2010 was $1.3 billion, or 9.45 percent of risk-weighted assets, compared to $1 billion, or 7.65 percent of risk-weighted assets at December 31, 2009. Increases in tier 1 and total risk-based capital are primarily the result of TCFs 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.
In contrast to GAAP-basis measures, the total tier 1 common capital ratio excludes the effect of qualifying trust preferred securities, qualifying non-controlling interest in subsidiaries and cumulative perpetual preferred stock. Management reviews the total tier 1 common capital ratio as an ongoing measure and has
included this information because of current interest by investors, rating agencies and banking regulators. The methodology for calculating total tier 1 common capital may vary between companies.
The following table is a reconciliation of GAAP to non-GAAP measures.
|
|
At |
|
At |
|
||
|
|
September 30, |
|
December 31, |
|
||
(In thousands) |
|
2010 |
|
2009 |
|
||
Total tier 1 risk-based capital ratio: |
|
|
|
|
|
||
Total tier 1 capital |
|
$ |
1,447,070 |
|
$ |
1,161,750 |
|
Total risk-weighted assets |
|
$ |
13,984,181 |
|
$ |
13,627,871 |
|
Total tier 1 risk-based capital ratio |
|
10.35 |
% |
8.52 |
% |
||
|
|
|
|
|
|
||
Computation of tier 1 common capital ratio: |
|
|
|
|
|
||
Total tier 1 capital |
|
$ |
1,447,070 |
|
$ |
1,161,750 |
|
Less: |
|
|
|
|
|
||
Qualifying trust preferred securities |
|
115,000 |
|
115,000 |
|
||
Qualifying non-controlling interest in subsidiaries |
|
10,007 |
|
4,393 |
|
||
Total tier 1 common capital |
|
$ |
1,322,063 |
|
$ |
1,042,357 |
|
|
|
|
|
|
|
||
Total risk-weighted assets |
|
$ |
13,984,181 |
|
$ |
13,627,871 |
|
|
|
|
|
|
|
||
Total tier 1 common capital ratio |
|
9.45 |
% |
7.65 |
% |
On October 18, 2010, TCF declared a regular quarterly dividend of five cents per common share, payable on November 30, 2010 to stockholders of record at the close of business on October 29, 2010.
The recently enacted Dodd-Frank Act which, among other things, disallows trust preferred securities from being included in a banks tier 1 capital determination following a phase out period. See Managements Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Condition Analysis Recent Legislative Developments for more information.
Recent Accounting Developments
On July 21, 2010, the FASB issued Accounting Standard Update (ASU) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of restructured loans will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolios risk and performance. This ASU is effective for the 2010 Annual Report on Form 10-K.
Recent Legislative Developments
Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act was signed into law on July 21, 2010. Generally, the Act is effective the day after it was signed into law, but different effective dates apply to specific sections of the law. Uncertainty remains as to the ultimate impact of the Act, which could have a material adverse impact either on the financial services industry as a whole, or on TCFs business, results of operations and financial condition.
The Act, among other things:
|
· |
Directs the Federal Reserve to issue rules which are expected to limit debit-card interchange fees (see RESULTS OF OPERATIONS Consolidated Non-Interest Income Card Revenues); |
|
|
|
|
· |
After a three-year phase-in period which begins January 1, 2013, removes trust preferred securities as a permitted component of a holding companys tier 1 capital; |
|
|
|
|
· |
Provides for an increase in the FDIC assessment for depository institutions with assets of $10 billion or more, increases in the minimum reserve ratio for the deposit insurance fund from 1.15 percent to 1.35 percent and changes in the basis for determining FDIC premiums from deposits to assets; |
|
|
|
|
· |
Creates a new consumer financial protection bureau that will have rulemaking authority for a wide range of consumer protection laws that would apply to all banks and have broad powers to supervise and enforce consumer protection laws; |
|
|
|
|
· |
Provides for new disclosure and other requirements relating to executive compensation and corporate governance; |
|
|
|
|
· |
Changes standards for Federal preemption of state laws related to federally chartered institutions and their subsidiaries; |
|
|
|
|
· |
Provides for mortgage reform addressing a customers ability to repay, restricts variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and makes more loans subject to requirements for higher-cost loans, new disclosures, and certain other restrictions; |
|
|
|
|
· |
Creates a financial stability oversight council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity; |
|
|
|
|
· |
Permanently increases the deposit insurance coverage to $250 thousand and allows depository institutions to pay interest on checking accounts; and |
|
|
|
|
· |
Requires publicly-traded bank holding companies with assets of $10 billion or more to establish a risk committee of the Board of Directors responsible for enterprise-wide risk management practices. |
Forward-Looking Information
This quarterly report on Form 10-Q and other reports issued by the Company, including reports filed with the SEC, may contain forward-looking statements that deal with future results, plans or performance. In addition, TCFs management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCFs future results may differ materially from historical performance and forward-looking statements about TCFs expected financial results or other plans and are subject to a number of risks and uncertainties. These include, but are not limited to the following:
Adverse Economic or Business Conditions, Credit and Other Risks. Continued or deepening deterioration in general economic and banking industry conditions, or continued increases in unemployment in TCFs primary banking markets; adverse economic, business and competitive developments such as shrinking interest margins, deposit outflows, deposit account attrition, or an inability to increase the number of deposit accounts; adverse changes in credit and other risks posed by TCFs loan, lease, investment, and securities available for sale portfolios, including continuing declines in commercial or residential real estate values or changes in the allowance for loan and lease losses dictated by new market conditions or regulatory requirements; interest rate risks resulting from fluctuations in prevailing interest rates or other factors that result in a mismatch between yields earned on TCFs interest-earning assets and the rates paid on its deposits and borrowings; foreign currency exchange risks.
Earnings/Capital Constraints, Liquidity Risks. Limitations on TCFs ability to pay dividends or to increase dividends in the future because of financial performance deterioration, regulatory restrictions or limitations; increased deposit insurance premiums, special assessments or other costs related to deteriorating conditions in the banking industry, the economic impact on banks of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Act) and Emergency Economic Stabilization Act of 2008, as amended (EESA), and other regulatory reform legislation; the impact of financial regulatory reform, including the phase out of trust preferred securities in tier 1 capital called for by the Act, or additional capital, leverage, liquidity and risk management requirements or changes in the composition of qualifying regulatory capital; adverse changes in securities markets directly or indirectly affecting TCFs ability to sell assets or to fund its operations; diminished unsecured borrowing capacity resulting from TCF credit rating downgrades and unfavorable conditions in the credit markets that restrict or limit various funding sources; costs associated with new regulatory requirements or interpretive guidance relating to liquidity.
Legislative and Regulatory Requirements. New consumer protection and supervisory requirements, including the Acts creation of a new consumer protection bureau and limits on Federal preemption for state laws that could be applied to national banks; the imposition of requirements with an adverse impact relating to TCFs lending, loan collection and other business activities as a result of the EESA and the Act, or other legislative or regulatory developments such as mortgage foreclosure moratorium laws or imposition of underwriting or other limitations that impact the ability to use certain variable-rate products; reduction of interchange revenue from debit card transactions resulting from the so-called Durbin Amendment to the Act, which limits debit card interchange fees to amounts that will only allow issuers to recover incremental costs of authorization, clearance and settlement of debit card transactions, plus possibly some costs relating to fraud prevention; impact of legislative, regulatory or other changes affecting customer account charges and fee income; changes to bankruptcy laws which would result in the loss of all or part of TCFs security interest due to collateral value declines (so-called cramdown provisions); any material failure of TCF to comply with the terms of its consent order with the Office of the Comptroller of the Currency relating to TCFs Bank Secrecy Act compliance, which may result in regulatory enforcement action including monetary penalties; increased health care costs resulting from recently enacted Federal health care reform legislation; adverse regulatory examinations and resulting enforcement actions or other adverse consequences such as increased capital requirements or higher deposit insurance assessments; heightened regulatory practices, requirements or expectations, including, but not limited to, requirements related to the Bank Secrecy Act and anti-money laundering compliance activity.
Risks Relating to New Product Introduction. TCF has introduced a new anchor retail deposit account product that replaces TCF Totally Free Checking, and that calls for a monthly maintenance fee on accounts not meeting certain specific requirements. TCF has also implemented new regulatory requirements that prohibit financial institutions from charging NSF fees on point-of-sale and ATM transactions unless customers opt-in. Customer acceptance of the new product changes and regulatory requirements cannot be predicted with certainty, and these changes may have an adverse impact on TCFs ability to generate and retain accounts and on its fee revenue.
Litigation Risks. Results of litigation, including class action litigation concerning TCFs lending or deposit activities including account servicing processes or fees or charges, or employment practices, and possible increases in indemnification obligations for certain litigation against Visa U.S.A. (covered litigation) and potential reductions in card revenues resulting from covered litigation or other litigation against Visa.
Competitive Conditions; Supermarket Branching Risk. Reduced demand for financial services and loan and lease products; adverse developments affecting TCFs supermarket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches.
Accounting, Audit, Tax and Insurance Matters. Changes in accounting standards or interpretations of existing standards; monetary, fiscal or tax policies of the federal or state governments, including adoption of state legislation that would increase state taxes; adverse state or Federal tax assessments or findings in tax audits; lack of or inadequate insurance coverage for claims against TCF.
Technological and Operational Matters. Technological, computer-related or operational difficulties or loss or theft of information and the possibility that deposit account losses (fraudulent checks, etc.) may increase.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Interest-Rate Risk
TCFs results of operations are dependent to a large degree on its net interest income and its ability to manage its interest-rate risk. Although TCF manages other risks, such as credit risk, liquidity risk, operational and other risks, in the normal course of its business, the Company considers interest-rate risk to be its most significant market risk. Since TCF does not hold a trading portfolio, the Company is not exposed to market risk from trading activities. A mismatch between maturities, interest rate sensitivities and prepayment characteristics of assets and liabilities results in interest-rate risk. TCF, like most financial institutions, has material interest-rate risk exposure to changes in both short-term and long-term interest rates as well as variable interest rate indices (e.g., the prime rate).
TCFs Asset/Liability Committee (ALCO) manages TCFs interest-rate risk based on interest rate expectations and other factors. The principal objective of TCFs asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest-rate risk and liquidity risk and facilitating the funding needs of the Company.
TCF utilizes net interest income simulation models to estimate the near-term effects (next twelve months) of changing interest rates on its net interest income. Net interest income simulation involves forecasting net interest income under a variety of scenarios, including the level of interest rates, the shape of the yield curve, and spreads between market interest rates. At September 30, 2010, net interest income is estimated to increase slightly by .7 percent compared with the base case scenario, over the next 12 months if short- and long-term interest rates were to sustain an immediate increase of 100 basis points.
Management exercises its best judgment in making assumptions regarding events that management can impact such as non-contractual deposit repricings and events outside managements control such as customer behavior on loan and deposit activity, counter-party decisions on callable borrowings and the effect that competition has on both loan and deposit pricing. These assumptions are inherently uncertain and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude and
frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors.
In addition to the net interest income simulation model, management utilizes an interest rate gap measure (difference between interest-earning assets and interest-bearing liabilities re-pricing within a given period). While the interest rate gap measurement has some limitations, including no assumptions regarding future asset or liability production and a static interest rate assumption (large quarterly changes may occur related to these items), the interest rate gap represents the net asset or liability sensitivity at a point in time. An interest rate gap measure could be significantly affected by external factors varying from assumptions such as loan prepayments, changes in deposits, changes in the correlation of various interest-bearing instruments, competition, or an increase or decrease in interest rates.
TCFs one-year interest rate gap was a positive $373.5 million, or 2 percent of total assets, at September 30, 2010, compared with a negative $1.2 billion, or 6.6 percent of total assets, at December 31, 2009. The change in the gap from year-end is primarily due to decreased levels of fixed-rate loans, an increase in non-contractual deposits and increased equity. A positive interest rate gap position exists when the amount of interest-earning assets maturing or re-pricing exceeds the amount of interest-bearing liabilities maturing or re-pricing, including assumed prepayments, within a particular time period. A negative interest rate gap position exists when the amount of interest-bearing liabilities maturing or re-pricing exceeds the amount of interest-earning assets maturing or re-pricing, including assumed prepayments, within a particular time period.
TCF estimates that an immediate 25 basis point decrease in current mortgage loan interest rates would increase prepayments on the $6.7 billion of fixed-rate mortgage-backed securities and consumer real estate loans at September 30, 2010, by approximately $239 million, or 29.5 percent, in the first year. Although prepayments on fixed-rate portfolios are currently at a relatively low level, TCF estimates that an immediate 100 basis point increase in current mortgage loan interest rates would reduce prepayments on the fixed-rate mortgage-backed securities and consumer real estate loans at September 30, 2010, by approximately $74 million, or 9.1 percent, in the first year. A slowing in prepayments would increase the estimated life of the portfolios and may also limit growth in net interest income or reduce net interest margin in the future.
Item 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer (Principal Executive Officer), the Companys Chief Financial Officer (Principal Financial Officer) and its Controller and Assistant Treasurer (Principal Accounting Officer), of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 under the Securities Exchange Act of 1934 (Exchange Act). Based upon that evaluation, management concluded that the Companys disclosure controls and procedures are effective, as of September 30, 2010.
Disclosure controls and procedures are designed to ensure information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Companys management, including the Chief Executive Officer (Principal Executive Officer), the Chief Financial Officer (Principal Financial Officer) and the Controller and Assistant Treasurer (Principal Accounting Officer), as appropriate, to allow for timely decisions regarding required disclosure. Disclosure controls include internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and that transactions are properly recorded and reported.
Any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system inherently has limitations, and the benefits of controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Therefore, no assessment of a cost-effective system of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.
Changes in Internal Control Over Financial Reporting
In July 2010, the Company implemented a new investment and wholesale borrowings accounting system in its Treasury Services division. The new system includes new operational and accounting controls and procedures and was thoroughly tested and reconciled as part of the development and conversion process.
As part of the Companys reorganization of its management structure in late 2009, decisions were made to reorganize and centralize the decentralized finance and accounting operation related to its previous banking segments and certain corporate support areas. This reorganization and centralization has been completed as of September 30, 2010. In some circumstances changes were made to the internal control structure. Management had a process in place to monitor the transition activities, including periodic reporting to the Audit Committee. There were no other significant changes to the Companys disclosure controls or internal controls over financial reporting during the third quarter of 2010 that have materially affected or are reasonably likely to materially affect TCFs internal control over financial reporting.
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
The selected quarterly financial data presented below should be read in conjunction with the Consolidated Financial Statements and related notes.
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
|
|
At |
|
At |
|
At |
|
At |
|
At |
|
|||||
(Dollars in thousands, |
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
|||||
except per-share data) |
|
2010 |
|
2010 |
|
2010 |
|
2009 |
|
2009 |
|
|||||
SELECTED FINANCIAL CONDITION DATA: |
|
|
|
|
|
|
|
|
|
|
||||||
Total loans and leases |
|
$ |
14,896,601 |
|
$ |
14,639,893 |
|
$ |
14,706,423 |
|
$ |
14,590,744 |
|
$ |
14,329,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Securities available for sale |
|
1,947,462 |
|
1,940,331 |
|
1,899,825 |
|
1,910,476 |
|
2,060,227 |
|
|||||
Goodwill |
|
152,599 |
|
152,599 |
|
152,599 |
|
152,599 |
|
152,599 |
|
|||||
Total assets |
|
18,313,608 |
|
18,030,045 |
|
18,187,314 |
|
17,885,175 |
|
17,743,009 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
11,461,519 |
|
11,523,043 |
|
11,882,373 |
|
11,568,319 |
|
11,626,011 |
|
|||||
Short-term borrowings |
|
344,681 |
|
14,805 |
|
17,590 |
|
244,604 |
|
21,397 |
|
|||||
Long-term borrowings |
|
4,581,511 |
|
4,600,820 |
|
4,496,574 |
|
4,510,895 |
|
4,524,955 |
|
|||||
Total equity |
|
1,505,962 |
|
1,474,536 |
|
1,393,617 |
|
1,179,755 |
|
1,179,839 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Three Months Ended |
|
|||||||||||||
|
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
|||||
|
|
2010 |
|
2010 |
|
2010 |
|
2009 |
|
2009 |
|
|||||
SELECTED OPERATIONS DATA: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net interest income |
|
$ |
173,755 |
|
$ |
176,499 |
|
$ |
174,662 |
|
$ |
169,641 |
|
$ |
161,489 |
|
Provision for credit losses |
|
59,287 |
|
49,013 |
|
50,491 |
|
77,389 |
|
75,544 |
|
|||||
Net interest income after provision for credit losses |
|
114,468 |
|
127,486 |
|
124,171 |
|
92,252 |
|
85,945 |
|
|||||
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Fees and other revenue |
|
129,437 |
|
136,043 |
|
123,073 |
|
135,866 |
|
128,057 |
|
|||||
Gains (losses) on securities, net |
|
8,505 |
|
(137 |
) |
(430 |
) |
7,283 |
|
|
|
|||||
Total non-interest income |
|
137,942 |
|
135,906 |
|
122,643 |
|
143,149 |
|
128,057 |
|
|||||
Non-interest expense |
|
191,753 |
|
189,069 |
|
191,802 |
|
206,763 |
|
190,267 |
|
|||||
Income before income tax expense |
|
60,657 |
|
74,323 |
|
55,012 |
|
28,638 |
|
23,735 |
|
|||||
Income tax expense |
|
22,852 |
|
28,112 |
|
20,790 |
|
9,385 |
|
6,491 |
|
|||||
Income after income tax expense |
|
37,805 |
|
46,211 |
|
34,222 |
|
19,253 |
|
17,244 |
|
|||||
Income (loss) attributable to non-controlling interest |
|
912 |
|
1,186 |
|
301 |
|
(203 |
) |
(207 |
) |
|||||
Net income available to common stockholders |
|
$ |
36,893 |
|
$ |
45,025 |
|
$ |
33,921 |
|
$ |
19,456 |
|
$ |
17,451 |
|
Per common share: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic earnings |
|
$ |
.26 |
|
$ |
.32 |
|
$ |
.26 |
|
$ |
.15 |
|
$ |
.14 |
|
Diluted earnings |
|
$ |
.26 |
|
$ |
.32 |
|
$ |
.26 |
|
$ |
.15 |
|
$ |
.14 |
|
Dividends declared |
|
$ |
.05 |
|
$ |
.05 |
|
$ |
.05 |
|
$ |
.05 |
|
$ |
.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FINANCIAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Return on average assets (1) |
|
.84 |
% |
1.02 |
% |
.76 |
% |
.43 |
% |
.39 |
% |
|||||
Return on average common equity (1) |
|
9.95 |
|
12.71 |
|
10.68 |
|
6.57 |
|
6.03 |
|
|||||
Net interest margin (1) |
|
4.12 |
|
4.18 |
|
4.20 |
|
4.07 |
|
3.92 |
|
|||||
Net charge-offs as a percentage of average loans and leases (1) |
|
1.58 |
|
1.30 |
|
1.22 |
|
1.35 |
|
1.52 |
|
|||||
Average total equity to average assets |
|
8.28 |
|
7.88 |
|
7.10 |
|
6.69 |
|
6.61 |
|
|||||
(1) Annualized |
|
|
|
|
|
|
|
|
|
|
|
In August 2010, TCF was named in a putative class action challenging TCFs checking account posting practices as a breach of contract and as a violation of state consumer fraud statutes. The plaintiffs seek damages and other relief, including restitution. TCFs account agreement with the customer contains an arbitration provision under which the named plaintiffs agreed to arbitrate disputes such as this in an individual (as opposed to class action) arbitration. TCF is seeking to enforce the arbitration agreement in the United States District Court for the District of Minnesota, and the plaintiffs have sought to stay arbitration pending a possible transfer of the case to multi-district litigation in the Southern District of Florida, in which numerous other putative class actions against financial institutions asserting similar claims are pending. TCF believes its arbitration provision is valid and enforceable and that in any event it has meritorious defenses to the claims brought by the plaintiffs. At this early stage of the litigation, it is not possible for management of TCF to determine the probability of a material adverse outcome or reasonably estimate the amount of any potential loss.
From time to time, TCF is also a party to other legal proceedings arising out of its lending, leasing and deposit operations. TCF is and expects to become engaged in a number of foreclosure proceedings and other collection actions as part of its lending and leasing collections activities. TCF may also be subject to enforcement action by federal regulators, including the Securities and Exchange Commission, the Federal Reserve Board and the Comptroller of the Currency. From time to time, borrowers and other customers, or employees or former employees, have also brought actions against TCF, in some cases claiming substantial damages. Financial services companies are subject to the risk of class action litigation, and TCF is subject to such actions brought against it from time to time. Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty, and therefore the ultimate resolution of a matter and the possible range of loss associated with certain potential outcomes cannot be established with confidence. Based on our current understanding of these pending legal proceedings, management does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, operating results or cash flows of TCF.
You should carefully consider the risks and the risk factors included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009. Our business, financial condition or results of operations could be materially adversely affected by any of these risks.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes share repurchase activity for the quarter ended September 30, 2010.
Period |
|
Total
Number |
|
Average
Price |
|
Total
Number of Shares |
|
Maximum
Number of |
|
|
July 1 to July 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Share repurchase program (1) |
|
|
|
$ |
|
|
|
|
5,384,130 |
|
Employee transactions (2) |
|
28,326 |
|
$ |
16.27 |
|
N.A. |
|
N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
August 1 to August 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Share repurchase program (1) |
|
|
|
$ |
|
|
|
|
5,384,130 |
|
Employee transactions (2) |
|
|
|
$ |
|
|
N.A. |
|
N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
September 1 to September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
Share repurchase program (1) |
|
|
|
$ |
|
|
|
|
5,384,130 |
|
Employee transactions (2) |
|
|
|
$ |
|
|
N.A. |
|
N.A. |
|
Total |
|
|
|
|
|
|
|
|
|
|
Share repurchase program (1) |
|
|
|
$ |
|
|
|
|
|
|
Employee transactions (2) |
|
28,326 |
|
$ |
16.27 |
|
N.A. |
|
|
|
N.A. Not Applicable
(1) The current share repurchase authorization was approved by the Board of Directors on April 14, 2007. The authorization was for a repurchase of up to an additional 5% of TCFs common stock outstanding at the time of the authorization, or 6.5 million shares. This authorization does not have an expiration date.
(2) Restricted shares withheld pursuant to the terms of awards under the TCF Financial Incentive Stock Program to offset tax withholding obligations that occur upon vesting and release of restricted shares. The TCF Financial Incentive Stock Program provides that the value of shares withheld shall be the average of the high and low prices of common stock of TCF Financial Corporation on the date the relevant transaction occurs.
See Index to Exhibits on page 60 of this report.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
TCF FINANCIAL CORPORATION |
|
|
|
|
|
/s/ William A. Cooper |
|
William A. Cooper, Chairman |
|
|
|
/s/ Thomas F. Jasper |
|
Thomas F. Jasper, Executive
Vice President and |
|
|
|
/s/ David M. Stautz |
|
David M. Stautz, Senior
Vice President, |
Dated: October 28, 2010
TCF FINANCIAL CORPORATION
FOR FORM 10-Q
Exhibit |
|
Description |
|
|
|
4(a) |
|
Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request. |
|
|
|
10(n)# |
|
Directors Stock Grant Program |
|
|
|
10(r)-1# |
|
Amendment of Directors 2005 Deferred Compensation Plan effective July 19, 2010 |
|
|
|
10(t)# |
|
Amendment of Director Retirement Plan effective July 19, 2010 |
|
|
|
12(a)# |
|
Computation of Ratios of Earnings to Fixed Charges for periods ended September 30, 2010, December 31, 2009, 2008, 2007 and 2006. |
|
|
|
12(b)# |
|
Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends for periods ended September 30, 2010, December 31, 2009, 2008, 2007 and 2006. |
|
|
|
31# |
|
Rule 13a-14(a)/15d-14(a) Certifications (Section 302 Certifications) |
|
|
|
32# |
|
Statement Furnished Pursuant to Title 18 United States Code Section 1350 (Section 906 Certifications) |
|
|
|
99.1 |
|
Form of Consent Order, dated July 20, 2010, issued by the Comptroller of the Currency in the matter of TCF National Bank. [Incorporated by reference to Exhibit 99.1 of TCF Financial Corporations Quarterly Report on Form 10-Q for the period ended June 30, 2010.] |
|
|
|
99.2 |
|
Form of Stipulation and Consent to the Issuance of a Consent Order dated July 20, 2010, issued by the Comptroller of the Currency in the matter of TCF National Bank. [Incorporated by reference to Exhibit 99.1 of TCF Financial Corporations Quarterly Report on Form 10-Q for the period ended June 30, 2010.] |
|
|
|
101# |
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Financial statements from the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2010, formatted in XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements tagged as blocks of text. |
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# Filed herein