TCF Bank 2011 Annual Report Download - page 84

All of Gateway One’s loans held for investment had
evidence of deteriorated credit quality. The goodwill of
$73 million arising from the acquisition consists largely of
expected incremental balance sheet and fee growth and
cross selling opportunities. The goodwill was assigned to TCF’s
Wholesale Banking segment. None of the goodwill recognized
is expected to be deductible for income tax purposes.
Pursuant to the terms of the acquisition, three key
members of Gateway One’s management team acquired
shares of TCF common stock in the aggregate value of
$2.6 million with proceeds received by them from the
acquisition. These shares of TCF common stock will be
retained by a trustee for three years pursuant to the terms
of custodial agreements entered into between the trustee,
TCF and each individual. Ownership of these shares will
be forfeited to TCF if during the three year period the
individual terminates his employment with TCF without
cause, or TCF terminates their employment for cause, and
has been accounted for separately from the acquisition.
The value of these shares has been recorded within other
assets and will be recognized as compensation expense
ratably throughout the duration of the three-year period.
In addition, TCF provided Gateway One $10 million in interim
funding prior to the acquisition to facilitate its closing in a
timely manner. This loan was executed at prevailing market
pricing and terms.
Note 3. Cash and Due from Banks
At December 31, 2011, TCF was required by Federal
Reserve regulations to maintain reserves of $42.1 million
in cash on hand or at the Federal Reserve.
TCF maintains cash balances that are restricted as
to their use in accordance with certain contractual
agreements related to the sale and servicing of auto loans.
Cash proceeds from loans serviced for third parties are
held in restricted accounts until remitted. TCF also retains
restricted cash balances for potential loss recourse on
certain sold auto loans. Restricted cash totaling $17.5
million was included within cash and due from banks at
December 31, 2011.
Note 4. Investments
The carrying values of investments consist of the following.
At December 31,
(In thousands) 2011 2010
Federal Home Loan Bank stock, at cost $119,086 $141,516
Federal Reserve Bank stock, at cost 31,711 30,684
Other 6,983 7,568
Total investments $157,780 $179,768
The investments in Federal Home Loan Bank (“FHLB”)
stock are required investments related to TCF’s current
borrowings from the FHLB Des Moines. FHLBs obtain their
funding primarily through issuance of consolidated
obligations of the FHLB system. The U.S. Government does
not guarantee these obligations, and each of the 12 FHLBs
are generally jointly and severally liable for repayment
of each other’s debt. Therefore, TCF’s investments in
these banks could be adversely impacted by the financial
operations of the FHLBs and actions of their regulator,
the Federal Housing Finance Agency. Other investments
primarily consist of non-traded mortgage-backed securities
and other bonds which qualify for investment credit under
the Community Reinvestment Act.
During 2011, TCF recorded an impairment charge of
$16 thousand on other investments, which had a carrying
value of $7 million at December 31, 2011, as full recovery
is not expected. During 2010, TCF recorded an impairment
charge of $241 thousand on other investments, which had a
carrying value of $7.6 million at December 31, 2010.
The carrying values and yields on investments at
December 31, 2011, by contractual maturity, are shown below.
(Dollars in thousands)
Carrying
Value Yield
Due in one year or less $ – –%
Due in 1-5 years 700 2.71
Due in 5-10 years 2,000 3.25
Due after 10 years 4,283 5.01
No stated maturity 150,797 2.84
Total $157,780 2.90%
66 TCF Financial Corporation and Subsidiaries