UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

ý Quarterly Report Pursuant to Section 13 or 15 (d)

of the Securities Exchange Act of 1934

 

For the quarterly period ended

June 30, 2005

 

or

 

o Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

 

__________________

 

Commission File

No. 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)

 

Registrant’s telephone number, including area code:

(612) 661-6500

 

 

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 ý

 

No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ý

 

No o

 

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

 

Class

 

Outstanding at
July 15, 2005

Common Stock, $.01 par value

 

134,157,994 shares

 

 



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

 

 

 

 

 

Pages

Part I. Financial Information

 

 

 

 

 

 

 

 

 

Item 1.    Financial Statements

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition

 

 

 

 

 

at June 30, 2005 and December 31, 2004

 

 

3

 

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three and

 

 

 

 

 

Six Months ended June 30, 2005 and 2004

 

 

4

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the

 

 

 

 

 

Six Months Ended June 30, 2005 and 2004

 

 

5

 

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the

 

 

 

 

 

Six Months Ended June 30, 2005 and 2004

 

 

6

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

7

 

 

 

 

 

 

 

Item 2.    Management’s Discussion and Analysis of Consolidated Financial

 

 

 

 

Condition and Results of Operations for the Three and Six

 

 

 

 

 

Months Ended June 30, 2005 and 2004

 

 

19

 

 

 

 

 

 

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

 

41

 

 

 

 

 

 

 

Item 4.    Controls and Procedures

 

 

44

 

 

 

 

 

 

 

Supplementary Information

 

 

45

 

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

 

 

 

Items 1-6

 

 

47

 

 

 

 

 

 

Signatures

 

 

49

 

 

 

 

 

 

Index to Exhibits

 

 

50

 

 

2



 

 

PART 1 - FINANCIAL INFORMATION

ITEM 1. Financial Statements

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(Dollars in thousands, except per-share data)

(Unaudited)

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

 

 

2005

 

2004

 

ASSETS

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

361,158

 

$

359,798

 

Investments

 

104,127

 

103,226

 

Securities available for sale

 

1,406,575

 

1,619,941

 

Loans held for sale

 

213,227

 

154,279

 

Loans and leases:

 

 

 

 

 

Consumer home equity and other

 

4,808,003

 

4,418,588

 

Commercial real estate

 

2,202,752

 

2,154,396

 

Commercial business

 

447,958

 

424,135

 

Leasing and equipment finance

 

1,419,868

 

1,375,372

 

Subtotal

 

8,878,581

 

8,372,491

 

Residential real estate

 

884,141

 

1,014,166

 

Total loans and leases

 

9,762,722

 

9,386,657

 

Allowance for loan and lease losses

 

(76,406

)

(79,878

)

Net loans and leases

 

9,686,316

 

9,306,779

 

Premises and equipment

 

339,619

 

326,667

 

Goodwill

 

152,599

 

152,599

 

Mortgage servicing rights

 

39,936

 

46,442

 

Other assets

 

303,659

 

270,836

 

 

 

$

12,607,216

 

$

12,340,567

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

Checking

 

$

4,019,685

 

$

3,905,987

 

Savings

 

2,046,068

 

1,927,872

 

Money market

 

629,731

 

659,686

 

Subtotal

 

6,695,484

 

6,493,545

 

Certificates of deposit

 

1,728,842

 

1,468,650

 

Total deposits

 

8,424,326

 

7,962,195

 

Short-term borrowings

 

1,045,582

 

1,056,111

 

Long-term borrowings

 

1,899,047

 

2,048,492

 

Total borrowings

 

2,944,629

 

3,104,603

 

Accrued expenses and other liabilities

 

283,704

 

315,351

 

Total liabilities

 

11,652,659

 

11,382,149

 

Stockholders' 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; 184,425,478 and 184,939,094 shares issued

 

1,844

 

1,849

 

Additional paid-in capital

 

496,910

 

518,741

 

Retained earnings, subject to certain restrictions

 

1,462,393

 

1,385,760

 

Accumulated other comprehensive income (loss)

 

1,601

 

(1,415

)

Treasury stock at cost, 50,301,984 and 47,752,934 shares, and other

 

(1,008,191

)

(946,517

)

Total stockholders' equity

 

954,557

 

958,418

 

 

 

$

12,607,216

 

$

12,340,567

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

3



 

 

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per-share data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

155,014

 

$

128,141

 

$

301,558

 

$

253,414

 

Securities available for sale

 

21,325

 

20,413

 

42,820

 

40,745

 

Loans held for sale

 

2,566

 

3,340

 

4,820

 

6,181

 

Investments

 

1,094

 

895

 

2,146

 

1,668

 

Total interest income

 

179,999

 

152,789

 

351,344

 

302,008

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

20,646

 

9,474

 

36,584

 

20,013

 

Borrowings

 

28,068

 

20,896

 

54,422

 

41,083

 

Total interest expense

 

48,714

 

30,370

 

91,006

 

61,096

 

Net interest income

 

131,285

 

122,419

 

260,338

 

240,912

 

Provision for credit losses

 

1,427

 

3,070

 

(2,009

)

4,230

 

Net interest income after provision for credit losses

 

129,858

 

119,349

 

262,347

 

236,682

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Fees and service charges

 

65,824

 

73,116

 

122,855

 

132,775

 

Card revenue

 

19,717

 

16,024

 

37,359

 

29,515

 

ATM revenue

 

10,795

 

11,138

 

20,527

 

21,135

 

Investments and insurance revenue

 

2,791

 

3,430

 

5,644

 

6,892

 

Subtotal

 

99,127

 

103,708

 

186,385

 

190,317

 

Leasing and equipment finance

 

11,092

 

12,245

 

21,785

 

22,412

 

Mortgage banking

 

216

 

5,495

 

1,358

 

8,950

 

Other

 

2,833

 

1,845

 

10,649

 

4,073

 

Fees and other revenue

 

113,268

 

123,293

 

220,177

 

225,752

 

Gains on sales of securities available for sale

 

4,437

 

-

 

9,676

 

12,717

 

Total non-interest income

 

117,705

 

123,293

 

229,853

 

238,469

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

81,973

 

79,597

 

163,424

 

158,476

 

Occupancy and equipment

 

24,771

 

23,397

 

50,150

 

46,887

 

Advertising and promotions

 

6,778

 

6,498

 

13,025

 

12,408

 

Deposit account losses

 

3,775

 

5,350

 

7,436

 

9,528

 

Other

 

32,950

 

29,064

 

64,323

 

57,313

 

Total non-interest expense

 

150,247

 

143,906

 

298,358

 

284,612

 

Income before income tax expense

 

97,316

 

98,736

 

193,842

 

190,539

 

Income tax expense

 

26,675

 

33,518

 

59,736

 

64,660

 

Net income

 

$

70,641

 

$

65,218

 

$

134,106

 

$

125,879

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.53

 

$

.47

 

$

1.01

 

$

.91

 

Diluted

 

$

.53

 

$

.47

 

$

1.00

 

$

.91

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

.2125

 

$

.1875

 

$

.425

 

$

.375

 

 

See accompanying notes to consolidated financial statements.

 

 

 

4



 

 

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2005

 

2004

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

134,106

 

$

125,879

 

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

 

 

 

 

 

Depreciation and amortization

 

22,488

 

20,326

 

Mortgage servicing rights amortization and impairment

 

6,506

 

6,918

 

Provision for credit losses

 

(2,009

)

4,230

 

Proceeds from sales of loans held for sale

 

34,645

 

563,229

 

Principal collected on loans held for sale

 

3,099

 

3,578

 

Originations and purchases of loans held for sale

 

(96,515

)

(591,880

)

Net increase in other assets and accrued expenses and other liabilities

 

(63,384

)

(8,793

)

Gains on sales of assets

 

(15,793

)

(13,252

)

Other, net

 

888

 

(3,016

)

 

 

 

 

 

 

Total adjustments

 

(110,075

)

(18,660

)

 

 

 

 

 

 

Net cash provided by operating activities

 

24,031

 

107,219

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Principal collected on loans and leases

 

2,068,488

 

1,878,228

 

Originations and purchases of loans

 

(2,133,869

)

(2,040,610

)

Purchases of equipment for lease financing

 

(368,254

)

(332,837

)

Proceeds from sales of securities available for sale

 

917,209

 

866,692

 

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

 

117,401

 

221,334

 

Purchases of securities available for sale

 

(807,328

)

(1,213,660

)

Net increase in Federal Home Loan Bank stock

 

(2,122

)

(19,465

)

Proceeds from sales of real estate owned

 

12,351

 

24,690

 

Acquisitions, net of cash acquired

 

-

 

(4,326

)

Purchases of premises and equipment

 

(37,431

)

(38,212

)

Proceeds from sale of building

 

17,000

 

-

 

Other, net

 

2,458

 

(1,551

)

 

 

 

 

 

 

Net cash used by investing activities

 

(214,097

)

(659,717

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

462,131

 

149,908

 

Net decrease in short-term borrowings

 

(10,529

)

(19,689

)

Proceeds from long-term borrowings

 

269,422

 

537,020

 

Payments on long-term borrowings

 

(394,997

)

(40,621

)

Purchases of common stock

 

(82,382

)

(40,897

)

Dividends on common stock

 

(57,606

)

(52,418

)

Other, net

 

5,387

 

6,368

 

 

 

 

 

 

 

Net cash provided by financing activities

 

191,426

 

539,671

 

 

 

 

 

 

 

Net increase (decrease) in cash and due from banks

 

1,360

 

(12,827

)

Cash and due from banks at beginning of period

 

359,798

 

370,054

 

Cash and due from banks at end of period

 

$

361,158

 

$

357,227

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

 89,066

 

$

55,805

 

Income taxes

 

$

 74,003

 

$

69,916

 

Transfer of loans and leases to other assets

 

$

16,924

 

$

10,746

 

 

See accompanying notes to consolidated financial statements.

 

 

5



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

Other

 

Treasury

 

 

 

 

 

Common

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stock

 

 

 

 

 

Shares Issued

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

and Other

 

Total

 

Balance, December 31, 2003

 

185,026,710

 

$

925

 

$

518,878

 

$

1,234,804

 

$

5,652

 

$

(839,401

)

$

920,858

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

125,879

 

-

 

-

 

125,879

 

Other comprehensive loss

 

-

 

-

 

-

 

-

 

(20,315

)

-

 

(20,315

)

Comprehensive income (loss)

 

-

 

-

 

-

 

125,879

 

(20,315

)

-

 

105,564

 

Dividends on common stock

 

-

 

-

 

-

 

(52,418

)

-

 

-

 

(52,418

)

Repurchase of 1,506,890 shares

 

-

 

-

 

-

 

-

 

-

 

(40,897

)

(40,897

)

Issuance of 65,600 shares

 

-

 

-

 

552

 

-

 

-

 

(552

)

-

 

Cancellation of shares

 

(34,762

)

-

 

(781

)

-

 

-

 

381

 

(400

)

Amortization of stock compensation

 

-

 

-

 

-

 

-

 

-

 

3,458

 

3,458

 

Exercise of stock options,
98,700 shares

 

-

 

-

 

(247

)

-

 

-

 

1,684

 

1,437

 

Tax benefits realized on vesting of restricted stock grants and exercise of stock options

 

-

 

-

 

1,550

 

-

 

-

 

-

 

1,550

 

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

 

-

 

-

 

(2,414

)

-

 

-

 

2,414

 

-

 

Balance, June 30, 2004

 

184,991,948

 

$

925

 

$

517,538

 

$

1,308,265

 

$

(14,663

)

$

(872,913

)

$

939,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2004

 

184,939,094

 

$

1,849

 

$

518,741

 

$

1,385,760

 

$

(1,415

)

$

(946,517

)

$

958,418

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

134,106

 

-

 

-

 

134,106

 

Other comprehensive income

 

-

 

-

 

-

 

-

 

3,016

 

-

 

3,016

 

Comprehensive income

 

-

 

-

 

-

 

134,106

 

3,016

 

-

 

137,122

 

Dividends on common stock

 

-

 

-

 

-

 

(57,606

)

-

 

-

 

(57,606

)

Repurchase of 3,050,000 shares

 

-

 

-

 

-

 

-

 

-

 

(82,382

)

(82,382

)

Issuance of 482,950 shares

 

-

 

-

 

4,632

 

-

 

-

 

(4,632

)

-

 

Cancellation of shares

 

(74,719

)

(1

)

(1,779

)

133

 

-

 

1,174

 

(473

)

Cancellation of shares for tax withholding

 

(438,897

)

(4

)

(13,479

)

-

 

-

 

-

 

(13,483

)

Amortization of stock compensation

 

-

 

-

 

-

 

-

 

-

 

2,857

 

2,857

 

Exercise of stock options,
18,000 shares

 

-

 

-

 

(164

)

-

 

-

 

329

 

165

 

Tax benefits realized on vesting of restricted stock grants and exercise of stock options

 

-

 

-

 

9,939

 

-

 

-

 

-

 

9,939

 

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

 

-

 

-

 

(20,980

)

-

 

-

 

20,980

 

-

 

Balance, June 30, 2005

 

184,425,478

 

$

1,844

 

$

496,910

 

$

1,462,393

 

$

1,601

 

$

(1,008,191

)

$

954,557

 

 

 

See accompanying notes to consolidated financial statements.

 

 

6



 

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 information and notes necessary for complete financial statements in conformity with generally accepted accounting principles. The information in this Quarterly Report on Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the most recent Annual Report on Form 10-K of TCF Financial Corporation (“TCF” or the “Company”), which contains the latest audited financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2004 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.

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary for a 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, which approximate their fair values, consist of the following:

 

 

 

At

 

At

 

(In thousands)

 

June 30,

 

December 31,

 

 

 

2005

 

2004

 

Federal Home Loan Bank (FHLB) stock, at cost:

 

 

 

 

 

Des Moines

 

$

78,212

 

$

76,090

 

Chicago

 

4,600

 

4,600

 

Topeka

 

151

 

151

 

Subtotal

 

82,963

 

80,841

 

Federal Reserve Bank stock, at cost

 

20,635

 

21,865

 

Interest-bearing deposits with banks

 

529

 

520

 

Total investments

 

$

104,127

 

$

103,226

 

 

The investments in FHLB stock are required investments related to TCF’s borrowings from these banks. All new FHLB borrowing activity is done with the FHLB of Des Moines. FHLBs obtain their funding primarily through issuance of consolidated obligations of the Federal Home Loan Bank System. The U.S. Government does not guarantee these obligations, and each of the 12 FHLBs are jointly and severally liable for re-payment of each others debt. Therefore, TCF’s investments in these banks could be adversely impacted by the operations of the other FHLBs.

 

 

7



 

(3) Securities Available for Sale

 

Securities available for sale consist of the following:

 

 

 

At June 30, 2005

 

At December 31, 2004

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agencies

 

$

1,396,918

 

$

5,404

 

$

(2,686

)

$

1,399,636

 

$

1,614,513

 

$

2,045

 

$

(4,034

)

$

1,612,524

 

Other

 

6,148

 

-

 

(209

)

5,939

 

6,639

 

-

 

(222

)

6,417

 

Other securities

 

1,000

 

-

 

-

 

1,000

 

1,000

 

-

 

-

 

1,000

 

Total

 

$

1,404,066

 

$

5,404

 

$

(2,895

)

$

1,406,575

 

$

1,622,152

 

$

2,045

 

$

(4,256

)

$

1,619,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average yield

 

5.12

%

 

 

 

 

 

 

5.13

%

 

 

 

 

 

 

 

 

The following table shows the gross unrealized losses and fair value in the securities available for sale portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2005. TCF has reviewed these securities and has concluded that the unrealized losses are temporary and no impairment has occurred at June 30, 2005.

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agencies

 

$

402,956

 

$

(2,066

)

$

68,116

 

$

(620

)

$

471,072

 

$

(2,686

)

Other

 

-

 

-

 

5,018

 

(209

)

5,018

 

(209

)

Total

 

$

402,956

 

$

(2,066

)

$

73,134

 

$

(829

)

$

476,090

 

$

(2,895

)

 

 

8



 

(4)          Loans and Leases

 

The following table sets forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale and operating leases:

 

 

 

At

 

At

 

 

 

(Dollars in thousands)

 

June 30,

 

December 31,

 

Percentage

 

 

 

2005

 

2004

 

Change

 

Consumer home equity and other:

 

 

 

 

 

 

 

Home Equity:

 

 

 

 

 

 

 

First mortgage lien

 

$

3,155,799

 

$

2,894,174

 

9.0

%

Junior lien

 

1,613,893

 

1,487,583

 

8.5

 

Total consumer home equity

 

4,769,692

 

4,381,757

 

8.9

 

Other

 

38,311

 

36,831

 

4.0

 

Total consumer home equity and other

 

4,808,003

 

4,418,588

 

8.8

 

Commercial:

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

Permanent

 

1,994,478

 

1,958,377

 

1.8

 

Construction and development

 

208,274

 

196,019

 

6.3

 

Total commercial real estate

 

2,202,752

 

2,154,396

 

2.2

 

Commercial business

 

447,958

 

424,135

 

5.6

 

Total commercial

 

2,650,710

 

2,578,531

 

2.8

 

Leasing and equipment finance:

 

 

 

 

 

 

 

Equipment finance loans

 

352,573

 

334,352

 

5.4

 

Lease financings:

 

 

 

 

 

 

 

Direct financing leases

 

1,101,901

 

1,067,845

 

3.2

 

Sales-type leases

 

18,127

 

22,742

 

(20.3

)

Lease residuals, excluding leveraged lease

 

33,743

 

35,163

 

(4.0

)

Unearned income and deferred lease costs

 

(105,262

)

(103,516

)

1.7

 

Investment in leveraged lease

 

18,786

 

18,786

 

-

 

Total lease financings

 

1,067,295

 

1,041,020

 

2.5

 

Total leasing and equipment finance

 

1,419,868

 

1,375,372

 

3.2

 

Total consumer, commercial and leasing and equipment finance

 

8,878,581

 

8,372,491

 

6.0

 

Residential real estate

 

884,141

 

1,014,166

 

(12.8

)

Total loans and leases

 

$

9,762,722

 

$

9,386,657

 

4.0

 

 

 

Included in the direct financing leases are $­­38.0 million and $38.5 million at June 30, 2005 and December 31, 2004, respectively, of equipment that has been installed under lease contracts that have not yet commenced due to additional equipment pending installation under the lease. TCF receives pro-rata rent payments for the interim period until the lease contract commences and the fixed, non-cancelable lease term begins. TCF recognizes these interim payments in the month they are earned and records the income in interest income on direct finance leases.

 

Lease residuals represent the estimated fair value of the leased equipment at the expiration of the initial term of the transaction and are reviewed on an ongoing basis. Any downward revisions are recorded in the periods in which they become known. At June 30, 2005, lease residuals, excluding the leveraged lease residual, totaled $33.7 million, and were $35.2 million at December 31, 2004. The lease residual on the leveraged lease is included in the investment in leveraged lease and represents a 100% equity interest in a Boeing 767-300 aircraft leased to Delta Airlines, Inc. (“Delta”). The investment in leveraged lease represents net unpaid rentals and estimated unguaranteed residual values of the leased asset less related unearned income. TCF has no obligation for principal and interest on the notes representing the third-party participation related to this leveraged lease. However, these noteholders have a security interest in the aircraft which is superior to TCF’s equity interest. Such notes, which totaled $15.6 million at June 30, 2005, down from $19.2 million at December 31, 2004, are recorded as an offset against the related rental receivable. In 2004, TCF downgraded its credit rating on the Delta leveraged lease, classified its investment as substandard and placed the lease on non-accrual status. Although Delta is current on its payments related to this transaction, if Delta declares bankruptcy, it could result in the charge-off of all or part of TCF’s $18.8 million investment in the leveraged lease and the current payment of previously deferred income tax obligations. TCF has established a reserve for 74% of the investment in the Delta leveraged lease. This reserve was increased from 50% at March 31, 2005 through an allocation of the previously unallocated allowance for loan and lease losses. The Delta lease represents TCF’s only material direct exposure to the commercial airline industry. Reduced airline travel, higher fuel costs, changes in

 

 

9



 

airline fare structures, and other factors have adversely impacted the airline industry and could have an adverse impact on Delta’s ability to meet its lease obligations and on the residual value of the aircraft.

 

TCF’s net investment in the leveraged lease is comprised of the following:

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2005

 

2004

 

 

 

 

 

 

 

Rental receivable (net of principal and interest on non-recourse debt)

 

$

10,064

 

$

10,064

 

Estimated residual value of leased asset

 

13,660

 

13,660

 

Less: Unearned income

 

(4,938

)

(4,938

)

Investment in leveraged lease

 

18,786

 

18,786

 

Less: Deferred income taxes

 

(9,924

)

(9,039

)

Net investment in leveraged lease

 

$

8,862

 

$

9,747

 

 

(5)          Goodwill and Intangible Assets

 

Goodwill and intangible assets as of June 30, 2005 are summarized as follows:

 

 

 

At June 30, 2005

 

At December 31, 2004

 

 

 

Gross

 

Accumulated

 

Net

 

Gross

 

Accumulated

 

Net

 

(In thousands)

 

Amount

 

Amortization

 

Amount

 

Amount

 

Amortization

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

$

81,062

 

$

41,126

 

$

39,936

 

$

83,668

 

$

37,226

 

$

46,442

 

Deposit base intangibles

 

21,180

 

17,764

 

3,416

 

21,180

 

16,935

 

4,245

 

Total

 

$

102,242

 

$

58,890

 

$

43,352

 

$

104,848

 

$

54,161

 

$

50,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill related to the Banking Segment

 

$

141,245

 

 

 

$

141,245

 

$

141,245

 

 

 

$

141,245

 

Goodwill related to the Leasing Segment

 

11,354

 

 

 

11,354

 

11,354

 

 

 

11,354

 

Total

 

$

152,599

 

 

 

$

152,599

 

$

152,599

 

 

 

$

152,599

 

 

Amortization expense for intangible assets was $3.0 million for the second quarter of 2005, compared with $3.7 million for the same 2004 period. Amortization expense for intangible assets was $6.3 million and $7.7 million for the six months ended June 30, 2005 and 2004, respectively. The following table shows the estimated future amortization expense for amortizable intangible assets based on existing asset balances and the interest rate environment as of June 30, 2005. The Company’s actual amortization expense in any given period may be significantly different from the estimated amounts depending upon the addition of new intangible assets, changes in mortgage interest rates, prepayment rates and market conditions.

 

       

 

 

Mortgage

 

Deposit Base

 

 

 

(In thousands)

 

Servicing Rights

 

Intangibles

 

Total

 

 

 

 

 

 

 

 

 

Estimated Amortization Expense:

 

 

 

 

 

 

 

For the remaining six months ending
December 31, 2005

 

$

5,484

 

$

828

 

$

6,312

 

 

 

 

 

 

 

 

 

2006

 

8,741

 

1,630

 

10,371

 

2007

 

7,091

 

958

 

8,049

 

2008

 

5,593

 

-

 

5,593

 

2009

 

4,418

 

-

 

4,418

 

2010

 

3,497

 

-

 

3,497

 

 

 

10



 

(6)          Mortgage Banking

 

The activity in mortgage servicing rights and the related valuation allowance is summarized as follows:

 

 

 

Three Months

 

Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

(In thousands)

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights at beginning of period

 

$

46,501

 

$

52,726

 

$

49,942

 

$

54,036

 

Amortization

 

(2,565

)

(3,242

)

(5,506

)

(6,918

)

Impairment write-down

 

(500

)

-

 

(1,000

)

-

 

Loan originations

 

-

 

3,806

 

-

 

6,172

 

Mortgage servicing rights at end of period

 

43,436

 

53,290

 

43,436

 

53,290

 

Valuation allowance at beginning of period

 

(3,000

)

(2,000

)

(3,500

)

(2,000

)

Provision for impairment

 

(1,000

)

-

 

(1,000

)

-

 

Impairment write-down

 

500

 

-

 

1,000

 

-

 

Valuation allowance at end of period

 

(3,500

)

(2,000

)

(3,500

)

(2,000

)

Mortgage servicing rights, net

 

$

39,936

 

$

51,290

 

$

39,936

 

$

51,290

 

 

The estimated fair value of mortgage servicing rights at June 30, 2005 was approximately $45 million. The estimated fair value of mortgage servicing rights is based on estimated cash flows discounted using rates management believes are commensurate with the risks involved. Assumptions regarding prepayments, defaults and interest rates are determined using available market information.

 

The following table represents the components of mortgage banking revenue:

 

 

 

Three Months

 

 

 

 

 

Six Months

 

 

 

 

 

 

 

Ended June 30,

 

Change

 

Ended June 30,

 

Change

 

(Dollars in thousands)

 

2005

 

2004

 

$

 

%

 

2005

 

2004

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing income

 

$

3,604

 

$

4,339

 

$

(735

)

(16.9

)%

$

7,498

 

$

8,964

 

$

(1,466

)

(16.4

)%

Less mortgage servicing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

2,565

 

3,242

 

(677

)

(20.9

)

5,506

 

6,918

 

(1,412

)

(20.4

)

Provision for impairment

 

1,000

 

-

 

1,000

 

100.0

 

1,000

 

-

 

1,000

 

100.0

 

Net servicing income

 

39

 

1,097

 

(1,058

)

(96.4

)

992

 

2,046

 

(1,054

)

(51.5

)

Gains on sales of loans (1)

 

-

 

3,168

 

(3,168

)

(100.0

)

-

 

5,304

 

(5,304

)

(100.0

)

Other income

 

177

 

1,230

 

(1,053

)

(85.6

)

366

 

1,600

 

(1,234

)

(77.1

)

Total mortgage banking revenue

 

$

216

 

$

5,495

 

$

(5,279

)

(96.1

)

$

1,358

 

$

8,950

 

$

(7,592

)

(84.8

)

 

(1) Beginning in 2005, TCF’s mortgage banking business no longer originates or sells loans.

 

At June 30, 2005 and 2004, TCF was servicing real estate loans for others with aggregate unpaid principal balances of approximately $3.8 billion and $4.8 billion, respectively. During the second quarter of 2005, TCF transferred $212.8 million of loans to another third-party servicer. No gain or loss was recorded related to this transaction. At June 30, 2005 and 2004, TCF had custodial funds of $111.2 million and $116.4 million, respectively, which are included in deposits in the Consolidated Statements of Financial Condition. These custodial deposits relate primarily to mortgage servicing operations and represent funds due to investors on mortgage loans serviced by TCF and customer funds held for real estate taxes and insurance.

 

 

11



 

(7)          Long-term Borrowings

 

 

 

 

 

At June 30, 2005

 

At December 31, 2004

 

 

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

Year of

 

 

 

Average

 

 

 

Average

 

(Dollars in thousands)

 

Maturity

 

Amount

 

Rate

 

Amount

 

Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances and securities sold under repurchase agreements

 

2005

 

$

792,000

 

3.66

%

$

1,191,500

 

3.04

%

 

 

2006

 

303,000

 

4.93

 

303,000

 

4.64

 

 

 

2007

 

200,000

 

3.65

 

-

 

-

 

 

 

2009

 

122,500

 

5.25

 

122,500

 

5.25

 

 

 

2010

 

100,000

 

6.02

 

100,000

 

6.02

 

 

 

2011

 

200,000

 

4.85

 

200,000

 

4.85

 

Total Federal Home Loan Bank advances and securities sold under repurchase agreements

 

 

 

1,717,500

 

4.27

 

1,917,000

 

3.78

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated bank notes

 

2014

 

74,290

 

5.27

 

74,209

 

5.27

 

 

 

2015

 

49,232

 

5.37

 

-

 

-

 

Total subordinated bank notes

 

 

 

123,522

 

5.31

 

74,209

 

5.27

 

 

 

 

 

 

 

 

 

 

 

 

 

Discounted lease rentals

 

2005

 

15,122

 

6.02

 

27,871

 

5.63

 

 

 

2006

 

21,979

 

6.17

 

15,080

 

5.75

 

 

 

2007

 

11,480

 

6.43

 

5,183

 

5.91

 

 

 

2008

 

2,172

 

6.72

 

305

 

6.41

 

 

 

2009

 

581

 

6.78

 

44

 

6.59

 

 

 

2010

 

91

 

6.80

 

-

 

-

 

Total discounted lease rentals

 

 

 

51,425

 

6.22

 

48,483

 

5.70

 

 

 

 

 

 

 

 

 

 

 

 

 

Other borrowings

 

2005

 

-

 

-

 

2,200

 

4.50

 

 

 

2006

 

2,200

 

4.50

 

2,200

 

4.50

 

 

 

2007

 

2,200

 

4.50

 

2,200

 

4.50

 

 

 

2008

 

2,200

 

4.50

 

2,200

 

4.50

 

Total other borrowings

 

 

 

6,600

 

4.50

 

8,800

 

4.50

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term borrowings

 

 

 

$

1,899,047

 

4.39

 

$

2,048,492

 

3.88

 

 

Included in long-term borrowings at June 30, 2005 were $­­­567.5 million of fixed-rate Federal Home Loan Bank (“FHLB”) advances and $200 million of repurchase agreements with other institutions, which are callable quarterly at par until maturity. If the FHLB advances are called, replacement funding will be provided by the FHLB at the then-prevailing market rate of interest for the remaining term-to-maturity, subject to standard terms and conditions. The probability that these advances and repurchase agreements will be called depends primarily on the level of related interest rates during the call period. At June 30, 2005, the contract rate exceeded the market rate on all of the fixed-rate callable advances and repurchase agreements.

 

TCF National Bank (“TCF Bank”), a wholly-owned subsidiary of TCF, has $50 million of subordinated notes due 2015 and $75 million of subordinated notes due 2014. The $50 million notes bear interest at a fixed rate of 5.00% through March 14, 2010, and will reprice quarterly thereafter at the three-month LIBOR rate plus 1.56%. The $75 million notes bear interest at a fixed rate of 5.00% through June 14, 2009, and will reprice quarterly thereafter at the three-month LIBOR rate plus 1.63%. These subordinated notes may be redeemed by TCF Bank at par after March 14, 2010 and June 14, 2009, respectively, and qualify as Tier 2 or supplementary capital for regulatory purposes, subject to certain limitations. TCF Bank paid the proceeds from these offerings to TCF.

 

 

12



 

(8)   Stockholders’ Equity

 

Treasury stock and other consists of the following:

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2005

 

2004

 

 

 

 

 

 

 

Treasury stock, at cost

 

$

(935,758

)

$

(862,543

)

Shares held in trust for deferred compensation plans, at cost

 

(49,795

)

(70,775

)

Unamortized stock compensation

 

(22,638

)

(13,199

)

 

 

$

(1,008,191

)

$

(946,517

)

 

During the second quarter of 2005, TCF’s Board of Directors authorized another program for the repurchase of up to five percent of the Company’s outstanding common stock, or 6.7 million shares. This program is in addition to the existing program for repurchasing shares announced in July 2003. TCF purchased 3,050,000 shares of its common stock during the first six months of 2005, compared with 1,506,890 shares for the same 2004 period. At June 30, 2005, TCF had 7.1 million shares remaining in its stock repurchase programs authorized by the Board of Directors. The decrease in shares held in trust for deferred compensation plans from December 31, 2004 to June 30, 2005 was due to elections by certain executives and senior management to un-defer previously deferred compensation, as allowed under the new Section 409A of the Internal Revenue Code. The increase in unamortized stock compensation is primarily due to a one-time performance-based restricted stock award of 300,000 shares of TCF common stock to TCF’s Chairman.

 

(9)          Regulatory Capital Requirements

 

The following table sets forth TCF’s and TCF Bank’s regulatory tier 1 leverage, tier 1 risk-based and total risk-based capital levels, and applicable percentages of adjusted assets, together with the excess over minimum capital requirements:

 

 

 

 

 

 

 

Minimum Capital

 

 

 

 

 

(Dollars in thousands)

 

Actual

 

Requirement

 

Excess

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of June 30, 2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

$

796,712

 

6.29

%

$

380,285

 

3.00

%

$

416,427

 

3.29

%

TCF National Bank

 

786,157

 

6.21

 

379,992

 

3.00

 

406,165

 

3.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

796,712

 

8.62

 

369,587

 

4.00

 

427,125

 

4.62

 

TCF National Bank

 

786,157

 

8.53

 

368,799

 

4.00

 

417,358

 

4.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

998,270

 

10.80

 

739,174

 

8.00

 

259,096

 

2.80

 

TCF National Bank

 

987,715

 

10.71

 

737,598

 

8.00

 

250,117

 

2.71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2004:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

$

803,870

 

6.63

%

$

363,940

 

3.00

%

$

439,930

 

3.63

%

TCF National Bank

 

775,100

 

6.41

 

362,911

 

3.00

 

412,189

 

3.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

803,870

 

9.12

 

352,592

 

4.00

 

451,278

 

5.12

 

TCF National Bank

 

775,100

 

8.81

 

351,865

 

4.00

 

423,235

 

4.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Financial Corporation

 

958,900

 

10.88

 

705,185

 

8.00

 

253,715

 

2.88

 

TCF National Bank

 

930,130

 

10.57

 

703,730

 

8.00

 

226,400

 

2.57

 

 

 

13



 

At June 30, 2005, TCF and TCF Bank exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the Federal Reserve Board (“FRB”) and the Office of the Comptroller of the Currency (“OCC”), pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.

 

(10)    Employee Benefit Plans

 

The following table sets forth the net benefit cost included in compensation and employee benefits expense for TCF’s Pension Plan and Postretirement Plan for the three and six months ended June 30, 2005 and 2004:

 

 

 

Pension Plan

 

(In thousands)

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Service cost

 

$

1,326

 

$

1,158

 

$

2,652

 

$

2,316

 

Interest cost

 

857

 

791

 

1,714

 

1,582

 

Expected return on plan assets

 

(1,431

)

(1,489

)

(2,863

)

(2,978

)

Amortization of prior service cost

 

(62

)

(58

)

(124

)

(116

)

Recognized actuarial loss

 

262

 

-

 

524

 

-

 

Net periodic benefit cost

 

$

 952

 

$

 402

 

$

 1,903

 

$

 804

 

 

 

 

 

Postretirement Plan

 

(In thousands)

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Service cost

 

$

9

 

$

13

 

$

17

 

$

27

 

Interest cost

 

138

 

164

 

276

 

343

 

Amortization of transition obligation

 

33

 

53

 

66

 

105

 

Recognized actuarial loss

 

35

 

49

 

70

 

117

 

Net periodic benefit cost

 

$

215

 

$

279

 

$

429

 

$

592

 

 

 

TCF contributed $2.6 million to the Pension Plan in the first six months of 2004 and made no contributions in the first six months of 2005. TCF does not anticipate making any contributions for the remainder of 2005 to the Pension Plan. In the first six months of 2005 and 2004, TCF paid $614 thousand and $540 thousand, respectively, for the Postretirement Plan.

 

 

14



 

(11)    Business Segments

 

The following table sets forth certain information about the reported profit or loss and assets for each of TCF’s reportable segments, including a reconciliation of TCF’s consolidated totals. Beginning in 2005, TCF’s mortgage banking business no longer originates or sells loans to the secondary market. As a result, mortgage banking is now included in the “other” category in the table below, in addition to TCF’s parent company and corporate functions.

 

 

 

 

 

Leasing and

 

 

 

Eliminations

 

 

 

(In thousands)

 

 

 

Equipment

 

 

 

and

 

 

 

 

 

Banking

 

Finance

 

Other

 

Reclassifications

 

Consolidated

 

At or For the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

155,832

 

$

24,133

 

$

34

 

$

-

 

$

179,999

 

Non-interest income

 

106,389

 

11,092

 

224

 

-

 

117,705

 

Total

 

$

262,221

 

$

35,225

 

$

258

 

$

-

 

$

297,704

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

115,410

 

$

14,486

 

$

780

 

$

609

 

$

131,285

 

Provision for credit losses

 

923

 

504

 

-

 

-

 

1,427

 

Non-interest income

 

106,397

 

11,092

 

28,680

 

(28,464

)

117,705

 

Non-interest expense

 

134,914

 

11,718

 

31,470

 

(27,855

)

150,247

 

Income tax expense (benefit)

 

22,690

 

4,791

 

(806

)

-

 

26,675

 

Net income (loss)

 

$

63,280

 

$

8,565

 

$

(1,204

)

$

-

 

$

70,641

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

12,150,628

 

$

1,501,850

 

$

178,867

 

$

(1,224,129

)

$

12,607,216

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

128,610

 

$

22,610

 

$

1,569

 

$

-

 

$

152,789

 

Non-interest income

 

105,399

 

12,391

 

5,503

 

-

 

123,293

 

Total

 

$

234,009

 

$

35,001

 

$

7,072

 

$

-

 

$

276,082

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

105,203

 

$

14,209

 

$

2,679

 

$

328

 

$

122,419

 

Provision for credit losses

 

544

 

2,526

 

-

 

-

 

3,070

 

Non-interest income

 

105,399

 

12,391

 

30,331

 

(24,828

)

123,293

 

Non-interest expense

 

125,935

 

11,106

 

31,365

 

(24,500

)

143,906

 

Income tax expense

 

28,673

 

4,616

 

229

 

-

 

33,518

 

Net income

 

$

55,450

 

$

8,352

 

$

1,416

 

$

-

 

$

65,218

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

11,501,377

 

$

1,382,517

 

$

276,987

 

$

(1,218,018

)

$

11,942,863

 

 

 

15



 

 

 

 

 

Leasing and

 

 

 

Eliminations

 

 

 

(In thousands)

 

 

 

Equipment

 

 

 

and

 

 

 

 

 

Banking

 

Finance

 

Other

 

Reclassifications

 

Consolidated

 

At or For the Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

303,330

 

$

47,924

 

$

90

 

$

-

 

$

351,344

 

Non-interest income

 

206,593

 

21,862

 

1,398

 

-

 

229,853

 

Total

 

$

509,923

 

$

69,786

 

$

1,488

 

$

-

 

$

581,197

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

228,338

 

$

29,209

 

$

1,537

 

$

1,254

 

$

260,338

 

Provision for credit losses

 

(3,265

)

1,256

 

-

 

-

 

(2,009

)

Non-interest income

 

206,609

 

21,862

 

60,286

 

(58,904

)

229,853

 

Non-interest expense

 

271,309

 

23,273

 

61,426

 

(57,650

)

298,358

 

Income tax expense (benefit)

 

50,378

 

9,494

 

(136

)

-

 

59,736

 

Net income

 

$

116,525

 

$

17,048

 

$

533

 

$

-

 

$

134,106

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

255,842

 

$

43,478

 

$

2,688

 

$

-

 

$

302,008

 

Non-interest income

 

206,702

 

22,786

 

8,981

 

-

 

238,469

 

Total

 

$

462,544

 

$

66,264

 

$

11,669

 

$

-

 

$

540,477

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

208,976

 

$

26,668

 

$

4,625

 

$

643

 

$

240,912

 

Provision for credit losses

 

1,320

 

2,910

 

-

 

-

 

4,230

 

Non-interest income

 

206,702

 

22,786

 

58,580

 

(49,599

)

238,469

 

Non-interest expense

 

251,847

 

20,486

 

61,235

 

(48,956

)

284,612

 

Income tax expense

 

55,362

 

9,294

 

4

 

-

 

64,660

 

Net income

 

$

107,149

 

$

16,764

 

$

1,966

 

$

-

 

$

125,879

 

 

 

16



 

(12)    Earnings Per Common Share

 

The computation of basic and diluted earnings per share is presented in the following table:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Dollars in thousands, except per-share data)

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

70,641

 

$

65,218

 

$

134,106

 

$

125,879

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

134,672,126

 

140,550,122

 

135,426,268

 

140,776,160

 

Restricted stock

 

(2,262,050

)

(3,046,690

)

(2,230,714

)

(3,033,500

)

Weighted average common shares outstanding for basic earnings per common share

 

132,410,076

 

137,503,432

 

133,195,554

 

137,742,660

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

.53

 

$

.47

 

$

1.01

 

$

.91

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

70,641

 

$

65,218

 

$

134,106

 

$

125,879

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding used in basic earnings per common share calculation

 

132,410,076

 

137,503,432

 

133,195,554

 

137,742,660

 

Net dilutive effect of:

 

 

 

 

 

 

 

 

 

Restricted stock

 

193,118

 

441,274

 

220,795

 

416,162

 

Stock options

 

139,058

 

182,790

 

146,594

 

181,940

 

 

 

132,742,252

 

138,127,496

 

133,562,943

 

138,340,762

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

.53

 

$

.47

 

$

1.00

 

$

.91

 

 

All shares of restricted stock are deducted from weighted average shares outstanding used for the computation of basic earnings per common share. All shares of restricted stock which vest over specified time periods are included in the calculation of diluted earnings per common share using the treasury stock method. Shares of performance-based 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.

 

 

17



 

(13)          Comprehensive Income

 

Comprehensive income is the total of net income and other comprehensive income (loss), which for TCF is comprised entirely of unrealized gains and losses on investment securities available for sale. The following table summarizes the components of comprehensive income:

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

June 30,

 

June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Net income

 

$

70,641

 

$

65,218

 

$

134,106

 

$

125,879

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before tax:

 

 

 

 

 

 

 

 

 

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

 

30,067

 

(42,953

)

14,397

 

(19,060

)

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains included in net income

 

(4,437

)

-

 

(9,676

)

(12,717

)

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

9,273

 

(15,463

)

1,705

 

(11,462

)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), net of tax

 

16,357

 

(27,490

)

3,016

 

(20,315

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

86,998

 

$

37,728

 

$

137,122

 

$

105,564

 

 

(14) Other Expense

 

Other expense consists of the following:

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

June 30,

 

June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Card processing and issuance

 

$

3,993

 

$

3,049

 

$

7,633

 

$

5,822

 

Postage and courier

 

3,498

 

3,392

 

7,165

 

7,118

 

Telecommunications

 

2,967

 

3,117

 

6,165

 

6,197

 

Office supplies

 

2,517

 

2,285

 

5,055

 

4,794

 

ATM processing

 

2,327

 

2,341

 

4,411

 

4,479

 

Operating lease depreciation

 

1,671

 

351

 

3,163

 

773

 

Other real estate owned, net

 

612

 

(1,156

)

1,407

 

(357

)

Federal deposit insurance and OCC assessments

 

691

 

663

 

1,380

 

1,331

 

Deposit base intangible amortization

 

414

 

415

 

829

 

831

 

Other

 

14,260

 

14,607

 

27,115

 

26,325

 

 

 

 

 

 

 

 

 

 

 

Total other expense

 

$

32,950

 

$

29,064

 

$

64,323

 

$

57,313

 

 

 

 

18



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

Item 2. – Management’s Discussion and Analysis of Financial

Condition and Results of Operations

 

OVERVIEW

 

TCF Financial Corporation, (“TCF” or the “Company”), is a national financial holding company located in Wayzata, Minnesota. Its principal subsidiary, TCF National Bank (“TCF Bank”), is headquartered in Minnesota and had 435 banking offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana at June 30, 2005.

 

TCF provides convenient financial services through multiple channels to customers located primarily in the Midwest. 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 branch and automated teller machine (“ATM”) networks, and telephone and Internet banking. TCF’s philosophy is to generate net interest income and fees and other revenue through business lines that emphasize higher yielding assets and lower or no interest-cost deposits. The Company’s growth strategies include new branch expansion and the development of new products and services. New products and services are designed to build on existing businesses and expand into complementary products and services through strategic initiatives.

 

TCF’s core businesses are comprised of traditional and supermarket bank branches, campus banking, EXPRESS TELLER® ATMs, Visa U.S.A. Inc. (“Visa”) debit cards, commercial banking, small business banking, consumer lending, leasing and equipment finance, investment, securities brokerage and insurance services. TCF emphasizes the checking account as its anchor account, which provides opportunities to cross-sell other convenience products and services and generate additional fee income.  Total checking accounts were 1,595,001 at June 30, 2005, and increased 36,094 accounts from March 31, 2005, and increased 92,145 accounts from June 30, 2004. TCF’s management monitors the opening and closing of accounts and is pursuing opportunities to reduce account attrition to further increase the growth in checking accounts. The continued growth in checking accounts is a significant part of TCF’s growth strategy.

 

At June 30, 2005, 132, or 30.3%, of TCF’s 435 branches were opened since January 1, 2000 and consist of 57 traditional branches, 74 supermarket branches and one campus branch. Opening new branches is an integral part of TCF’s growth strategy for generating new deposit accounts and the related revenue that is associated with the accounts and other products. New branches typically produce net losses during the first 20-24 months of operations before they become profitable, and therefore the level and timing of new branch expansion can have a significant impact on TCF’s profitability. TCF’s growth in checking accounts is primarily occurring in new branches with growth in older, mature branches being slower. The success of TCF’s branch expansion is dependent on the continued long-term success and viability of branch banking. Success in supermarket branches is also dependent on the success and viability of the supermarket branch locations. Economic slowdowns, financial or labor difficulties and competitive pressures may have an adverse impact on the supermarket industry and therefore reduce customer activity in TCF’s supermarket branches. TCF is subject to the risk, among others, that its license for supermarket branches will terminate in connection with the sale or closure of a store by a supermarket chain.

 

TCF’s lending strategy is to originate high credit quality, primarily secured, loans and leases. Commercial loans are generally made on local properties or to local customers. TCF’s largest core lending business is its consumer home equity loan operation, which offers fixed- and variable-rate loans and lines of credit secured by residential real estate properties. The leasing and equipment finance businesses consist of Winthrop Resources Corporation, (“Winthrop”), a leasing company that primarily leases technology and data processing equipment, and TCF Equipment Finance, Inc., (“TCF Equipment Finance”), a company that delivers equipment finance solutions to businesses in select markets. TCF’s leasing and equipment finance businesses operate in all 50 states and sources equipment installations domestically and in foreign countries.

 

 

19



 

As a primarily secured lender, TCF emphasizes credit quality over asset growth. As a result, TCF’s credit losses are generally lower than those experienced by other banks. The allowance for loan and lease losses, while generally lower as a percent of loans and leases than the average in the banking industry, reflects the lower historical charge-offs and management’s expectation of the risk of loss inherent in the loan and lease portfolio. See “Consolidated Financial Condition Analysis-Allowance for Loan and Lease Losses.”

 

Net interest income, the difference between interest income earned on loans, leases and on investments and interest expense paid on deposits and short-term and long-term borrowings, represents 52.7% of TCF’s total revenue. 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 Committee and through related interest rate risk monitoring and management policies. See “Market Risk – Interest Rate Risk” for further discussion of TCF’s interest rate risk position.

 

The Company’s Visa debit card program has grown significantly since its inception in 1996. TCF is one of the largest issuers of Visa Classic debit cards in the United States. TCF earns interchange revenue from customer debit card transactions. During the second quarter of 2005, 88.76% of TCF’s debit card sales volume was generated from off-line (signature-based) transactions. The average interchange rate on these off-line transactions was 1.40% for the second quarter of 2005 compared with 1.44% for the second quarter of 2004. Litigation against Visa brought by certain merchants who chose not to participate in the 2003 settlements of class action lawsuits against Visa remains pending. In October 2004, the United States Supreme Court decided not to hear an appeal of a ruling that Visa and MasterCard may not bar member banks from issuing cards on rival networks. Rival card networks, such as Discover and American Express, have brought or may bring private legal action against Visa and MasterCard. Visa is a defendant in several other legal actions, including litigation recently brought against Visa concerning its card interchange fees. The ultimate impact of any such litigation cannot be predicted at this time. The continued success of TCF’s debit card program is dependent on the success and viability of Visa and the continued use by customers and acceptance by merchants of its debit cards.

 

The following portions of Management’s Discussion and Analysis focus in more detail on the results of operations for the three and six months ended June 30, 2005 and 2004 and on information about TCF’s balance sheet, credit quality, liquidity and funding resources, capital and other matters.

 

RESULTS OF OPERATIONS

 

Performance Summary

 

TCF reported diluted earnings per common share of 53 cents and $1.00 for the second quarter and first six months of 2005, respectively, compared with 47 cents and 91 cents for the same 2004 periods. Net income was $70.6 million and $134.1 million for the second quarter and first six months of 2005, respectively, compared with $65.2 million and $125.9 million for the same 2004 periods. For the second quarter and first six months of 2005, return on average assets were 2.22% and 2.13%, respectively, compared with 2.20% and 2.15% for the same 2004 periods. Return on average common equity was 30.23% and 28.74% for the second quarter and first six months of 2005, respectively, compared with 27.68% and 26.82% for the same 2004 periods.

 

Operating Segment Results

 

See Note 11 of Notes to the Consolidated Financial Statements for the financial results of TCF’s operating segments.

 

BANKING, comprised of deposits and investment products, commercial banking, small business banking, consumer lending, residential lending and treasury services, reported net income of $63.3 million and $116.5 million for the second quarter and first six months of 2005, respectively, compared with $55.5 million and $107.1 million for the same 2004 periods. Banking net interest income for the second quarter and first six months of 2005 was $115.4 million and $228.3 million, respectively, compared with $105.2 million and $209 million for the same 2004 periods. The provision for credit losses totaled $923 thousand and a net provision credit of $3.3 million for the second quarter and first six months of 2005, respectively, compared with provision expense of $544 thousand and $1.3 million for the same 2004 periods. The provision for credit losses for the second quarter and first six months of 2005 reflects improved credit quality, primarily in the consumer and commercial portfolios, including a large commercial business loan recovery in the first quarter of 2005. Non-interest income totaled $106.4 million and $206.6 million for the second quarter and first six months of 2005, respectively, compared with $105.4 million and $206.7 million for the

 

20



 

same 2004 periods. During the second quarter of 2005, TCF sold $441.5 million of mortgage-backed securities and realized gains of $4.4 million, compared with no sales or gains during the second quarter of 2004. During the first six months of 2005, TCF sold $907.5 million of mortgage-backed securities and realized gains of $9.7 million, compared with sales of $854 million and gains of $12.7 million for the same 2004 period. See “Results of Operations – Consolidated Non-Interest Income” for further discussion of the sales of mortgage-backed securities. Also, in the first quarter of 2005, TCF sold its main office in Ann Arbor, Michigan and recognized a gain of $5.5 million. In addition to the gains discussed above, fees, service charges, card and other revenues were $99.1 million and $186.4 million for the second quarter and first six months of 2005, respectively, as compared to $103.7 million and $190.3 million for the same 2004 periods. These decreases were primarily attributable to declines in fees and service charges due to lower deposit account service fees, partially offset by increases in card revenues, which was attributable to an 18.4% and 18.0% increase in sales volume for the three and six months ended June 30, 2005, respectively, as compared with the same 2004 periods. Banking non-interest expense was $134.9 million and $271.3 million for the second quarter and first six months of 2005, respectively, compared with $125.9 million and $251.8 million for the same 2004 periods. The increases were primarily due to compensation and benefits costs associated with new branch expansion and higher repossessed real estate expenses due to large recoveries on property sales in 2004. Also contributing to the increases were increases in card processing and issuance expenses related to the overall increase in card revenues and expenses related to customer reward programs, partially offset by a decrease in deposit account losses. Income tax expense in the second of quarter of 2005 decreased $6.0 million from the comparable 2004 period, primarily due to a $5.2 million adjustment related to the clarification of existing tax legislation as well as a slight reduction in the expected 2005 annual effective income tax rate.

 

TCF had 435 branches, including 250 full service supermarket branches at June 30, 2005. During the second quarter of 2005, TCF opened six new branches, including three traditional branches, two supermarket branches and one campus branch, and opened seven new branches in the first six months of 2005. Since January 1, 2000, TCF has opened 132 new branches. TCF plans to open 21 more new branches in the remainder of 2005, consisting of 14 traditional branches, five supermarket branches and two campus branches. See “Consolidated Financial Condition Analysis – New Branch Expansion” for further information.

 

LEASING AND EQUIPMENT FINANCE, an operating segment comprised of TCF’s wholly-owned subsidiaries Winthrop and TCF Equipment Finance, provides a broad range of comprehensive lease and equipment finance products. Leasing and Equipment Finance reported net income of $8.6 million and $17.0 million for the second quarter and first six months of 2005, respectively, compared with $8.4 million and $16.8 million, for the same 2004 periods. Net interest income for the second quarter and first six months of 2005 was $14.5 million and $29.2 million, respectively, compared with $14.2 million and $26.7 million for the same 2004 periods. The provision for credit losses for this operating segment totaled $504 thousand and $1.3 million for the second quarter and first six months of 2005, respectively, compared with $2.5 million and $2.9 million for the same 2004 periods. The decrease in the provision for credit losses in the second quarter of 2005 as compared with 2004 is primarily due to improved credit quality. Non-interest income totaled $11.1 million for the second quarter of 2005, compared with $12.4 million for the second quarter of 2004. Non-interest income for the first six months of 2005 totaled $21.9 million, compared with $22.8 million for the same 2004 period. These declines were primarily the result of lower sales-type lease revenues, partially offset by higher operating lease revenues and other fees. Leasing and equipment finance revenues may fluctuate from period to period based on customer driven factors not entirely within the control of TCF. Non-interest expense totaled $11.7 million and $23.3 million for the second quarter and first six months of 2005, respectively, up from $11.1 million and $20.5 million for the same 2004 periods, primarily related to an increase in operating lease depreciation expense.

 

Consolidated Net Interest Income

 

Net interest income for the second quarter of 2005 was $131.3 million, up 7.2% from $122.4 million for the second quarter of 2004 and $129.1 million for the first quarter of 2005. Net interest income for the first six months of 2005 was $260.3 million, up 8.1% from $240.9 million for the same 2004 period. The net interest margin for the second quarter of 2005 was 4.53%, unchanged from the same 2004 period and down from 4.56% for the first quarter of 2005. The increase in net interest income from the second quarter of 2004 was primarily driven by increases in average consumer, commercial real estate and leasing and equipment finance balances, up $1.1 billion over the second quarter of 2004, partially offset by relatively more expensive funding costs due to the mix in funding sources supporting the growth in assets and the effect of a flattening yield curve.

 

 

21



 

The following table summarizes the average balances and the related yields and rates on interest-earning assets and deposits and borrowings for the three months ended June 30, 2005 and 2004:

 

 

 

Three Months Ended June 30,

 

 

 

 

 

2005

 

2004

 

Change

 

(Dollars in thousands)

 

Average

 

Yields and

 

Average

 

Yields and

 

Average

 

Yields and

 

 

 

Balance

 

Rates (1)

 

Balance

 

Rates (1)

 

Balance

 

Rates (bps)

 

Interest-earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

$

101,305

 

4.33

%

$

157,591

 

2.28

%

$

(56,286

)

205

 

Securities available for sale (2)

 

1,646,986

 

5.18

 

1,546,694

 

5.28

 

100,292

 

(10

)

Loans held for sale

 

213,279

 

4.83

 

385,193

 

3.49

 

(171,914

)

134

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer home equity - variable rate

 

2,594,538

 

6.77

 

2,363,947

 

5.35

 

230,591

 

142

 

Consumer home equity - fixed rate

 

2,048,035

 

6.72

 

1,501,317

 

7.01

 

546,718

 

(29

)

Consumer - other

 

34,012

 

9.19

 

38,930

 

8.32

 

(4,918

)

87

 

Total consumer home equity and other

 

4,676,585

 

6.77

 

3,904,194

 

6.02

 

772,391

 

75

 

Commercial real estate - variable rate

 

834,876

 

5.72

 

767,681

 

4.07

 

67,195

 

165

 

Commercial real estate - fixed and adjustable rate

 

1,365,132

 

6.14

 

1,217,817

 

6.25

 

147,315

 

(11

)

Total commercial real estate

 

2,200,008

 

5.98

 

1,985,498

 

5.41

 

214,510

 

57

 

Commercial business - variable rate

 

359,269

 

5.56

 

341,803

 

3.71

 

17,466

 

185

 

Commercial business - fixed and adjustable rate

 

73,654

 

5.75

 

86,799

 

5.57

 

(13,145

)

18

 

Total commercial business

 

432,923

 

5.59

 

428,602

 

4.09

 

4,321

 

150

 

Leasing and equipment finance (3)

 

1,412,520

 

6.83

 

1,285,989

 

7.03

 

126,531

 

(20

)

Subtotal

 

8,722,036

 

6.52

 

7,604,283

 

5.92

 

1,117,753

 

60

 

Residential real estate

 

919,379

 

5.71

 

1,123,062

 

5.73

 

(203,683

)

(2

)

Total loans and leases (4)

 

9,641,415

 

6.44

 

8,727,345

 

5.90

 

914,070

 

54

 

Total interest-earning assets

 

11,602,985

 

6.22

 

10,816,823

 

5.67

 

786,162

 

55

 

Deposits and Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

1,589,015

 

-

 

1,538,051

 

-

 

50,964

 

-

 

Small business

 

571,701

 

-

 

492,305

 

-

 

79,396

 

-

 

Commercial and custodial

 

311,463

 

-

 

383,630

 

-

 

(72,167

)

-

 

Total non-interest bearing deposits

 

2,472,179

 

-

 

2,413,986

 

-

 

58,193

 

-

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Premier checking

 

580,093

 

2.04

 

151,801

 

1.18

 

428,292

 

86

 

Other checking

 

1,075,421

 

.21

 

1,175,623

 

.09

 

(100,202

)

12

 

Subtotal

 

1,655,514

 

.85

 

1,327,424

 

.21

 

328,090

 

64

 

Premier savings

 

345,567

 

2.51

 

31,949

 

1.36

 

313,618

 

115

 

Other savings

 

1,603,720

 

.53

 

1,806,267

 

.33

 

(202,547

)

20

 

Subtotal

 

1,949,287

 

.88

 

1,838,216

 

.35

 

111,071

 

53

 

Money market

 

633,762

 

.99

 

799,485

 

.37

 

(165,723

)

62

 

Subtotal

 

4,238,563

 

.89

 

3,965,125

 

.30

 

273,438

 

59

 

Certificates of deposit

 

1,707,919

 

2.65

 

1,467,654

 

1.77

 

240,265

 

88

 

Total interest-bearing deposits

 

5,946,482

 

1.39

 

5,432,779

 

.70

 

513,703

 

69

 

Total deposits

 

8,418,661

 

.98

 

7,846,765

 

.49

 

571,896

 

49

 

Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

920,471

 

3.01

 

669,938

 

1.27

 

250,533

 

174

 

Long-term borrowings

 

2,075,264

 

4.09

 

2,017,232

 

3.74

 

58,032

 

35

 

Total borrowings

 

2,995,735

 

3.76

 

2,687,170

 

3.13

 

308,565

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits and borrowings

 

11,414,396

 

1.71

 

10,533,935

 

1.16

 

880,461

 

55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest-earning assets and net interest margin

 

$

188,589

 

4.53

 

$

282,888

 

4.53

 

$

(94,299

)

-

 

 

 

bps = basis points

 

(1)

Annualized.

 

(2)

Average balance and yield of securities available for sale are based upon the historical amortized cost.

 

(3)

Substantially all leasing and equipment finance loans and leases have fixed rates.

 

(4)

Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income.

 

 

 

22



 

The following table summarizes the average balances and the related yields and rates on interest-earning assets and deposits and borrowings for the three months ended June 30, 2005 and 2004:

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

2005

 

2004

 

Change

 

(Dollars in thousands)

 

Average

 

Yields and

 

Average

 

Yields and

 

Average

 

Yields and

 

 

 

Balance

 

Rates (1)

 

Balance

 

Rates (1)

 

Balance

 

Rates (bps)

 

Interest-earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

$

103,643

 

4.17

%

$

149,681

 

2.24

%

$

(46,038

)

193

 

Securities available for sale (2)

 

1,655,154

 

5.17

 

1,533,034

 

5.32

 

122,120

 

(15

)

Loans held for sale

 

210,371

 

4.62

 

372,215

 

3.34

 

(161,844

)

128

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer home equity - variable rate

 

2,647,837

 

6.59

 

2,289,460

 

5.39

 

358,377

 

120

 

Consumer home equity - fixed rate

 

1,902,409

 

6.73

 

1,475,572

 

7.04

 

426,837

 

(31

)

Consumer - other

 

35,023

 

9.01

 

40,096

 

8.17

 

(5,073

)

84

 

Total consumer home equity and other

 

4,585,269

 

6.67

 

3,805,128

 

6.06

 

780,141

 

61

 

Commercial real estate - variable rate

 

838,009

 

5.48

 

755,222

 

4.08

 

82,787

 

140

 

Commercial real estate - fixed and adjustable rate

 

1,346,251

 

6.14

 

1,208,774

 

6.30

 

137,477

 

(16

)

Total commercial real estate

 

2,184,260

 

5.89

 

1,963,996

 

5.45

 

220,264

 

44

 

Commercial business - variable rate

 

345,986

 

5.30

 

337,244

 

3.70

 

8,742

 

160

 

Commercial business - fixed and adjustable rate

 

74,307

 

5.70

 

90,969

 

5.51

 

(16,662

)

19

 

Total commercial business

 

420,293

 

5.37

 

428,213

 

4.09

 

(7,920

)

128

 

Leasing and equipment finance (3)

 

1,401,094

 

6.84

 

1,240,112

 

7.01

 

160,982

 

(17

)

Subtotal

 

8,590,916

 

6.43

 

7,437,449

 

5.95

 

1,153,467

 

48

 

Residential real estate

 

951,891

 

5.71

 

1,158,248

 

5.76

 

(206,357

)

(5

)

Total loans and leases (4)

 

9,542,807

 

6.36

 

8,595,697

 

5.92

 

947,110

 

44

 

Total interest-earning assets

 

11,511,975

 

6.14

 

10,650,627

 

5.69

 

861,348

 

45

 

Deposits and Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

1,580,426

 

-

 

1,505,911

 

-

 

74,515

 

-

 

Small business

 

559,448

 

-

 

474,676

 

-

 

84,772

 

-

 

Commercial and custodial

 

312,543

 

-

 

354,242

 

-

 

(41,699

)

-

 

Total non-interest bearing deposits

 

2,452,417

 

-

 

2,334,829

 

-

 

117,588

 

-

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Premier checking

 

520,073

 

1.96

 

100,493

 

1.28

 

419,580

 

68

 

Other checking

 

1,082,442

 

.17

 

1,157,152

 

.08

 

(74,710

)

9

 

Subtotal

 

1,602,515

 

.75

 

1,257,645

 

.18

 

344,870

 

57

 

Premier savings

 

313,725

 

2.45

 

15,975

 

1.36

 

297,750

 

109

 

Other savings

 

1,605,131

 

.48

 

1,807,703

 

.36

 

(202,572

)

12

 

Subtotal

 

1,918,856

 

.80

 

1,823,678

 

.37

 

95,178

 

43

 

Money market

 

640,442

 

.83

 

816,090

 

.37

 

(175,648

)

46

 

Subtotal

 

4,161,813

 

.79

 

3,897,413

 

.31

 

264,400

 

48

 

Certificates of deposit

 

1,650,619

 

2.49

 

1,523,881

 

1.86

 

126,738

 

63

 

Total interest-bearing deposits

 

5,812,432

 

1.27

 

5,421,294

 

.74

 

391,138

 

53

 

Total deposits

 

8,264,849

 

.89

 

7,756,123

 

.52

 

508,726

 

37

 

Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

947,512

 

2.76

 

702,707

 

1.28

 

244,805

 

148

 

Long-term borrowings

 

2,095,205

 

3.99

 

1,914,870

 

3.84

 

180,335

 

15

 

Total borrowings

 

3,042,717

 

3.60

 

2,617,577

 

3.16

 

425,140

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits and borrowings

 

11,307,566

 

1.62

 

10,373,700

 

1.18

 

933,866

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest-earning assets and net interest margin

 

$

204,409

 

4.54

 

$

276,927

 

4.52

 

$

(72,518

)

2

 

 

bps = basis points 

 

(1)

Annualized.

 

(2)

Average balance and yield of securities available for sale are based upon the historical amortized cost.

 

(3)

Substantially all leasing and equipment finance loans and leases have fixed rates.

 

(4)

Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income.

 

 

 

23



 

The following table presents the components of the changes in net interest income by volume and rate:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2005

 

June 30, 2005

 

 

 

Versus Same Period in 2004

 

Versus Same Period in 2004

 

(In thousands)

 

Increase (Decrease) Due to

 

Increase (Decrease) Due to

 

 

 

Volume (1)

 

Rate (1)

 

Total

 

Volume (1)

 

Rate (1)

 

Total

 

Interest Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

$

(401

)

$

600

 

$

199

 

$

(627

)

$

1,105

 

$

478

 

Securities available for sale

 

1,304

 

(392

)

912

 

3,182

 

(1,107

)

2,075

 

Loans held for sale

 

(1,798

)

1,024

 

(774

)

(3,229

)

1,868

 

(1,361

)

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer home equity - variable rate

 

3,316

 

9,070

 

12,386

 

10,583

 

14,535

 

25,118

 

Consumer home equity - fixed and adjustable rate

 

9,268

 

(1,129

)

8,139

 

14,470

 

(2,676

)

11,794

 

Consumer - other

 

(106

)

80

 

(26

)

(216

)

151

 

(65

)

Total consumer home equity and other

 

12,572

 

7,927

 

20,499

 

25,313

 

11,534

 

36,847

 

Commercial real estate - variable rate

 

735

 

3,402

 

4,137

 

1,836

 

5,597

 

7,433

 

Commercial real estate - fixed and adjustable rate

 

2,306

 

(328

)

1,978

 

4,295

 

(1,200

)

3,095

 

Total commercial real estate

 

3,084

 

3,031

 

6,115

 

6,340

 

4,188

 

10,528

 

Commercial business - variable rate

 

170

 

1,651

 

1,821

 

166

 

2,724

 

2,890

 

Commercial business - fixed and adjustable rate

 

(184

)

39

 

(145

)

(463

)

69

 

(394

)

Total commercial business

 

45

 

1,631

 

1,676

 

(162

)

2,658

 

2,496

 

Leasing and equipment finance

 

2,176

 

(653

)

1,523

 

5,528

 

(1,082

)

4,446

 

Subtotal

 

17,639

 

12,174

 

29,813

 

36,265

 

18,052

 

54,317

 

Residential real estate

 

(2,901

)

(39

)

(2,940

)

(5,872

)

(301

)

(6,173

)

Total loans and leases

 

14,231

 

12,642

 

26,873

 

29,408

 

18,736

 

48,144

 

Total interest income

 

11,684

 

15,526

 

27,210

 

25,611

 

23,725

 

49,336

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Premier checking

 

1,991

 

513

 

2,504

 

3,927

 

486

 

4,413

 

Other checking

 

(24

)

333

 

309

 

(32

)

491

 

459

 

Subtotal

 

213

 

2,600

 

2,813

 

381

 

4,491

 

4,872

 

Premier savings

 

1,890

 

162

 

2,052

 

3,552

 

151

 

3,703

 

Other savings

 

(182

)

848

 

666

 

(392

)

969

 

577

 

Subtotal

 

102

 

2,616

 

2,718

 

182

 

4,098

 

4,280

 

Money market

 

(179

)

1,016

 

837

 

(382

)

1,522

 

1,140

 

Certificates of deposit

 

1,197

 

3,607

 

4,804

 

1,262

 

5,017

 

6,279

 

Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

1,027

 

3,766

 

4,793

 

1,980

 

6,543

 

8,523

 

Long-term borrowings

 

566

 

1,813

 

2,379

 

3,618

 

1,198

 

4,816

 

Total borrowings

 

2,602

 

4,570

 

7,172

 

7,248

 

6,091

 

13,339

 

Total interest expense

 

2,738

 

15,606

 

18,344

 

5,945

 

23,965

 

29,910

 

Net interest income

 

9,060

 

(194

)

8,866

 

19,764

 

(338

)

19,426

 

 

 

(1)

Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate. Changes due to volume and rate are calculated independently for each line item presented.

 

 

 

24



 

Achieving net interest income growth over time is dependent on TCF’s ability to generate higher-yielding assets and lower-cost retail deposits. The net impact of the changes in interest-bearing assets and deposits and borrowings has positioned TCF to be asset sensitive (i.e. more assets than liabilities will be maturing, repricing, or prepaying during the next twelve months).  Although this positive gap position may benefit TCF in a rising rate environment, if interest rates remain at current levels or fall further, the net interest margin may compress and net interest income may decline.  TCF’s benefit from rising short-term interest rates have been offset by the impact of a flattening yield curve and balance sheet mix.  An increase in interest rates would affect TCF’s fixed-rate/variable-rate product origination mix and would extend the estimated life of its residential real estate loan and mortgage-backed securities portfolios and may change the mix of deposits.  A change in origination mix and/or the extending of the estimated life of mortgage-related assets may have an adverse impact on future net interest income or net interest margin as fixed-rate assets are funded with interest-bearing liabilities with increasing rates.  Competition for checking, savings and money market deposits, important sources of lower-cost funds for TCF, is intense.  A decline in these lower-cost deposits may have an adverse impact on future net interest income or net interest margin as TCF would need to replace these funds with short- or long-term borrowings which may have a higher interest cost.  See “Consolidated Financial Condition Analysis – Deposits” and “Market Risk – Interest-Rate Risk” for further discussion on TCF’s interest rate risk position.

 

Consolidated Provision for Credit Losses

 

TCF recorded provision expense of $1.4­ million and a net provision credit of $2.0 million in the second quarter and first six months of 2005, respectively, compared with provision expense of $3.1 million and $4.2 million for the same 2004 periods. The provision for credit losses for the first six months of 2005 reflects improved credit quality, primarily in the consumer and commercial portfolios, including a large commercial business loan recovery in the first quarter of 2005.  Net loan and lease charge-offs were $1.9 million, or .08% (annualized), and $1.5 million, or .03% (annualized), of average loans and leases in the second quarter and first six months of 2005, respectively, down from $2.1 million, or .10% (annualized), and $2.6 million, or .06% (annualized), of average loans and leases for the same 2004 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 net charge-offs, delinquencies in the loan and lease portfolio, value of collateral, general economic conditions and management’s assessment of credit risk in the current loan and lease portfolio.  Also see “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 TCF’s results of operations.  Providing a wide range of retail banking services is an integral component of TCF’s business philosophy and a major strategy for generating additional non-interest income.  Total non-interest income was $117.7 million and $229.9 million for the second quarter and first six months of 2005, respectively, compared with $123.3 million and $238.5 million for the same 2004 periods.

 

25



 

Fees and Service Charges

 

Fees and service charges decreased $7.3 million, or 10.0%, to $65.8 million for the second quarter of 2005, compared with $73.1 million for the same 2004 period.  Fees and service charges decreased $9.9 million, or 7.5%, to $122.9 million for the first six months of 2005, compared with $132.8 million for the same 2004 period.  This decrease primarily reflects a decrease in deposit account service fees, attributable to changing customer behavior including increased use of debit cards and other electronic transactions and less use of checks and the availability of account information via the telephone and Internet to better manage their finances.  TCF’s checking account customer base increased 36,094 accounts, or 9.3% (annualized), in the second quarter of 2005 to 1,595,001 accounts, and was up 92,145 accounts, or 6.1%, from the second quarter of 2004.

 

Card Revenue

 

For the second quarter of 2005, card revenue, primarily interchange fees, totaled $19.7 million, up $3.7 million, or 23.0%, from the second quarter of 2004.  For the first six months of 2005, card revenue totaled $37.4 million, up $7.8 million, or 26.6%, from the first six months of 2004. The increase in card revenue for the second quarter of 2005 was primarily due to an 18.4% increase in sales volume.  The increase in card revenue for the first six months of 2005 was primarily due to a 18.0% increase in sales volume. Interchange fees have been adversely impacted as a result of the settlement of debit card litigation against Visa in the second quarter of 2003.  As part of the settlement, Visa lowered interchange rates on debit cards for certain merchants from August 2003 through February 2004.  Additionally, as part of the settlement, Visa established new interchange rates for debit cards, which took effect in February 2004.  These rates increased from the rate established August 1, 2003; however, overall these new rates remained below the rates which were in effect prior to August 2003.

 

The following table sets forth information about TCF’s debit card business:

 

 

 

At June 30,

 

Change

 

(Dollars in thousands)

 

2005

 

2004

 

Amount

 

%

 

 

 

 

 

 

 

 

 

 

 

Average number of checking accounts with a TCF card

 

1,400,913

 

1,331,275

 

69,638

 

5.2

%

 

 

 

 

 

 

 

 

 

 

Active card users

 

761,232

 

710,688

 

50,544

 

7.1

 

 

 

 

 

 

 

 

 

 

 

Average number of transactions per month

 

15.3

 

13.5

 

1.8

 

13.3

 

 

 

 

 

 

 

 

 

 

 

Sales volume for the quarter ended:

 

 

 

 

 

 

 

 

 

Off-line (Signature)

 

$

1,242,536

 

$

1,047,687

 

$

194,849

 

18.6

 

On-line (PIN)

 

157,332

 

134,505

 

22,827

 

17.0

 

Total

 

$

1,399,868

 

$

1,182,192

 

$

217,676

 

18.4

 

Percentage off-line

 

88.76

%

88.62

%

 

 

14

bps

 

 

 

 

 

 

 

 

 

 

Average off-line interchange rate

 

1.40

%

1.44

%

 

 

(4

)

 

Litigation has recently been brought against Visa by various merchants alleging anti-competitive practices and antitrust violations involving card interchange fees.  The continued success of TCF’s debit card program is dependent on the success and viability of Visa and the continued use by customers and acceptance by merchants of its debit cards.  See “OVERVIEW” for further discussion of Visa litigation.

 

                        ATM Revenue

 

For the second quarter and first six months of 2005, ATM revenue was $10.8 million and $20.5 million, respectively, down slightly from $11.1 million and $21.1 million for the same periods of 2004.  The decline in ATM revenue in the second quarter and first six months of 2005 was attributable to declines in utilization of TCF’s ATM machines by non-customers.  At June 30, 2005, TCF had 1,151 EXPRESS TELLER® ATM machines, compared with 1,121 machines at June 30, 2004.

 

26



 

Leasing and Equipment Finance Revenue

 

Leasing and equipment finance revenues totaled $11.1 million and $21.8 million for the second quarter and first six months of 2005, respectively, compared with $12.2 million and $22.4 million for the same 2004 periods.  The decrease in leasing and equipment finance revenues for the second quarter and first six months of 2005 as compared with the 2004 periods is primarily due to lower sales-type lease revenues, partially offset by higher operating lease revenues and other transaction fees.  Sales-type revenues generally occur at or near the end of the lease term as customers extend the lease or purchase the underlying equipment.  Leasing and equipment finance revenues may fluctuate from quarter to quarter based on customer-driven factors not entirely within the control of TCF.

 

Mortgage Banking Revenue

 

During the second half of 2004, TCF restructured its mortgage banking business by eliminating the wholesale loan origination activities and downsizing and integrating its retail loan origination function with TCF’s consumer lending business.  TCF’s mortgage banking business no longer originates any new loans and continues to service the remaining $3.8 billion portfolio of mortgage loans for third party investors.  TCF no longer sells mortgage loans to the secondary market.  As a result, there are no gains on sales of loans in the second quarter and first six months of 2005. During the second quarter of 2005, TCF transferred $212.8 million of loans to another third-party servicer. No gain or loss was recorded related to this transaction.

 

Mortgage banking revenue decreased $5.3 million and was $216 thousand in the second quarter of 2005, compared with $5.5 million for the same 2004 period.  Mortgage banking revenue decreased $7.6 million, to $1.4 million in the first six months of 2005, compared with $9.0 million for the first six months of 2004.  The decrease in mortgage banking revenue for the second quarter of 2005 was primarily due to a $3.2 million decrease in gains on sales of loans and $1.0 million of mortgage servicing rights provision for impairment.

 

The following table sets forth information about mortgage banking revenues:

 

 

 

Three Months
Ended June 30,

 

Change

 

Six Months
Ended June 30,

 

Change

 

(Dollars in thousands)

 

2005

 

2004

 

$

 

%

 

2005

 

2004

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing income

 

$

3,604

 

$

4,339

 

$

(735

)

(16.9

)%

$

7,498

 

$

8,964

 

$

(1,466

)

(16.4

)%

Less mortgage servicing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

2,565

 

3,242

 

(677

)

(20.9

)

5,506

 

6,918

 

(1,412

)

(20.4

)

Provision for impairment

 

1,000

 

-

 

1,000

 

100.0

 

1,000

 

-

 

1,000

 

100.0

 

Net servicing income

 

39

 

1,097

 

(1,058

)

(96.4

)

992

 

2,046

 

(1,054

)

(51.5

)

Gains on sales of loans (1)

 

-

 

3,168

 

(3,168

)

(100.0

)

-

 

5,304

 

(5,304

)

(100.0

)

Other income

 

177

 

1,230

 

(1,053

)

(85.6

)

366

 

1,600

 

(1,234

)

(77.1

)

Total mortgage banking revenue

 

$

216

 

$

5,495

 

$

(5,279

)

(96.1

)

$

1,358

 

$

8,950

 

$

(7,592

)

(84.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Beginning in 2005, TCF’s mortgage banking business no longer originates or sells loans.

 

 

27



 

The following table sets forth further information about mortgage banking:

 

 

 

At

 

At

 

 

 

 

 

 

 

June 30,

 

December 31,

 

Change

 

(Dollars in thousands)

 

2005

 

2004

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

Third party servicing portfolio

 

$

3,818,673

 

$

4,503,564

 

$

(684,891

)

(15.2

)%

Weighted average note rate

 

5.75

%

5.78

%

(3

)bps

N.A.

 

 

 

 

 

 

 

 

 

 

 

Capitalized mortgage servicing rights, net

 

$

39,936

 

$

46,442

 

$

(6,506

)

(14.0

)

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights as a
percentage of servicing portfolio

 

1.05

%

1.03

%

2

bps

N.A.

 

 

 

 

 

 

 

 

 

 

 

Average service fee (basis points)

 

31.1

bps

31.0

bps

.1

bps

N.A.

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights as a
multiple of average service fee

 

3.4

X

3.3

X

0.1

X

N.A.

 

 

 

 

 

 

 

 

 

 

 

N.A. Not applicable.

 

Mortgage servicing revenues can be significantly impacted by the amount of amortization and provision for impairment of mortgage servicing rights.  The valuation of mortgage servicing rights is a critical accounting estimate for TCF.  This estimate is based upon loan types, note rates and prepayment assumptions.  Changes in the mix of loans, interest rates, defaults or prepayment speeds may have a material effect on the amortization amount and possible impairment in valuation.  In a declining interest rate environment, prepayment speed assumptions will increase and result in an acceleration in the amortization of the mortgage servicing rights as the assumed underlying portfolio declines and also may result in impairment as the value of the mortgage servicing rights decline.  TCF periodically evaluates its capitalized mortgage servicing rights for impairment.  A key component in determining the fair value of mortgage servicing rights is the projected cash flows of the underlying loan portfolio.  TCF uses projected cash flows and related prepayment assumptions based on management’s best estimates.  The annualized prepayment rate on the third party servicing portfolio was 18.9% in the second quarter of 2005, compared with 30.1% for the same 2004 period. See Note 6 of Notes to the Consolidated Financial Statements for additional information concerning TCF’s mortgage servicing rights.

 

The following table summarizes prepayment speed assumptions and the weighted average remaining life of the loans in the servicing portfolio by interest rate tranche used in the determination of the value and amortization of mortgage servicing rights as of June 30, 2005 and December 31, 2004:

 

 

 

At June 30, 2005

 

At December 31, 2004

 

(Dollars in thousands)

 

 

 

Prepayment

 

Weighted

 

 

 

Prepayment

 

Weighted

 

 

 

Unpaid

 

Speed

 

Average Life

 

Unpaid

 

Speed

 

Average Life

 

Interest Rate Tranche

 

Balance

 

Assumption

 

(in Years)

 

Balance

 

Assumption

 

(in Years)

 

0 to 5.50%

 

$

1,497,439

 

13.0

%

6.7

 

$

1,707,934

 

11.3

%

7.5

 

5.51 to 6.00%

 

1,217,303

 

19.3

 

4.7

 

1,409,983

 

16.1

 

5.8

 

6.01 to 6.50%

 

564,257

 

25.6

 

3.5

 

691,148

 

23.2

 

4.0

 

6.51 to 7.00%

 

359,952

 

27.5

 

3.1

 

453,017

 

25.6

 

3.4

 

7.01% and higher

 

179,722

 

30.2

 

2.7

 

241,482

 

27.6

 

3.0

 

 

 

$

3,818,673

 

17.9

 

5.0

 

$

4,503,564

 

15.8

 

5.8

 

 

 

28



 

At June 30, 2005 and December 31, 2004, the sensitivity of the current fair value of mortgage servicing rights to a hypothetical immediate 10% and 25% adverse change in prepayment speed assumptions and discount rate are as follows:

 

 

 

At

 

At

 

 

 

June 30,

 

December 31,

 

(Dollars in millions)

 

2005

 

2004

 

Fair value of mortgage servicing rights

 

$

45.0

 

$

55.9

 

Weighted-average life (in years)

 

5.0

 

5.8

 

Weighted-average prepayment speed assumption (annual rate)

 

17.9

%

15.8

%

Weighted-average discount rate

 

8.0

%

7.5

%

Impact on fair value of 10% adverse change in prepayment speed assumptions

 

$

(2.4

)

$

(3.1

)

Impact on fair value of 25% adverse change in prepayment speed assumptions

 

$

(5.6

)

$

(7.1

)

Impact on fair value of 10% adverse change in discount rate

 

$

(1.0

)

$

(1.5

)

Impact on fair value of 25% adverse change in discount rate

 

$

(2.4

)

$

(3.4

)

 

These sensitivities are theoretical and should be used with caution.  As the figures indicate, changes in fair value based on a given variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear.  Also, in the above table, the effect of a variation in a particular assumption on the fair value of the mortgage servicing rights is calculated independently without changing any other assumptions.  In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in discount rates or market interest rates), which might either magnify or counteract the sensitivities.  TCF does not use derivatives to hedge its mortgage servicing rights asset.

 

Other Non-Interest Income

 

In the second quarter of 2005, gains on sales of securities available for sale of $4.4 million were recognized on sales of $441.5 million of mortgage-backed securities, as compared with no sales for the same 2004 period.  Gains on sales of securities available for sale of $9.7 million were recognized on sales of  $907.5 million of mortgage-backed securities in the first six months of 2005, as compared with gains on sales of securities available for sale of $12.7 million on sales of $854 million in mortgage-backed securities during the same 2004 period.  During the first quarter of 2005, TCF sold its main office facility in Ann Arbor, Michigan and recognized a gain of $5.5 million.  TCF continues to occupy this office space under a short-term lease while it considers its relocation alternatives.

 

Consolidated Non-Interest Expense

 

Non-interest expense totaled $150.2 million for the second quarter of 2005, up 4.4%, from $143.9 million for the same 2004 period.  For the first six months of 2005, non-interest expense totaled $298.4 million, up 4.8%, from $284.6 million for the same 2004 period.  Compensation expense totaled $68.8 million and $135.7 million for the second quarter and first six months of 2005, respectively, up from $67.7 million and $132.4 million for the same 2004 periods.  The second quarter 2005 increase from 2004 was primarily due to a $3.5 million increase in the banking segment of which $1.2 million related to salary expense attributable to new branches opened during the past 12 months, partially offset by a $2.6 million decrease for mortgage banking.  Contributing to the increase for the first six months of 2005 was a $2.3 million increase related to TCF’s continued new branch expansion.  Employee benefits for the second quarter and first six months of 2005 were $13.2 million and $27.7 million, respectively, up from $11.9 million and $26.1 million for the same 2004 periods.  The increase for the second quarter and first six months of 2005 as compared with the same 2004 periods was primarily due to an increase of $903 thousand and $2.0 million, respectively, in retirement expenses and payroll taxes, partially offset by a $33 thousand and $826 thousand decrease in health plan expenses, respectively.  Occupancy and equipment expense totaled $24.8 million and $50.2 million for the second quarter and first six months of 2005, respectively, up $1.4 million and $3.3 million, respectively, from the same 2004 periods, primarily the result of costs associated with new branch expansion.  Deposit account losses decreased $1.6 million and $2.1 million for the second quarter and first six months of 2005, respectively, as compared with the same 2004 periods, primarily due to lower incidents and higher restitution, partially offset by higher external fraud losses.  For the second quarter and first six months of 2005, advertising and promotions expense increased $280 thousand and $617 thousand, respectively, from the comparable 2004 periods,

 

29



 

primarily due to expenses related to customer rewards programs.  Other non-interest expense totaled $33.0 million and $64.3 million for the second quarter and first six months of 2005, respectively, reflecting an increase of 13.4% and 12.2% from $29.1 million and $57.3 million, respectively, for the same 2004 periods.  The increase in other non-interest expense for the second quarter and first six months of 2005 was primarily due to increases in card processing and issuance expenses related to the overall increase in card revenues, higher repossessed real estate expenses due to large recoveries on property sales in the second quarter of 2004, and increases in operating lease depreciation expense in the leasing businesses.

 

Deposit account losses include a variety of losses related to deposit taking activities including overdrafts, external fraud and forgery and other deposit processing losses.  Deposit account losses also include restitution received from customers, net of any related outside collection agency fees.  Overdrafts are considered temporary receivables to be collected as soon as possible.  They are not considered extensions of credit, since TCF does not have an overdraft protection program, and they are not formally underwritten. Losses on uncollectible overdrafts are reported as deposit account losses in non-interest-expense within 60 days from the date of overdraft.  Uncollectible deposit fees are reversed against deposit fees and service charges. In February 2005, the Office of the Comptroller of Currency and other banking regulatory agencies issued joint agency guidance on overdrafts and overdraft protection programs.  The guidance primarily addresses concerns about marketing, disclosure and implementation of overdraft protection programs.  TCF does not offer overdraft protection programs for which this guidance is primarily directed.  However, TCF is implementing certain relevant best practices which are described in the joint agency guidance and is continuing to evaluate this guidance.

 

Income Taxes

 

TCF recorded income tax expense of $26.7 million and $59.7 million for the second quarter and first six months of 2005, respectively, or 27.41% and 30.82%, respectively, of income before income tax expense, compared with $33.5 million and $64.7 million, or 33.95% and 33.94%, respectively, of income before income tax expense for the comparable 2004 periods.  The lower effective income tax rate in the second quarter and first six months of 2005, compared with the same 2004 periods was due to a $5.2 million adjustment primarily related to the clarification of existing tax laws as well as a reduction in the expected 2005 annual effective income tax rate.

 

TCF has a Real Estate Investment Trust (“REIT”) and a related foreign operating company (“FOC”) that acquire, hold and manage real estate loans and other assets. These companies are consolidated with TCF National Bank and are therefore included in the consolidated financial statements of TCF Financial Corporation.  The REIT and related companies must meet specific provisions of the Internal Revenue Code (“IRC”) and state tax laws.  If these companies fail to meet any of the required provisions of Federal and state tax laws, TCF’s tax expense could increase.  TCF’s FOC operates under laws in certain states (including Minnesota and Illinois) that allow deductions for income derived from FOCs. Use of these companies is and has been the subject of Federal and state audits.

 

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 Federal and state income tax laws, the differences between the tax and financial reporting bases 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 assurances that estimates and interpretations used in determining income tax liabilities may not be challenged by Federal and state 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 current prevailing Federal and state income tax rates.  If such rates change, deferred income tax assets and liabilities must be adjusted in the period of change through a charge or credit to income tax expense.

 

30



 

CONSOLIDATED FINANCIAL CONDITION ANALYSIS

 

Securities Available for Sale

 

The Company purchased $807.3 million and $1.2 billion of mortgage-backed securities during the first six months of 2005 and 2004, respectively, to replace the prepayments of residential real estate loans and mortgage-backed securities.  TCF sold $907.5 million and $854 million of mortgage-backed securities during the first six months of 2005 and 2004, respectively.  At June 30, 2005, the unrealized gain on TCF’s mortgage-backed securities available for sale portfolio was $2.5 million.  TCF may, from time to time, sell additional mortgage-backed securities and utilize the proceeds to either reduce borrowings or to fund growth in loans and leases.

 

Loans and Leases

 

The following table sets forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale:

 

 

 

At

 

At

 

 

 

 

 

(Dollars in thousands)

 

June 30,

 

December 31,

 

Change

 

 

 

2005

 

2004

 

$

 

%

 

Consumer home equity and other:

 

 

 

 

 

 

 

 

 

Home equity:

 

 

 

 

 

 

 

 

 

First mortgage lien

 

$

3,155,799

 

$

2,894,174

 

$

261,625

 

9.0

%

Junior lien

 

1,613,893

 

1,487,583

 

126,310

 

8.5

 

Total consumer home equity

 

4,769,692

 

4,381,757

 

387,935

 

8.9

 

Other

 

38,311

 

36,831

 

1,480

 

4.0

 

Total consumer home equity and other

 

4,808,003

 

4,418,588

 

389,415

 

8.8

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Permanent

 

1,994,478

 

1,958,377

 

36,101

 

1.8

 

Construction and development

 

208,274

 

196,019

 

12,255

 

6.3

 

Total commercial real estate

 

2,202,752

 

2,154,396

 

48,356

 

2.2

 

Commercial business

 

447,958

 

424,135

 

23,823

 

5.6

 

Total commercial

 

2,650,710

 

2,578,531

 

72,179

 

2.8

 

 

 

 

 

 

 

 

 

 

 

Leasing and equipment finance:

 

 

 

 

 

 

 

 

 

Equipment finance loans

 

352,573

 

334,352

 

18,221

 

5.4

 

Lease financings:

 

 

 

 

 

 

 

 

 

Direct financing leases

 

1,101,901

 

1,067,845

 

34,056

 

3.2

 

Sales-type leases

 

18,127

 

22,742

 

(4,615

)

(20.3

)

Lease residuals, excluding leveraged lease

 

33,743

 

35,163

 

(1,420

)

(4.0

)

Unearned income and deferred lease costs

 

(105,262

)

(103,516

)

1,746

 

1.7

 

Investment in leveraged lease

 

18,786

 

18,786

 

-

 

-

 

Total lease financings

 

1,067,295

 

1,041,020

 

26,275

 

2.5

 

Total leasing and equipment finance

 

1,419,868

 

1,375,372

 

44,496

 

3.2

 

Total consumer, commercial and leasing and equipment finance

 

8,878,581

 

8,372,491

 

506,090

 

6.0

 

Residential real estate

 

884,141

 

1,014,166

 

(130,025

)

(12.8

)

Total loans and leases

 

$

9,762,722

 

$

9,386,657

 

$

376,065

 

4.0

 

 

31



 

        The following table sets forth information about loans and leases by state, excluding loans held for sale:

 

(Dollars in thousands)

 

At June 30, 2005

 

 

 

Consumer

 

 

 

Leasing and

 

 

 

 

 

 

 

Home Equity

 

 

 

Equipment

 

Residential

 

 

 

Geographic Distribution:

 

and Other

 

Commercial

 

Finance

 

Real Estate

 

Total

 

Minnesota

 

$

1,948,653

 

$

745,167

 

$

62,956

 

$

454,111

 

$

3,210,887

 

Illinois

 

1,316,625

 

475,960

 

50,444

 

141,649

 

1,984,678

 

Michigan

 

825,218

 

807,073

 

90,752

 

232,387

 

1,955,430

 

Wisconsin

 

445,668

 

384,935

 

36,773

 

25,362

 

892,738

 

Colorado

 

227,238

 

31,200

 

29,697

 

5,744

 

293,879

 

California

 

1,546

 

9,347

 

178,183

 

-

 

189,076

 

Florida

 

8,462

 

26,750

 

106,226

 

739

 

142,177

 

Texas

 

528

 

4,144

 

94,201

 

1,106

 

99,979

 

Ohio

 

4,410

 

26,070

 

55,692

 

5,175

 

91,347

 

Other

 

29,655

 

140,064

 

714,944

 

17,868

 

902,531

 

Total

 

$

4,808,003

 

$

2,650,710

 

$

1,419,868

 

$

884,141

 

$

9,762,722

 

 

At June 30, 2005, 50% of TCF’s consumer and commercial loans consist of variable-rate loans.  The variable-rate consumer loans have their interest rates tied to the prime rate, while variable-rate commercial loans (consisting of commercial real estate and commercial business loans) may have their interest rates tied to either the prime rate or LIBOR. In addition, to the extent these loans have interest rate floors, a change 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 and leases have fixed rates.  All residential real estate loans have fixed or adjustable rates.

 

The following table provides additional information relating to TCF’s consumer and commercial loan balances at June 30, 2005:

 

(Dollars in millions)

 

At June 30, 2005

 

 

 

Consumer
Home Equity
and Other

 

Commercial (1)

 

Total

 

 

 

 

 

% of

 

 

 

% of

 

 

 

% of

 

 

 

Amount

 

Total

 

Amount

 

Total

 

Amount

 

Total

 

Variable-rate loans

 

$

2,510

 

52

%

$

1,206

 

45

%

$

3,716

 

50

%

Fixed-rate loans

 

2,298

 

48

 

473

 

18

 

2,771

 

37

 

Adjustable-rate loans (2)

 

-

 

-

 

972

 

37

 

972

 

13

 

Total

 

$

4,808

 

100

%

$

2,651

 

100

%

$

7,459

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)   Includes commercial real estate and commercial business loans.

(2)          These loans reprice at periodic intervals, generally 3-5 years, at which time the fixed rate adjusts to a new rate based on a specified spread to the applicable U.S. Treasury rate.

 

Approximately 68% of the home equity loan portfolio at June 30, 2005 consisted of closed-end loans, compared with 66% at December 31, 2004.   In addition, 52% of this portfolio at June 30, 2005 carries a variable interest rate tied to the prime rate, compared with 62% at December 31, 2004.   At June 30, 2005, the weighted average loan-to-value ratio for the home equity portfolio was 75%, unchanged from December 31, 2004.

 

32



 

The following table sets forth additional information about the loan-to-value ratios for TCF’s home equity loan portfolio:

 

(Dollars in thousands)

 

At June 30, 2005

 

At December 31, 2004

 

 

 

 

 

 

 

Over 30-Day

 

 

 

 

 

Over 30-Day

 

 

 

 

 

 

 

Delinquency as

 

 

 

 

 

Delinquency as

 

 

 

 

 

Percent

 

a Percentage

 

 

 

Percent

 

a Percentage

 

Loan-to-Value Ratios (1):

 

Balance

 

of Total

 

of Balance

 

Balance

 

of Total

 

of Balance

 

Over 100% (2)

 

$

28,563

 

.6

%

1.86

%

$

32,825

 

.7

%

3.02

%

Over 90% to 100%

 

531,587

 

11.1

 

.46

 

449,291

 

10.3

 

.38

 

Over 80% to 90%

 

1,803,050

 

37.8

 

.33

 

1,750,531

 

39.9

 

.32

 

80% or less

 

2,406,492

 

50.5

 

.31

 

2,149,110

 

49.1

 

.32

 

Total

 

$

4,769,692

 

100.0

%

.34

 

$

4,381,757

 

100.0

%

.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)          Loan-to-value is based on the loan amount (current outstanding balance on closed-end loans and the total commitment on lines of credit) plus deferred loan origination costs net of fees and refundable insurance premiums, if any, plus the amount of senior liens, if any. Property values represent the most recent market value or property tax assessment value known to TCF.

(2)          Amount reflects the total outstanding loan balance. The portion of the loan balance in excess of 100% of the property value is substantially less than the amount included above.

 

The following table summarizes TCF’s commercial real estate loan portfolio by property type:

 

(Dollars in thousands)

 

At June 30, 2005

 

At December 31, 2004

 

 

 

 

 

Construction

 

 

 

 

 

Construction

 

 

 

 

 

 

 

and

 

 

 

 

 

and

 

 

 

 

 

Permanent

 

Development

 

Total

 

Permanent

 

Development

 

Total

 

Apartments

 

$

533,742

 

$

14,214

 

$

547,956

 

$

524,253

 

$

2,795

 

$

527,048

 

Retail services

 

425,201

 

32,189

 

457,390

 

382,068

 

28,142

 

410,210

 

Office buildings

 

405,610

 

41,000

 

446,610

 

420,874

 

35,865

 

456,739

 

Warehouse/industrial buildings

 

263,949

 

4,506

 

268,455

 

258,561

 

1,729

 

260,290

 

Hotel and motels

 

108,973

 

15,520

 

124,493

 

122,236

 

15,700

 

137,936

 

Health care facilities

 

31,634

 

1,354

 

32,988

 

44,344

 

9,308

 

53,652

 

Other

 

225,369

 

99,491

 

324,860

 

206,041

 

102,480

 

308,521

 

Total

 

$

1,994,478

 

$

208,274

 

$

2,202,752

 

$

1,958,377

 

$

196,019

 

$

2,154,396

 

 

TCF continues to expand its commercial real estate and commercial business lending activity to borrowers located in its primary midwestern markets.  With a focus on secured lending, at June 30, 2005, approximately 99% of TCF’s commercial real estate and commercial business loans were secured either by real estate properties or underlying business assets. At June 30, 2005, approximately 94% of TCF’s commercial real estate loans outstanding were secured by properties located in its primary markets.

 

33



 

The following tables summarize TCF’s leasing and equipment finance portfolio by marketing segment and by equipment type:

 

(Dollars in thousands)

 

At June 30, 2005

 

At December 31, 2004

 

 

 

 

 

 

 

Over 30-Day

 

 

 

 

 

Over 30-Day

 

 

 

 

 

 

 

Delinquency as

 

 

 

 

 

Delinquency as

 

 

 

 

 

Percent

 

a Percentage

 

 

 

Percent

 

a Percentage

 

Marketing Segment

 

Balance

 

of Total

 

of Balance

 

Balance

 

of Total

 

of Balance

 

Middle market (1)

 

$

789,222

 

55.5

%

.33

%

$

747,964

 

54.3

%

.51

%

Small ticket (2)

 

283,722

 

20.0

 

.76

 

258,094

 

18.8

 

.75

 

Winthrop (3)

 

204,226

 

14.4

 

.27

 

200,819

 

14.6

 

1.10

 

Wholesale (4)

 

77,516

 

5.5

 

.01

 

83,913

 

6.1

 

-

 

Leveraged lease

 

18,786

 

1.3

 

-

 

18,786

 

1.4

 

-

 

Other

 

46,396

 

3.3

 

1.81

 

65,796

 

4.8

 

1.68

 

Total

 

$

1,419,868

 

100.0

%

.44

 

$

1,375,372

 

100.0

%

.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)          Middle market consists primarily of loan and lease financing of construction and manufacturing equipment and specialty vehicles.

(2)          Small ticket includes loan and lease financings to small- and mid-size companies through programs with vendors, manufacturers, distributors, buying groups, and franchise organizations. Transaction sizes generally range from $25 thousand to $250 thousand.

(3)          Winthrop’s portfolio consists primarily of technology and data processing equipment.

(4)          Wholesale includes the discounting of lease receivables sourced by third party lessors.

 

(Dollars in thousands)

 

At June 30, 2005

 

At December 31, 2004

 

 

 

 

 

Percent

 

 

 

Percent

 

Equipment Type

 

Balance

 

of Total

 

Balance

 

of Total

 

Manufacturing

 

$

256,243

 

18.1

%

$

251,157

 

18.2

%

Specialty vehicles

 

235,553

 

16.6

 

236,582

 

17.2

 

Technology and data processing

 

220,138

 

15.5

 

229,160

 

16.7

 

Construction

 

206,476

 

14.5

 

182,612

 

13.3

 

Medical

 

179,424

 

12.6

 

157,745

 

11.5

 

Trucks and trailers

 

65,134

 

4.6

 

74,870

 

5.4

 

Furniture and fixtures

 

55,489

 

3.9

 

51,192

 

3.7

 

Printing

 

50,316

 

3.5

 

45,394

 

3.3

 

Material handling

 

36,721

 

2.6

 

33,810

 

2.5

 

Aircraft

 

21,011

 

1.5

 

22,556

 

1.6

 

Other

 

93,363

 

6.6

 

90,294

 

6.6

 

Total

 

$

1,419,868

 

100.0

%

$

1,375,372

 

100.0

%

 

The leasing and equipment finance portfolio tables above include lease residuals.  Lease residuals represent the estimated fair value of the leased equipment at the expiration of the initial term of the transaction and are reviewed on an ongoing basis.  Any downward revisions are recorded in the periods in which they become known.   At June 30, 2005, lease residuals, excluding the leveraged lease residual, totaled $33.7 million, and were $35.2 million at December 31, 2004.  The lease residual on the leveraged lease is included in the investment in leveraged lease and represents a 100% equity interest in a Boeing 767-300 aircraft leased to Delta.  The investment in leveraged lease represents net unpaid rentals and estimated unguaranteed residual value of the leased asset less related unearned income.  TCF has no obligation for principal and interest on the notes representing the third-party participation related to this leveraged lease.  However, these noteholders have a security interest in the aircraft which is superior to TCF’s equity interest.  Such notes, which totaled $15.6 million at June 30, 2005, down from $19.2 million at December 31, 2004, are recorded as an offset against the related rental receivable.  In 2004, TCF downgraded its credit rating on the Delta leveraged lease, classified its investment as substandard and placed the lease on non-accrual status.  Although Delta is current on its payments related to this transaction, if Delta declares bankruptcy, it could result in the charge-off of all or part of TCF’s $18.8 million investment in the leveraged lease and the current payment of previously deferred income tax obligations.  TCF has established a reserve for 74% of the investment in the Delta leveraged lease.  This reserve was increased from 50% at March 31, 2005 through an allocation of the previously unallocated allowance for loan and lease losses.  The Delta lease represents TCF’s only material direct exposure to the commercial airline industry.  Reduced airline travel, higher fuel costs, changes in airline fare structures, and other factors have

 

34



 

adversely impacted the airline industry and could have an adverse impact on Delta’s ability to meet its lease obligations and on the residual value of the aircraft.

 

TCF’s net investment in a leveraged lease is comprised of the following:

 

 

 

At

 

At

 

(In thousands)

 

June 30,

 

December 31,

 

 

 

2005

 

2004

 

Rental receivable (net of principal and interest on non-recourse debt)

 

$

10,064

 

$

10,064

 

Estimated residual value of leased asset

 

13,660

 

13,660

 

Less: Unearned income

 

(4,938

)

(4,938

)

Investment in leveraged lease

 

18,786

 

18,786

 

Less: Deferred taxes

 

(9,924

)

(9,039

)

Net investment in leveraged lease

 

$

8,862

 

$

9,747

 

 

Total loan and lease originations for TCF’s leasing businesses were $380.5 million for the first six months of 2005, compared with $340.3 million for the same 2004 period.  The backlog of approved transactions increased to $227.3 million at June 30, 2005, from $195.3 million at December 31, 2004.  TCF’s leasing activity is subject to risk of cyclical downturns and other adverse economic developments.  TCF’s ability to increase its lease portfolio is dependent upon its ability to place new equipment in service.  In an adverse economic environment, there may be a decline in the demand for some types of equipment which TCF leases, resulting in a decline in the amount of new equipment being placed into service as well as a decline in equipment values for equipment previously placed in service.

 

Allowance for Loan and Lease Losses

 

Credit risk is the risk of loss from a customer default on a loan or lease.  TCF has in place a process to identify and manage its credit risk.  The process includes initial credit review and approval, periodic monitoring to measure compliance with credit agreements and internal credit policies, monitoring changes in the risk ratings of loans and leases, identification of problem loans and leases and procedures for the collection of problem loans and leases.  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 policy which involves management’s judgment on a number of factors such as net charge-offs, delinquencies in the loan and lease portfolio, general economic conditions and management’s assessment of credit risk in the current loan and lease portfolio.  The Company considers the allowance for loan and lease losses of $76.4 million appropriate to cover losses inherent in the loan and lease portfolios as of June 30, 2005.  However, 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 TCF’s on-going credit review process, will not require significant changes in the allowance for loan and lease losses.  Among other factors, a protracted economic slowdown and/or a decline in commercial or residential real estate values in TCF’s markets may have an adverse impact on the adequacy of the allowance for loan and lease losses by increasing credit risk and the risk of potential loss.  See “Forward-Looking Information.”

 

The next several pages include detailed information regarding TCF’s allowance for loan and lease losses, net charge-offs, non-performing assets, past due loans and leases and potential problem loans and leases.  Included in this data are numerous portfolio ratios that must be carefully reviewed and related to the nature of the underlying loans and lease portfolios before appropriate conclusions can be reached regarding TCF or for purposes of making comparisons to other companies.  Most of TCF’s non-performing assets and past due loans and leases are secured by residential real estate.  Given the nature of these assets and the related mortgage foreclosure, property sale and, if applicable, mortgage insurance claims 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 key indicators of TCF’s credit quality and reserve coverage at or for the three months ended June 30, 2005, include the ratio of annualized net charge-offs to average loans and leases of .08%, the allowance to total loans and leases of .78%, and non-performing assets to total assets of .47%.

 

35



 

The following table sets forth information detailing the allowance for loan and lease losses and selected key indicators:

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

At or For the Three
Months Ended June 30,

 

At or For the Six
Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Balance at beginning of period

 

$

76,883

 

$

79,054

 

$

79,878

 

$

76,619

 

Charge-offs

 

(2,986

)

(3,018

)

(5,776

)

(5,517

)

Recoveries

 

1,082

 

919

 

4,313

 

2,902

 

Net charge-offs

 

(1,904

)

(2,099

)

(1,463

)

(2,615

)

Provision charged to operations

 

1,427

 

3,070

 

(2,009

)

4,230

 

Acquired allowance

 

-

 

-

 

-

 

1,791

 

Balance at end of period

 

$

76,406

 

$

80,025

 

$

76,406

 

$

80,025

 

Key Indicators:

 

 

 

 

 

 

 

 

 

Annualized net charge-offs as a percentage of average loans and leases

 

.08

%

.10

%

.03

%

.06

%

 

 

 

 

 

 

 

 

 

 

Period end allowance as a multiple of annualized net charge-offs

 

10.0X

 

9.5X

 

26.1X

 

15.3 X

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and provision for loan losses as a multiple of net charge-offs

 

51.9X

 

48.5X

 

131.1X

 

74.5X

 

 

TCF’s methodologies for determining and allocating the allowance for loan and lease losses focus on ongoing reviews of larger individual loans and leases, historical net charge-offs, the level of impaired and non-performing assets, 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 TCF’s allowance for loan and lease losses is disclosed in the following table and 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.

 

In the second quarter of 2005, TCF refined its allowance for loan and lease losses allocation methodology resulting in an allocation of the entire allowance for loan and lease losses to the individual loan and lease portfolios. This change allocates the previous unallocated portion of the allowance for loan and lease losses.

 

 

 

At June 30, 2005

 

At December 31, 2004

 

 

 

Allowance for

 

 

 

Allowance

 

Allowance for

 

 

 

Allowance

 

(Dollars in thousands)

 

Loan and

 

Total Loans

 

as a % of

 

Loan and

 

Total Loans

 

as a % of

 

 

 

Lease Losses

 

and Leases

 

Balance

 

Lease Losses

 

and Leases

 

Balance

 

Consumer home equity and other

 

$

15,783

 

$

4,808,003

 

.33

%

$

9,939

 

$

4,418,588

 

.22

%

Commercial real estate

 

20,448

 

2,202,752

 

.93

 

20,742

 

2,154,396

 

.96

 

Commercial business

 

7,100

 

447,958

 

1.58

 

7,696

 

424,135

 

1.81

 

Leasing and equipment finance

 

32,435

 

1,419,868

 

2.28

 

24,566

 

1,375,372

 

1.79

 

Unallocated

 

-

 

-

 

-

 

16,139

 

-

 

N.A.

 

Subtotal

 

75,766

 

8,878,581

 

.85

 

79,082

 

8,372,491

 

.94

 

Residential real estate

 

640

 

884,141

 

.07

 

796

 

1,014,166

 

.08

 

Total

 

$

76,406

 

$

9,762,722

 

.78

 

$

79,878

 

$

9,386,657

 

.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N.A. Not applicable.

 

36



 

The following table sets forth additional information regarding net charge-offs:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

Net

 

% of Average

 

Net

 

% of Average

 

Net

 

% of Average

 

Net

 

% of Average

 

(Dollars in thousands)

 

Charge-offs

 

Loans and

 

Charge-offs

 

Loans and

 

Charge-offs

 

Loans and

 

Charge-offs

 

Loans and

 

 

 

(Recoveries)

 

Leases (1)

 

(Recoveries)

 

Leases (1)

 

(Recoveries)

 

Leases (1)

 

(Recoveries)

 

Leases (1)

 

Consumer home equity and other

 

$

1,016

 

.09

%

$

719

 

.07

%

$

2,325

 

.10

%

$

1,293

 

.07

%

Commercial real estate

 

(3

)

 

(15

)

 

34

 

 

(48

)

 

Commercial business

 

(31

)

(0.03

)

(16

)

(.01

)

(2,468

)

(1.17

)

57

 

.03

 

Leasing and equipment finance

 

911

 

.26

 

1,378

 

.43

 

1,525

 

.22

 

1,272

 

.21

 

Residential real estate

 

11

 

 

33

 

.01

 

47

 

.01

 

41

 

.01

 

Total

 

$

1,904

 

.08

 

$

2,099

 

.10

 

$

1,463

 

.03

 

$

2,615

 

.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Annualized.

 

Non-Performing Assets

 

Non-performing assets consist of non-accrual loans and leases and other real estate owned.  Approximately 51% of non-performing assets at June 30, 2005 consisted of, or were secured by, real estate.

 

Non-performing assets are summarized in the following table:

 

 

 

At

 

At

 

 

 

(Dollars in thousands)

 

June 30,

 

December 31,

 

 

 

 

 

2005

 

2004

 

$ Change

 

Non-accrual loans and leases:

 

 

 

 

 

 

 

Consumer home equity and other

 

$

10,324

 

$

12,187

 

$

(1,863

)

Commercial real estate

 

-

 

1,093

 

(1,093

)

Commercial business

 

2,660

 

4,533

 

(1,873

)

Leasing and equipment finance

 

26,485

 

25,678

 

807

 

Residential real estate

 

2,230

 

3,387

 

(1,157

)

Total non-accrual loans and leases

 

41,699

 

46,878

 

(5,179

)

Other real estate owned:

 

 

 

 

 

 

 

Residential

 

12,479

 

11,726

 

753

 

Commercial

 

4,799

 

5,465

 

(666

)

Total other real estate owned

 

17,278

 

17,191

 

87

 

Total non-performing assets

 

$

58,977

 

$

64,069

 

$

(5,092

)

Non-performing assets as a percentage of:

 

 

 

 

 

 

 

Net loans and leases

 

.61

%

.69

%

(8

)bps

Total assets

 

.47

%

.52

%

(5

)

 

Included in non-performing assets are loans that are considered impaired.  Impaired loans totaled $4.5 million at June 30, 2005, compared with $8.1 million at December 31, 2004.  The related allowance for credit losses was $1.7 million at June 30, 2005 compared with $3.7 million at December 31, 2004.  All of the impaired loans were on non-accrual status.  There were no impaired loans at June 30, 2005 or December 31, 2004 which did not have a related allowance for loan losses.  Average impaired loans during the three months ended June 30, 2005 were $5.1 million, compared with $8.3 million during the three months ended December 31, 2004.

 

37



 

Past Due Loans and Leases

 

The following table sets forth information regarding TCF’s delinquent loan and lease portfolio, excluding loans held for sale and non-accrual loans and leases.  TCF’s delinquency rates are determined using the contractual method.

 

 

 

At June 30, 2005

 

At December 31, 2004

 

 

 

Principal

 

Percentage of

 

Principal

 

Percentage of

 

(Dollars in thousands)

 

Balances

 

Loans and Leases

 

Balances

 

Loans and Leases

 

Accruing loans and leases delinquent for:

 

 

 

 

 

 

 

 

 

30-59 days

 

$

17,165

 

.18

%

$

20,776

 

.23

%

60-89 days

 

8,717

 

.09

 

8,659

 

.09

 

90 days or more

 

6,165

 

.06

 

4,950

 

.05

 

Total

 

$

32,047

 

.33

%

$

34,385

 

.37

%

 

The following table summarizes TCF’s over 30-day delinquent loan and lease portfolio by loan type:

 

 

 

At June 30, 2005

 

At December 31, 2004

 

 

 

Principal

 

Percentage of

 

Principal

 

Percentage of

 

(Dollars in thousands)

 

Balances

 

Portfolio

 

Balances

 

Portfolio

 

Consumer home equity and other

 

$

16,406

 

.34

%

$

15,436

 

.35

%

Commercial real estate

 

663

 

.03

 

32

 

-

 

Commercial business

 

292

 

.07

 

404

 

.10

 

Leasing and equipment finance

 

6,069

 

.44

 

8,997

 

.67

 

Residential real estate

 

8,617

 

.98

 

9,516

 

.94

 

Total

 

$

32,047

 

.33

 

$

34,385

 

.37

 

 

Potential Problem Loans and Leases

 

In addition to the non-performing assets, there were $60.1 million of loans and leases at June 30, 2005, for which management has concerns regarding the ability of the borrowers to meet existing repayment terms, compared with $71.1 million at December 31, 2004.  These loans and leases are primarily classified for regulatory purposes as substandard 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 potential problem loans and leases, they may never become non-performing.  Additionally, these loans and leases are generally secured by commercial real estate or assets, thus reducing the potential for loss should they become non-performing.  Potential problem loans and leases are considered in the determination of the adequacy of the allowance for loan and lease losses.

 

Potential problem loans and leases are summarized as follows:

 

 

 

At June 30,

 

At December 31,

 

Change

 

(Dollars in thousands)

 

2005

 

2004

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

29,256

 

$

34,138

 

$

(4,882

)

(14.3

)%

Commercial business

 

21,997

 

18,112

 

3,885

 

21.4

 

Leasing and equipment finance

 

8,855

 

18,816

 

(9,961

)

(52.9

)

Total

 

$

60,108

 

$

71,066

 

$

(10,958

)

(15.4

)

 

Leasing and equipment finance potential problem loans and leases include $50 thousand and $1.2 million funded on a non-recourse basis at June 30, 2005 and December 31, 2004, respectively.

 

38



 

Deposits

 

Checking, savings and money market deposits are an important source of low cost funds and fee income for TCF.   Deposits totaled $8.4 billion at June 30, 2005, up $462.1 million from December 31, 2004.  At June 30, 2005, checking, savings and money market deposits totaled $6.7 billion, up $201.9 million from December 31, 2004, and comprised 79.5% of total deposits at June 30, 2005, compared with 81.6% of total deposits at December 31, 2004.  At June 30, 2005, certificates of deposit increased $260.2 million from December 31, 2004.  Certificates of deposit greater than $100,000 were $399.0 million as of June 30, 2005, up $146.3 million from $252.7 million as of December 31, 2004.  TCF’s weighted-average rate for deposits, including non-interest-bearing deposits, was 1.08% at June 30, 2005, up from .69% at December 31, 2004, primarily reflecting increases in premier checking and premier savings average balances and overall increases in interest rates.

 

New Branch Expansion

 

Key to TCF’s growth is its continued investment in new branch expansion.  New branches are an important source of new customers in both deposit products and consumer lending products.  While supermarket branches continue to play an important role in TCF’s expansion strategy, the opportunity to add new supermarket branches within TCF’s markets will slow in future years.  Therefore, TCF will continue new branch expansion by opening more traditional branches. Although traditional branches require a higher initial investment than supermarket branches, they ultimately attract more customers and become more profitable.  During the second quarter of 2005, TCF opened six new branches, including three traditional branches, two supermarket branches and one campus branch.  TCF now has 132 new branches opened since January 1, 2000.  TCF plans to open 21 new branches during the remainder of 2005, consisting of 14 traditional branches, five supermarket branches and two campus branches.

 

Additional information regarding the results of TCF’s new branches opened since January 1, 2000 is displayed in the table below:

 

(Dollars in thousands)

 

At June 30,

 

Increase

 

 

 

 

 

2005

 

2004

 

(Decrease)

 

% Change

 

Number of new branches*

 

 

 

 

 

 

 

 

 

Traditional

 

57

 

40

 

17

 

42.5

%

Supermarket

 

74

 

64

 

10

 

15.6

 

Campus

 

1

 

-

 

1

 

-

 

Total

 

132

 

104

 

28

 

26.9

 

Percentage of total branches

 

30

%

25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of checking accounts

 

238,850

 

177,530

 

61,320

 

34.5

 

Deposits:

 

 

 

 

 

 

 

 

 

Checking

 

$

368,620

 

$

249,531

 

$

119,089

 

47.7

 

Savings

 

248,658

 

140,477

 

108,181

 

77.0

 

Money market

 

25,827

 

21,318

 

4,509

 

21.2

 

Subtotal

 

643,105

 

411,326

 

231,779

 

56.3

 

Certificates of deposits

 

200,260

 

56,885

 

143,375

 

N.M.

 

Total deposits

 

$

843,365

 

$

468,211

 

$

375,154

 

80.1

 

 

 

 

 

 

 

 

 

 

 

Total deposit fees and other revenue (quarter-to-date)

 

$

17,219

 

$

13,414

 

$

3,805

 

28.4

 

 

 

 

 

 

 

 

 

 

 

* New branches opened since January 1, 2000, excluding those branches which have subsequently closed.

 

N.M. Not Meaningful

 

 

 

 

 

 

 

 

 

 

 

39



 

Borrowings

 

Borrowings totaled $2.9 billion at June 30, 2005, down $160.0 million from December 31, 2004. Borrowings decreased primarily due to the overall increase in deposits exceeding the growth in assets. The weighted-average rate on borrowings increased to 4.02% at June 30, 2005, from 3.37% at December 31, 2004, primarily due to the impact of rising short-term interest rates.  During the first quarter of 2005 and second quarter of 2004, TCF Bank issued $50 million and $75 million, respectively, of subordinated notes due in 2015 and 2014, respectively.  Also, during the first quarter of 2005, TCF extended $200 million of FHLB advances until February 2007, at an average fixed interest rate of 3.60%.  Included in long-term borrowings at June 30, 2005, are $567.5 million of fixed-rate FHLB advances and $200 million of repurchase agreements with other institutions, which are callable quarterly at par until maturity.  If the FHLB advances are called, replacement funding will be provided by the FHLB at the then-prevailing market rate of interest for the remaining term-to-maturity, subject to standard terms and conditions.

 

TCF Financial Corporation (parent company only) has a $105 million line of credit maturing in April 2006, which is unsecured and contains certain covenants common to such agreements.  TCF is not in default with respect to any of its covenants under the credit agreement.  The interest rate on the line of credit is based on either the prime rate or LIBOR.  TCF has the option to select the interest rate index and term for advances on the line of credit.  The line of credit may be used for appropriate corporate purposes.  At June 30, 2005, TCF had $24.5 million outstanding on this bank line of credit at an average rate of 4.11%, compared with $14.0 million outstanding at December 31, 2004 at an average rate of 3.18%.

 

Contractual Obligations And Commitments

 

TCF has certain obligations and commitments to make future payments under contracts.  At June 30, 2005, the aggregate contractual obligations (excluding bank deposits) and commitments are as follows:

 

(Dollars in thousands)

 

Payments Due by Period

 

 

 

 

 

Less than

 

1-3

 

4-5

 

After 5

 

Contractual Obligations

 

Total

 

1 year

 

Years

 

Years

 

Years

 

Total borrowings

 

$

2,944,629

 

$

2,070,140

 

$

327,165

 

$

123,711

 

$

423,613

 

Annual rental commitments under non-cancelable operating leases

 

178,833

 

25,887

 

42,107

 

32,279

 

78,560

 

Campus marketing agreements

 

51,115

 

995

 

2,576

 

4,702

 

42,842

 

Construction contracts and land purchase commitments for future branch sites

 

23,543

 

23,543

 

-

 

-

 

-

 

 

 

$

3,198,120

 

$

2,120,565

 

$

371,848

 

$

160,692

 

$

545,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Commitment - Expiration by Period

 

 

 

 

 

Less than

 

1-3

 

4-5

 

After 5

 

Commitments

 

Total

 

1 year

 

Years

 

Years

 

Years

 

Commitments to lend:

 

 

 

 

 

 

 

 

 

 

 

Consumer home equity and other

 

$

1,693,473

 

$

10,131

 

$

15,798

 

$

34,333

 

$

1,633,211

 

Commercial

 

735,124

 

490,599

 

188,310

 

51,636

 

4,579

 

Leasing and equipment finance

 

76,278

 

76,278

 

-

 

-

 

-

 

Other

 

14,886

 

14,886

 

-

 

-

 

-

 

Total commitments to lend

 

2,519,761

 

591,894

 

204,108

 

85,969

 

1,637,790

 

Loans serviced with recourse

 

81,664

 

1,776

 

3,826

 

3,617

 

72,445

 

Standby letters of credit and guarantees on industrial revenue bonds

 

80,429

 

43,043

 

18,134

 

19,252

 

-

 

 

 

$

2,681,854

 

$

636,713

 

$

226,068

 

$

108,838

 

$

1,710,235

 

 

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.

 

 

40



 

Campus marketing agreements consist of fixed or minimum obligations for exclusive marketing and naming rights with ten campuses.  TCF is obligated to make various annual payments for these rights in the form of royalties and scholarships through 2023.  TCF also has various renewal options which may extend the terms of these agreements. On April 21, 2005, TCF’s Board of Directors and the University of Minnesota Board of Regents ratified contracts for TCF’s sponsorship of a new on-campus football stadium to be called “TCF Bank Stadium” and an extension of TCF’s sponsorship of the U Card.  The U Card serves as a key for access to a variety of university services.  TCF also sponsors similar cards for other campuses. These obligations are included in the table above.  The naming rights agreement with the University of Minnesota is dependent upon several factors, including receipt of necessary state and private funding and completion of stadium construction. Campus marketing agreements are an important element of TCF’s campus banking strategy.

 

Loans serviced with recourse represent a contingent guarantee based upon the failure to perform by another party.  These loans consist of $79.7 million of Veterans Administration (“VA”) loans and $1.9 million of loans sold with recourse to the Federal National Mortgage Association (“FNMA”).  As is typical of a servicer of VA loans, TCF must cover any principal loss in excess of the VA’s guarantee if the VA elects its “no-bid” option upon the foreclosure of a loan.  Since conditions under which TCF would be required either to cover any principal loss in excess of the VA’s guarantee may not materialize, the actual cash requirements are expected to be significantly less than the amount provided in the table above.

 

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 2034.  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.  Collateral held on these commitments primarily consists of commercial real estate mortgages.

 

Stockholders’ Equity

 

Stockholders’ equity at June 30, 2005 was $954.6 million, or 7.6% of total assets, compared with $958.4 million, or 7.8% of total assets, at December 31, 2004.  For the first six months of 2005, average total equity to average assets was 7.41%, compared with 7.94% for the year ended December 31, 2004.  During the second quarter of 2005, TCF’s Board of Directors authorized another program for the repurchase of up to five percent of the Company’s outstanding common stock, or 6.7 million shares.  This program is in addition to the existing program for repurchasing shares announced in July 2003.  TCF repurchased 3.1 million shares of its common stock during the first six months of 2005 at an average cost of $27.01 per share.  At June 30, 2005, TCF had 7.1 million shares remaining in its stock repurchase programs authorized by its Board of Directors.  Since January 1, 1998, the Company has repurchased 57.3 million shares of its common stock at an average cost of $18.08 per share. On July 18, 2005, TCF declared a regular quarterly dividend of 21.25 cents per common share, payable on August 31, 2005, to shareholders of record as of July 29, 2005.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Market Risk — Interest-Rate Risk

 

TCF’s results of operations are dependent to a large degree on its net interest income and its ability to manage interest rate risk. Although TCF manages other risks, such as credit and liquidity risk, 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. The 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., prime).

 

TCF’s Asset/Liability Committee manages TCF’s interest-rate risk based on interest rate expectations and other factors. The principal objective of TCF’s 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.

 

 

41



 

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, relative to a base case scenario. Net interest income simulation involves forecasting under a variety of scenarios, including the level of interest rates, the shape of the yield curve, and spreads between market interest rates. At June 30, 2005, net interest income is estimated to increase by 2.7%, compared with the base case scenario, over the next twelve months if interest rates were to sustain an immediate increase of 100 basis points. In the event interest rates were to decline by 100 basis points, net interest income is estimated to decrease by 3.7%, compared with the base case scenario, over the next twelve months. The projected decrease in net interest income from the base case scenario is primarily due to an assumed reduction in total interest-earning assets.

 

Management exercises its best judgment in making assumptions regarding loan prepayments, early deposit withdrawals, and other non-controllable events in estimating TCF’s exposure to changes in interest rates. These assumptions are inherently uncertain and, as a result, the simulation models cannot precisely estimate net interest income or precisely predict the impact of a change in interest rates on net interest income. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.

 

In addition to the net interest income simulation model, management also utilizes an interest rate gap measure (difference between interest-earning assets and interest-bearing liabilities repricing 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.

 

TCF’s one-year interest rate gap was a positive $518.9 million, or 4.1% of total assets at June 30, 2005, compared with a positive $585.3 million, or 4.7% of total assets at December 31, 2004.  A positive interest rate gap position exists when the amount of interest-earning assets maturing or repricing, including assumed prepayments, within a particular time period exceeds the amount of interest-bearing liabilities maturing or repricing. An increase in consumer fixed rate loans was offset by a decrease in treasury assets, causing the one-year gap to remain relatively flat compared with December 31, 2004.

 

Since December 31, 2004, short-term interest rates have increased approximately 100 basis points, while long-term rates have remained relatively flat. This flattening of the yield curve has caused an increase in TCF’s fixed-rate loan portfolios and a decrease in its variable-rate loan portfolios, therefore the Asset/Liability committee has shifted some of the related funding to longer-term depository products. An increase in long-term interest rates would likely have a favorable impact on TCF’s net interest income, but may be partially diminished by an adverse impact on TCF’s deposit account balances, if customers transfer some of their funds to higher interest rate deposit products or other investments, resulting in an increase in the total cost of funds for TCF.

 

TCF believes this relatively balanced interest rate gap position to be warranted. Current rates are still below historical averages, and there may be a greater possibility over time of higher interest rates versus lower interest rates. However, if interest rates fall, TCF could experience an increase in prepayments of fixed rate mortgage-backed securities, residential real estate loans, consumer loans and commercial real estate loans, and could experience compression of its net interest income.

 

The one-year interest rate gap could be significantly affected by external factors such as prepayments, other than those assumed in the net interest income simulation and interest rate gap models, early withdrawals of deposits, changes in the correlation of various interest-bearing instruments, competition, a general rise or decline in interest rates, and the possibility that TCF’s counterparties will exercise their option to call certain of TCF’s longer-term callable borrowings. Decisions by management to purchase or sell assets or to retire debt could change the maturity/repricing and spread relationships. In addition, TCF’s interest-rate risk may increase during periods of rising interest rates due to slower prepayments on fixed-rate loans and mortgage-backed securities.

 

TCF estimates that an immediate 100 basis point increase in current mortgage loan interest rates would reduce prepayments on the $4.4 billion of fixed-rate mortgage-backed securities, residential real estate loans and consumer loans at June 30, 2005, by approximately $436 million, or 45%, in the first year. A slowing in prepayments would increase the estimated life of the portfolios and may adversely impact net interest income or net interest margin in the future.

 

 

42



 

Recent Accounting Developments

 

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 154, Accounting Changes and Error Corrections. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 carries forward the guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. However, SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Under this Statement, every voluntary change in accounting principle requires retrospective application to prior periods’ financial statements, unless it is impracticable. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although earlier application is permitted for changes and corrections made in fiscal years beginning after June 1, 2005. TCF expects no significant effect on TCF financial statements as a result of the adoption of this statement.

 

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard  No. 123R, Share-Based Payment which revised SFAS No. 123, Accounting for Stock-Based Compensation.  This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and related implementation guidance and amends SFAS No. 95, Statement of Cash Flows.  It requires that all stock-based compensation now be measured at fair value and recognized as expense in the income statement.  This Statement also clarifies and expands guidance on measuring fair value of stock compensation, requires estimation of forfeitures when determining expense, and requires that excess tax benefits be shown as financing cash inflows versus a reduction of taxes paid in the statement of cashflows.  Various other changes are also required.  This Statement is effective beginning January 1, 2006, for public companies as a result of recent SEC actions.  TCF adopted the recognition provisions of SFAS 123 in January 2000.  TCF expects no significant effect on TCF financial statements as a result of the adoption of this Statement.

 

Earnings Teleconference and Website Information

 

TCF hosts quarterly conference calls to discuss its financial results.  Additional information regarding TCF’s conference calls can be obtained from the investor relations section within TCF’s website at www.TCFExpress.com or by contacting TCF’s Corporate Communications Department at (952) 745-2760.  The website also includes free access to company news releases, TCF’s annual report, quarterly reports, investor presentations and Securities and Exchange Commission (“SEC”) filings. Replays of prior quarterly conference calls discussing financial results may also be accessed at the investor relations section within TCF’s website.

 
Legislative, Legal and Regulatory Developments

 

Federal and state legislation imposes numerous legal and regulatory requirements on financial institutions.   Future legislative or regulatory change, or changes in enforcement practices or court rulings, may have a dramatic and potentially adverse impact on TCF and its bank and other subsidiaries.

 

The Federal Deposit Insurance Corporation (“FDIC”) and members of the United States Congress have proposed new legislation that would reform the bank deposit insurance system.  This reform could merge the Bank Insurance Fund (“BIF”) and Savings Association Insurance Fund (“SAIF”), increase the deposit insurance coverage limits and index future coverage limitations, among other changes.  Most significantly, reform proposals could allow the FDIC to raise or lower (within certain limits) the currently mandated designated reserve ratio of 1.25% ($1.25 against $100 of insured deposits), and require certain changes in the calculation methodology. Although it is too early to predict the ultimate impact of such proposals, they could, if adopted, result in the imposition of additional deposit insurance premium costs on TCF.

 

In September 2002, the SEC issued its final ruling covering the acceleration of periodic report filing dates.  The rule, as amended in November 2004, applies to certain companies, including TCF, and will reduce the annual report filing deadline from 90 days after year-end to 60 days after year-end for TCF’s 2005 Annual Report.  The quarterly report on Form 10-Q will also be accelerated from 45 days after quarter-end to 35 days after quarter-end for the quarterly Form 10-Q filings in 2006.  TCF has taken steps to modify its financial reporting process to meet these accelerated filing deadlines.

 

 

43



 

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, TCF’s 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.  TCF’s future results may differ materially from historical performance and forward-looking statements about TCF’s expected financial results or other plans are subject to a number of risks and uncertainties.  These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins; deposit outflows; an inability to increase the number of checking accounts and the possibility that deposit account losses (fraudulent checks, etc.) may increase; reduced demand for financial services and loan and lease products; adverse developments affecting TCF’s supermarket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches; changes in accounting standards or interpretations of existing standards or monetary, fiscal or tax policies of the federal or state governments; adverse findings in tax audits or regulatory examinations; changes in credit and other risks posed by TCF’s loan, lease and investment portfolios, including declines in commercial or residential real estate values or a bankruptcy filing by Delta Airlines, the lessee under a leveraged lease in which TCF holds an equity interest; imposition of vicarious liability on TCF as lessor in its leasing operations; denial of insurance coverage for claims made by TCF; technological, computer-related or operational difficulties; adverse changes in securities markets; the risk that TCF could be unable to effectively manage the volatility of its mortgage servicing portfolio, which could adversely affect earnings; and results of litigation or other significant uncertainties.  Investors should consult TCF’s Annual Report to Shareholders and reports on Forms 10-K, 10-Q and 8-K for additional important information about the Company.

 

Item 4. Controls and Procedures

 

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, 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 Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”).  Based upon that evaluation, management concluded that the Company’s disclosure controls and procedures are effective, as of June 30, 2005.  Also, there were no significant changes in the Company’s disclosure controls or internal controls over financial reporting during the second quarter of 2005.

 

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 SEC’s rules and forms.  Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer, the Chief Financial Officer (Principal Financial Officer) and the Controller and Assistant Treasurer (Principal Accounting Officer), as appropriate, to allow 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 evaluation of a cost-effective system of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

 

 

 

44



 

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Supplementary Information

 

SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands,

 

At June 30,

 

At March 31,

 

At Dec. 31,

 

At Sept. 30,

 

At June 30,

 

except per-share data)

 

2005

 

2005

 

2004

 

2004

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

 

SELECTED FINANCIAL CONDITION DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

$

1,406,575

 

$

1,785,520

 

$

1,619,941

 

$

1,330,708

 

$

1,588,372

 

Residential real estate loans

 

884,141

 

950,469

 

1,014,166

 

1,047,079

 

1,091,678

 

Subtotal

 

2,290,716

 

2,735,989

 

2,634,107

 

2,377,787

 

2,680,050

 

Loans and leases excluding residential real estate loans

 

8,878,581

 

8,602,109

 

8,372,491

 

8,025,804

 

7,776,921

 

Goodwill

 

152,599

 

152,599

 

152,599

 

152,599

 

152,599

 

Mortgage servicing rights

 

39,936

 

43,501

 

46,442

 

51,474

 

51,290

 

Total assets

 

12,607,216

 

12,733,208

 

12,340,567

 

11,997,949

 

11,942,863

 

Checking, savings and money market deposits

 

6,695,484

 

6,709,527

 

6,493,545

 

6,323,659

 

6,321,761

 

Certificates of deposit

 

1,728,842

 

1,685,486

 

1,468,650

 

1,471,164

 

1,439,896

 

Total deposits

 

8,424,326

 

8,395,013

 

7,962,195

 

7,794,823

 

7,761,657

 

Short-tem borrowings

 

1,045,582

 

878,390

 

1,056,111

 

845,499

 

869,576

 

Long-term borrowings

 

1,899,047

 

2,098,878

 

2,048,492

 

2,057,608

 

2,065,870

 

Stockholders’ equity

 

954,557

 

926,343

 

958,418

 

965,266

 

939,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

June 30,

 

March 31,

 

Dec. 31,

 

Sept. 30,

 

June 30,

 

 

 

2005

 

2005

 

2004

 

2004

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

 

SELECTED OPERATIONS DATA:

 

 

 

 

 

 

 

Interest income

 

$

179,999

 

$

171,345

 

$

163,388

 

$

157,413

 

$

152,789

 

Interest expense

 

48,714

 

42,292

 

36,899

 

32,923

 

30,370

 

Net interest income

 

131,285

 

129,053

 

126,489

 

124,490

 

122,419

 

Provision for credit losses

 

1,427

 

(3,436

)

4,073

 

2,644

 

3,070

 

Net interest income after provision for credit losses

 

129,858

 

132,489

 

122,416

 

121,846

 

119,349

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

Fees and other revenues

 

113,268

 

106,909

 

126,311

 

115,803

 

123,293

 

Gains on sales of securities available for sale

 

4,437

 

5,239

 

6,204

 

3,679

 

-

 

Total non-interest income

 

117,705

 

112,148

 

132,515

 

119,482

 

123,293

 

Non-interest expense

 

150,247

 

148,111

 

154,396

 

147,926

 

143,906

 

Income before income tax expense

 

97,316

 

96,526

 

100,535

 

93,402

 

98,736

 

Income tax expense

 

26,675

 

33,061

 

33,133

 

31,690

 

33,518

 

Net income

 

$

70,641

 

$

63,465

 

$

67,402

 

$

61,712

 

$

65,218

 

 

 

 

 

 

 

 

 

 

 

 

 

Per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic earnings

 

$

.53

 

$

.47

 

$

.50

 

$

.45

 

$

.47

 

Diluted earnings

 

$

.53

 

$

.47

 

$

.50

 

$

.45

 

$

.47

 

Dividends declared

 

$

.2125

 

$

.2125

 

$

.1875

 

$

.1875

 

$

.1875

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL RATIOS:

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (1)

 

2.22

%

2.03

%

2.22

%

2.06

%

2.20

%

Return on average common equity (1)

 

30.23

 

27.18

 

28.35

 

25.96

 

27.68

 

Net interest margin (1)

 

4.53

 

4.56

 

4.56

 

4.56

 

4.53

 

Net charge-offs (recoveries) as a percentage of average loans and leases (1)

 

.08

 

(.02

)

.14

 

.17

 

.10

 

Average total equity to average assets

 

7.36

 

7.48

 

7.81

 

7.94

 

7.95

 

(1) Annualized.

 

 

45



 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

Supplementary Information (Continued)

 

Consolidated Average Balance Sheets, Interest and Dividends

Earned or Paid, and Related Interest Yields and Rates

 

 

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

(Dollars in thousands)

 

Average
Balance

 

Interest (1)

 

Average Yields
and Rates (2)

 

Average
Balance

 

Interest (1)

 

Average Yields
and Rates (2)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

$

103,643

 

$

2,146

 

4.17

%

$

149,681

 

$

1,668

 

2.24

%

Securities available for sale (3)

 

1,655,154

 

42,820

 

5.17

 

1,533,034

 

40,745

 

5.32

 

Loans held for sale

 

210,371

 

4,820

 

4.62

 

372,215

 

6,181

 

3.34

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer home equity - variable rate

 

2,647,837

 

86,531

 

6.59

 

2,289,460

 

61,413

 

5.39

 

Consumer home equity - fixed rate

 

1,902,409

 

63,467

 

6.73

 

1,475,572

 

51,673

 

7.04

 

Consumer - other

 

35,023

 

1,564

 

9.01

 

40,096

 

1,629

 

8.17

 

Total consumer home equity and other

 

4,585,269

 

151,562

 

6.67

 

3,805,128

 

114,715

 

6.06

 

Commercial real estate - variable rate

 

838,009

 

22,772

 

5.48

 

755,222

 

15,339

 

4.08

 

Commercial real estate - fixed and adjustable rate

 

1,346,251

 

40,977

 

6.14

 

1,208,774

 

37,882

 

6.30

 

Total commercial real estate

 

2,184,260

 

63,749

 

5.89

 

1,963,996

 

53,221

 

5.45

 

Commercial business - variable rate

 

345,986

 

9,095

 

5.30

 

337,244

 

6,205

 

3.70

 

Commercial business - fixed and adjustable rate

 

74,307

 

2,100

 

5.70

 

90,969

 

2,494

 

5.51

 

Total commercial business

 

420,293

 

11,195

 

5.37

 

428,213

 

8,699

 

4.09

 

Leasing and equipment finance (4)

 

1,401,094

 

47,924

 

6.84

 

1,240,112

 

43,478

 

7.01

 

Subtotal

 

8,590,916

 

274,430

 

6.43

 

7,437,449

 

220,113

 

5.95

 

Residential real estate

 

951,891

 

27,128

 

5.71

 

1,158,248

 

33,301

 

5.76

 

Total loans and leases (5)

 

9,542,807

 

301,558

 

6.36

 

8,595,697

 

253,414

 

5.92

 

Total interest-earning assets

 

11,511,975

 

351,344

 

6.14

 

10,650,627

 

302,008

 

5.69

 

Other assets (6)

 

1,086,604

 

 

 

 

 

1,040,334

 

 

 

 

 

Total assets

 

$

12,598,579

 

 

 

 

 

$

11,690,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

1,580,426

 

 

 

 

 

$

1,505,911

 

 

 

 

 

Small business

 

559,448

 

 

 

 

 

474,676

 

 

 

 

 

Commercial and custodial

 

312,543

 

 

 

 

 

354,242

 

 

 

 

 

Total non-interest bearing deposits

 

2,452,417

 

 

 

 

 

2,334,829

 

 

 

 

 

Interest-bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Premier checking

 

520,073

 

5,055

 

1.96

 

100,493

 

642

 

1.28

 

Other checking

 

1,082,442

 

924

 

.17

 

1,157,152

 

465

 

.08

 

Subtotal

 

1,602,515

 

5,979

 

.75

 

1,257,645

 

1,107

 

.18

 

Premier savings

 

313,725

 

3,811

 

2.45

 

15,975

 

108

 

1.36

 

Other savings

 

1,605,131

 

3,782

 

.48

 

1,807,703

 

3,205

 

.36

 

Subtotal

 

1,918,856

 

7,593

 

.80

 

1,823,678

 

3,313

 

.37

 

Money market

 

640,442

 

2,635

 

.83

 

816,090

 

1,495

 

.37

 

Subtotal

 

4,161,813

 

16,207

 

.79

 

3,897,413

 

5,915

 

.31

 

Certificates of deposit

 

1,650,619

 

20,377

 

2.49

 

1,523,881

 

14,098

 

1.86

 

Total interest-bearing deposits

 

5,812,432

 

36,584

 

1.27

 

5,421,294

 

20,013

 

.74

 

Total deposits

 

8,264,849

 

36,584

 

.89

 

7,756,123

 

20,013

 

.52

 

Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

947,512

 

12,988

 

2.76

 

702,707

 

4,465

 

1.28

 

Long-term borrowings

 

2,095,205

 

41,434

 

3.99

 

1,914,870

 

36,618

 

3.84

 

Total borrowings

 

3,042,717

 

54,422

 

3.60

 

2,617,577

 

41,083

 

3.16

 

Total deposits and borrowings

 

11,307,566

 

91,006

 

1.62

 

10,373,700

 

61,096

 

1.18

 

Other liabilities (6)

 

357,727

 

 

 

 

 

378,465

 

 

 

 

 

Total liabilities

 

11,665,293

 

 

 

 

 

10,752,165

 

 

 

 

 

Stockholders’ equity (6)

 

933,286

 

 

 

 

 

938,796

 

 

 

 

 

Total liabilities and stockholder’s equity

 

$

12,598,579

 

 

 

 

 

$

11,690,961

 

 

 

 

 

Net interest income and margin

 

 

 

$

260,338

 

4.54

%

 

 

$

240,912

 

4.52

%

 

 

(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 $426,000 and $277,000 was recognized during the six months ended June 30, 2005 and 2004, respectively.

(2)

 

Annualized.

(3)

 

Average balance and yield of securities available for sale are based upon the historical amortized cost.

(4)

 

Substantially all leasing and equipment finance loans and leases have fixed rates.

(5)

 

Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income.

(6)

 

Average balance is based upon month-end balances.

 

46



 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, TCF is a party to 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 collection activities.  From time to time, borrowers and other customers have also brought actions against TCF, in some cases claiming substantial amounts of damages.  Financial services companies are subject to the risk of class action litigation, and TCF has had such actions brought against it from time to time.  Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty.

 

In April 2004, TCF was served with a complaint in the United States District Court, District of Minnesota, by John Matthew Saxe, individually and on behalf of other similarly situated employees.  The plaintiff, a former consumer loan officer for TCF National Bank, alleges that he and other consumer lender employees were not paid overtime compensation in violation of the Federal Fair Labor Standards Act and the Minnesota Fair Labor Standards Act, and seeks as damages unpaid back wages, an additional amount equal to unpaid back wages as liquidated damages, costs and attorneys’ fees.  TCF has filed an answer to the complaint denying that the plaintiff or any similarly situated employee is entitled to any relief or that the plaintiff is similarly situated to other employees.  Requests to “opt in” to the case have been filed by approximately 200 individuals, and the time period for filing such requests has closed.  The court has yet to decide whether these individuals will be permitted to join the case filed by the plaintiff.  Discovery in this case is pending.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table summarizes share repurchase activity for the quarter ended June 30, 2005:

 

 

 

Shares Repurchased

 

Share Repurchase Authorizations (1)

 

(Dollars in thousands)

 

Number

 

Average Price
Per Share

 

July 21, 2003

 

May 21, 2005

 

Balance, March 31, 2005

 

 

 

 

 

1,652,820

 

-

 

April 1-30, 2005

 

570,000

 

$

25.26

 

1,082,820

 

-

 

May 1-31, 2005

 

180,000

 

25.85

 

902,820

 

6,725,487

 

June 1-30, 2005

 

500,000

 

25.49

 

402,820

 

-

 

Balance, June 30, 2005

 

1,250,000

 

$

25.44

 

402,820

 

6,725,487

 

 

 

 

 

 

 

 

 

 

 

(1)          The current share repurchase authorizations were approved by the Board of Directors on July 21, 2003 and May 21, 2005.  Each authorization was for a repurchase of up to an additional 5% of TCF’s common stock outstanding at the time of the authorization, or 7.2 million shares and 6.7 million shares, respectively.  These authorizations do not have expiration dates.

 

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

 

47



 

Item 4. Submission of Matters to a Vote of Security Holders.

 

On April 27, 2005, the Annual Meeting of the shareholders of TCF was held to obtain the approval of shareholders of record as of March 1, 2005 in connection with the matters indicated below.  The following is a brief description of each matter voted on at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker nonvotes, as to each matter:

 

 

 

Vote

 

 

 

For

 

Against or Withheld

 

Abstain

 

Broker Nonvote

 

 

 

 

 

 

 

 

 

 

 

1. Election of five Directors:

 

 

 

 

 

 

 

 

 

Rodney P. Burwell

 

122,596,413

 

1,328,567

 

-

 

-

 

William A. Cooper

 

121,936,367

 

1,988,613

 

-

 

-

 

Thomas A. Cusick

 

121,973,060

 

1,951,920

 

-

 

-

 

Peter L. Scherer

 

123,056,323

 

868,657

 

-

 

-

 

Douglas A. Scovanner

 

123,048,366

 

876,614

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

2. Re-approval of the Directors Stock Program for ten additional years

 

101,300,225

 

4,232,862

 

564,795

 

17,827,098

 

 

 

 

 

 

 

 

 

 

 

3. Advisory vote on the appointment of KPMG LLP as independent registered public accountants for the fiscal year ending December 31, 2005

 

122,233,447

 

1,439,088

 

252,445

 

-

 

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

        See Index to Exhibits on page 50 of this report.

 

 

48



 

SIGNATURES

 

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 of the Board,
Chief Executive Officer and Director

 

 

 

 

 

/s/ Neil W. Brown

 

Neil W. Brown, Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

 

 

 

 

 

/s/ David M. Stautz

 

David M. Stautz, Senior Vice President,
Controller and Assistant Treasurer
(Principal Accounting Officer)

 

 

 

Dated:    July 29, 2005

 

 

49



 

 

TCF FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX TO EXHIBITS

FOR FORM 10-Q

 

Exhibit Number

 

Description

 

Sequentially
Numbered Page

 

 

 

 

 

3(b)#

 

Bylaws of TCF Financial Corporation as amended through May 21, 2005 [amendment adopted May 21, 2005 was previously filed as Exhibit 3(b)(1) of TCF Financial Corporation’s Report Form 8-K (filed May 26, 2005)]

 

 

 

 

 

 

 

4(a)

 

Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request.

 

 

 

 

 

 

 

10(j)-1#

 

TCF Financial Corporation 2005 ESPP SERP adopted effective January 1, 2005, as amended and restated through January 24, 2005 [incorporated by reference to Exhibit 10(j)-1 of TCF Financial Corporation’s Report Form 8-K (filed January 27, 2005)]; as amended effective January 24, 2005

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

# Filed herein

 

 

50