UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
ý Quarterly Report
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 2004
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.) |
|
|
|
200 Lake Street East, Mail Code EX0-03-A, Wayzata, Minnesota 55391-1693 |
||
(Address and Zip Code of principal executive offices) |
Registrants 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 issuers classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at April 16, 2004 |
Common Stock, $.01 par value |
|
70,508,012 shares |
2
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
(Unaudited)
|
|
At |
|
At |
|
||
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Cash and due from banks |
|
$ |
368,409 |
|
$ |
370,054 |
|
Investments |
|
411,934 |
|
75,223 |
|
||
Securities available for sale |
|
1,269,293 |
|
1,533,288 |
|
||
Loans held for sale |
|
377,926 |
|
335,372 |
|
||
Loans and leases: |
|
|
|
|
|
||
Consumer |
|
3,821,648 |
|
3,630,341 |
|
||
Commercial real estate |
|
1,963,815 |
|
1,916,701 |
|
||
Commercial business |
|
428,588 |
|
427,696 |
|
||
Leasing and equipment finance |
|
1,256,377 |
|
1,160,397 |
|
||
Subtotal |
|
7,470,428 |
|
7,135,135 |
|
||
Residential real estate |
|
1,152,357 |
|
1,212,643 |
|
||
Total loans and leases |
|
8,622,785 |
|
8,347,778 |
|
||
Allowance for loan and lease losses |
|
(79,054 |
) |
(76,619 |
) |
||
Net loans and leases |
|
8,543,731 |
|
8,271,159 |
|
||
Premises and equipment |
|
290,478 |
|
282,193 |
|
||
Goodwill |
|
152,599 |
|
145,462 |
|
||
Deposit base intangibles |
|
5,491 |
|
5,907 |
|
||
Mortgage servicing rights |
|
50,726 |
|
52,036 |
|
||
Other assets |
|
253,732 |
|
248,321 |
|
||
|
|
$ |
11,724,319 |
|
$ |
11,319,015 |
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
||
Checking |
|
$ |
3,527,674 |
|
$ |
3,248,412 |
|
Savings |
|
1,979,170 |
|
1,905,923 |
|
||
Money market |
|
821,913 |
|
845,291 |
|
||
Subtotal |
|
6,328,757 |
|
5,999,626 |
|
||
Certificates of deposit |
|
1,540,371 |
|
1,612,123 |
|
||
Total deposits |
|
7,869,128 |
|
7,611,749 |
|
||
Short-term borrowings |
|
469,663 |
|
878,412 |
|
||
Long-term borrowings |
|
2,037,424 |
|
1,536,413 |
|
||
Total borrowings |
|
2,507,087 |
|
2,414,825 |
|
||
Accrued expenses and other liabilities |
|
382,154 |
|
371,583 |
|
||
Total liabilities |
|
10,758,369 |
|
10,398,157 |
|
||
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; 92,504,082 and 92,513,355 shares issued |
|
925 |
|
925 |
|
||
Additional paid-in capital |
|
516,902 |
|
518,878 |
|
||
Retained earnings, subject to certain restrictions |
|
1,269,229 |
|
1,234,804 |
|
||
Accumulated other comprehensive income |
|
12,827 |
|
5,652 |
|
||
Treasury stock at cost, 21,996,070 and 22,037,025 shares, and other |
|
(833,933 |
) |
(839,401 |
) |
||
Total stockholders equity |
|
965,950 |
|
920,858 |
|
||
|
|
$ |
11,724,319 |
|
$ |
11,319,015 |
|
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 |
|
||||
|
|
2004 |
|
2003 |
|
||
Interest income: |
|
|
|
|
|
||
Loans and leases |
|
$ |
125,273 |
|
$ |
131,721 |
|
Securities available for sale |
|
20,332 |
|
33,764 |
|
||
Loans held for sale |
|
2,841 |
|
5,226 |
|
||
Investments |
|
773 |
|
1,403 |
|
||
Total interest income |
|
149,219 |
|
172,114 |
|
||
Interest expense: |
|
|
|
|
|
||
Deposits |
|
10,539 |
|
18,477 |
|
||
Borrowings |
|
20,187 |
|
31,225 |
|
||
Total interest expense |
|
30,726 |
|
49,702 |
|
||
Net interest income |
|
118,493 |
|
122,412 |
|
||
Provision for credit losses |
|
1,160 |
|
2,710 |
|
||
Net interest income after provision for credit losses |
|
117,333 |
|
119,702 |
|
||
Non-interest income: |
|
|
|
|
|
||
Fees and service charges |
|
59,659 |
|
54,414 |
|
||
Debit card revenue |
|
13,491 |
|
13,233 |
|
||
ATM revenue |
|
9,997 |
|
10,415 |
|
||
Investments and insurance commissions |
|
3,462 |
|
3,520 |
|
||
Subtotal |
|
86,609 |
|
81,582 |
|
||
Leasing and equipment finance |
|
10,167 |
|
13,607 |
|
||
Mortgage banking |
|
3,455 |
|
(430 |
) |
||
Other |
|
2,228 |
|
2,076 |
|
||
Fees and other revenue |
|
102,459 |
|
96,835 |
|
||
Gains on sales of securities available for sale |
|
12,717 |
|
21,137 |
|
||
Gains (losses) on termination of debt |
|
|
|
(6,576 |
) |
||
Other non-interest income |
|
12,717 |
|
14,561 |
|
||
Total non-interest income |
|
115,176 |
|
111,396 |
|
||
Non-interest expense: |
|
|
|
|
|
||
Compensation and employee benefits |
|
78,879 |
|
76,599 |
|
||
Occupancy and equipment |
|
23,490 |
|
21,599 |
|
||
Advertising and promotions |
|
5,910 |
|
6,353 |
|
||
Other |
|
32,427 |
|
34,199 |
|
||
Total non-interest expense |
|
140,706 |
|
138,750 |
|
||
Income before income tax expense |
|
91,803 |
|
92,348 |
|
||
Income tax expense |
|
31,142 |
|
32,221 |
|
||
Net income |
|
$ |
60,661 |
|
$ |
60,127 |
|
|
|
|
|
|
|
||
Net income per common share: |
|
|
|
|
|
||
Basic |
|
$ |
.88 |
|
$ |
.83 |
|
Diluted |
|
$ |
.88 |
|
$ |
.83 |
|
|
|
|
|
|
|
||
Dividends declared per common share |
|
$ |
.375 |
|
$ |
.325 |
|
See accompanying notes to consolidated financial statements.
4
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Three Months Ended |
|
||||
|
|
2004 |
|
2003 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income |
|
$ |
60,661 |
|
$ |
60,127 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
9,572 |
|
9,361 |
|
||
Mortgage servicing rights amortization and impairment |
|
3,676 |
|
17,301 |
|
||
Provision for credit losses |
|
1,160 |
|
2,710 |
|
||
Proceeds from sales of loans held for sale |
|
242,795 |
|
747,647 |
|
||
Principal collected on loans held for sale |
|
1,387 |
|
7,121 |
|
||
Originations of loans held for sale |
|
(286,785 |
) |
(744,668 |
) |
||
Net decrease in other assets and accrued expenses and other liabilities |
|
49,820 |
|
24,918 |
|
||
Gains on sales of assets |
|
(12,717 |
) |
(21,137 |
) |
||
Losses on termination of debt |
|
|
|
6,576 |
|
||
Other, net |
|
(184 |
) |
(2,034 |
) |
||
|
|
|
|
|
|
||
Total adjustments |
|
8,724 |
|
47,795 |
|
||
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
69,385 |
|
107,922 |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Principal collected on loans and leases |
|
852,198 |
|
997,358 |
|
||
Originations and purchases of loans |
|
(937,732 |
) |
(844,007 |
) |
||
Purchases of equipment for lease financing |
|
(139,842 |
) |
(107,120 |
) |
||
Proceeds from sales of securities available for sale |
|
866,691 |
|
484,705 |
|
||
Proceeds from maturities of and principal collected on securities available for sale |
|
88,730 |
|
240,481 |
|
||
Purchases of securities available for sale |
|
(718,734 |
) |
(812,165 |
) |
||
Net increase in Federal Funds sold |
|
(314,000 |
) |
|
|
||
Net (increase) decrease in Federal Home Loan Bank stock |
|
(19,629 |
) |
30,767 |
|
||
Acquisitions, net of cash acquired |
|
(4,326 |
) |
|
|
||
Purchases of premises and equipment |
|
(15,709 |
) |
(12,591 |
) |
||
Other, net |
|
2,975 |
|
(19 |
) |
||
|
|
|
|
|
|
||
Net cash used by investing activities |
|
(339,378 |
) |
(22,591 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Net increase in deposits |
|
257,379 |
|
255,350 |
|
||
Net decrease in short-term borrowings |
|
(419,602 |
) |
(67,448 |
) |
||
Proceeds from long-term borrowings |
|
454,215 |
|
4,911 |
|
||
Payments on long-term borrowings |
|
(2,063 |
) |
(272,552 |
) |
||
Purchases of common stock |
|
(694 |
) |
(31,587 |
) |
||
Dividends on common stock |
|
(26,236 |
) |
(23,721 |
) |
||
Other, net |
|
5,349 |
|
4,808 |
|
||
|
|
|
|
|
|
||
Net cash provided (used) by financing activities |
|
268,348 |
|
(130,239 |
) |
||
|
|
|
|
|
|
||
Net decrease in cash and due from banks |
|
(1,645 |
) |
(44,908 |
) |
||
Cash and due from banks at beginning of period |
|
370,054 |
|
416,397 |
|
||
Cash and due from banks at end of period |
|
$ |
368,409 |
|
$ |
371,489 |
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
||
Cash paid for: |
|
|
|
|
|
||
Interest on deposits and borrowings |
|
$ |
28,280 |
|
$ |
48,775 |
|
Income taxes |
|
$ |
482 |
|
$ |
9,565 |
|
Transfer of loans and leases to other assets |
|
$ |
4,557 |
|
$ |
6,905 |
|
See accompanying notes to consolidated financial statements.
5
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
(Dollars in thousands)
(Unaudited)
|
|
Number of |
|
Common |
|
Additional |
|
Retained |
|
Accumulated |
|
Treasury Stock |
|
Total |
|
||||||
Balance, December 31, 2002 |
|
92,638,937 |
|
$ |
926 |
|
$ |
518,813 |
|
$ |
1,111,955 |
|
$ |
46,102 |
|
$ |
(700,776 |
) |
$ |
977,020 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
60,127 |
|
|
|
|
|
60,127 |
|
||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
(14,640 |
) |
|
|
(14,640 |
) |
||||||
Comprehensive income (loss) |
|
|
|
|
|
|
|
60,127 |
|
(14,640 |
) |
|
|
45,487 |
|
||||||
Dividends on common stock |
|
|
|
|
|
|
|
(23,721 |
) |
|
|
|
|
(23,721 |
) |
||||||
Repurchase of 757,097 shares |
|
|
|
|
|
|
|
|
|
|
|
(31,587 |
) |
(31,587 |
) |
||||||
Issuance of 76,890 shares |
|
|
|
|
|
816 |
|
|
|
|
|
(816 |
) |
|
|
||||||
Cancellation of shares |
|
(99,294 |
) |
(1 |
) |
(2,533 |
) |
|
|
|
|
1,687 |
|
(847 |
) |
||||||
Amortization of stock compensation |
|
|
|
|
|
|
|
|
|
|
|
2,393 |
|
2,393 |
|
||||||
Exercise of stock options, 43,029 shares |
|
|
|
|
|
1,267 |
|
|
|
|
|
1,401 |
|
2,668 |
|
||||||
Change in shares held in trust for deferred compensation plans, at cost |
|
|
|
|
|
(2,204 |
) |
|
|
|
|
2,204 |
|
|
|
||||||
Balance, March 31, 2003 |
|
92,539,643 |
|
$ |
925 |
|
$ |
516,159 |
|
$ |
1,148,361 |
|
$ |
31,462 |
|
$ |
(725,494 |
) |
$ |
971,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance, December 31, 2003 |
|
92,513,355 |
|
$ |
925 |
|
$ |
518,878 |
|
$ |
1,234,804 |
|
$ |
5,652 |
|
$ |
(839,401 |
) |
$ |
920,858 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income |
|
|
|
|
|
|
|
60,661 |
|
|
|
|
|
60,661 |
|
||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
7,175 |
|
|
|
7,175 |
|
||||||
Comprehensive income |
|
|
|
|
|
|
|
60,661 |
|
7,175 |
|
|
|
67,836 |
|
||||||
Dividends on common stock |
|
|
|
|
|
|
|
(26,236 |
) |
|
|
|
|
(26,236 |
) |
||||||
Repurchase of 13,445 shares |
|
|
|
|
|
|
|
|
|
|
|
(694 |
) |
(694 |
) |
||||||
Issuance of 11,400 shares |
|
|
|
|
|
166 |
|
|
|
|
|
(166 |
) |
|
|
||||||
Cancellation of shares |
|
(9,273 |
) |
|
|
(433 |
) |
|
|
|
|
156 |
|
(277 |
) |
||||||
Amortization of stock compensation |
|
|
|
|
|
|
|
|
|
|
|
1,721 |
|
1,721 |
|
||||||
Exercise of stock options, 43,000 shares |
|
|
|
|
|
1,276 |
|
|
|
|
|
1,466 |
|
2,742 |
|
||||||
Change in shares held in trust for deferred compensation plans, at cost |
|
|
|
|
|
(2,985 |
) |
|
|
|
|
2,985 |
|
|
|
||||||
Balance, March 31, 2004 |
|
92,504,082 |
|
$ |
925 |
|
$ |
516,902 |
|
$ |
1,269,229 |
|
$ |
12,827 |
|
$ |
(833,933 |
) |
$ |
965,950 |
|
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 Managements Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2003 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:
(In thousands) |
|
At |
|
At |
|
||
Federal funds sold |
|
$ |
314,000 |
|
$ |
|
|
Federal Home Loan Bank stock, at cost |
|
70,117 |
|
50,411 |
|
||
Federal Reserve Bank stock, at cost |
|
24,050 |
|
24,045 |
|
||
Interest-bearing deposits with banks |
|
3,767 |
|
767 |
|
||
Total investments |
|
$ |
411,934 |
|
$ |
75,223 |
|
(3) Securities Available for Sale
Securities available for sale consist of the following:
|
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||||||||||||||||
(Dollars in thousands) |
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Federal agencies |
|
$ |
1,239,807 |
|
$ |
20,693 |
|
$ |
(455 |
) |
$ |
1,260,045 |
|
$ |
1,514,400 |
|
$ |
13,744 |
|
$ |
(4,677 |
) |
$ |
1,523,467 |
|
Private issuer and collateralized mortgage obligations |
|
8,694 |
|
|
|
(196 |
) |
8,498 |
|
9,272 |
|
|
|
(201 |
) |
9,071 |
|
||||||||
Other securities |
|
750 |
|
|
|
|
|
750 |
|
750 |
|
|
|
|
|
750 |
|
||||||||
|
|
$ |
1,249,251 |
|
$ |
20,693 |
|
$ |
(651 |
) |
$ |
1,269,293 |
|
$ |
1,524,422 |
|
$ |
13,744 |
|
$ |
(4,878 |
) |
$ |
1,533,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average yield |
|
5.29 |
% |
|
|
|
|
|
|
5.33 |
% |
|
|
|
|
|
|
7
The following table shows the securities available for sale portfolios gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2004. TCF has reviewed these securities and has concluded that the unrealized losses are temporary and no permanent impairment has occurred at March 31, 2004.
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
||||||||||||
(In thousands) |
|
Fair value |
|
Unrealized |
|
Fair value |
|
Unrealized |
|
Fair value |
|
Unrealized |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Federal agencies |
|
$ |
95,155 |
|
$ |
(446 |
) |
$ |
1,661 |
|
$ |
(9 |
) |
$ |
96,816 |
|
$ |
(455 |
) |
Private issuer and collateralized mortgage obligations |
|
|
|
|
|
7,714 |
|
(196 |
) |
7,714 |
|
(196 |
) |
||||||
Total temporarily impaired securities |
|
$ |
95,155 |
|
$ |
(446 |
) |
$ |
9,375 |
|
$ |
(205 |
) |
$ |
104,530 |
|
$ |
(651 |
) |
(4) Goodwill and Intangible Assets
Goodwill and intangible assets as of March 31, 2004 are summarized as follows:
|
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||||||||||
(In thousands) |
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage servicing rights, net |
|
$ |
78,649 |
|
$ |
27,923 |
|
$ |
50,726 |
|
$ |
76,306 |
|
$ |
24,270 |
|
$ |
52,036 |
|
Deposit base intangibles |
|
21,180 |
|
15,689 |
|
5,491 |
|
21,180 |
|
15,273 |
|
5,907 |
|
||||||
Total |
|
$ |
99,829 |
|
$ |
43,612 |
|
$ |
56,217 |
|
$ |
97,486 |
|
$ |
39,543 |
|
$ |
57,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unamortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Goodwill (included in Banking Segment) |
|
$ |
145,462 |
|
|
|
$ |
145,462 |
|
$ |
145,462 |
|
|
|
$ |
145,462 |
|
||
Goodwill (included in Leasing Segment) |
|
7,137 |
|
|
|
7,137 |
|
|
|
|
|
|
|
||||||
Total |
|
$ |
152,599 |
|
|
|
$ |
152,599 |
|
$ |
145,462 |
|
|
|
$ |
145,462 |
|
Amortization expense for intangible assets was $4.1 million and $8.2 million for the quarters ended March 31, 2004 and 2003, respectively. The following table shows the estimated future amortization expense for amortized intangible assets based on existing asset balances and the interest rate environment as of March 31, 2004. The Companys 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.
(In thousands) |
|
Mortgage |
|
Deposit Base |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
Estimated Amortization Expense: |
|
|
|
|
|
|
|
|||
For the remaining nine months ending December 31, 2004 |
|
$ |
10,637 |
|
$ |
1,247 |
|
$ |
11,884 |
|
|
|
|
|
|
|
|
|
|||
For the year ended December 31, 2005 |
|
11,140 |
|
1,659 |
|
12,799 |
|
|||
For the year ended December 31, 2006 |
|
8,611 |
|
1,630 |
|
10,241 |
|
|||
For the year ended December 31, 2007 |
|
6,367 |
|
913 |
|
7,280 |
|
|||
For the year ended December 31, 2008 |
|
4,723 |
|
17 |
|
4,740 |
|
|||
For the year ended December 31, 2009 |
|
3,539 |
|
17 |
|
3,556 |
|
|||
8
(5) Mortgage Banking
The activity in mortgage servicing rights and the related valuation allowance is summarized as follows:
|
|
Three Months |
|
||||
(In thousands) |
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
||
Mortgage servicing rights at beginning of period |
|
$ |
54,036 |
|
$ |
71,990 |
|
Wholesale originations |
|
1,299 |
|
4,315 |
|
||
Retail originations |
|
1,067 |
|
3,295 |
|
||
Amortization |
|
(3,676 |
) |
(7,801 |
) |
||
Impairment write-down |
|
|
|
(6,500 |
) |
||
Mortgage servicing rights at end of period |
|
52,726 |
|
65,299 |
|
||
Valuation allowance at beginning of period |
|
(2,000 |
) |
(9,346 |
) |
||
Provision for impairment |
|
|
|
(9,500 |
) |
||
Impairment write-down |
|
|
|
6,500 |
|
||
Valuation allowance at end of period |
|
(2,000 |
) |
(12,346 |
) |
||
Mortgage servicing rights, net |
|
$ |
50,726 |
|
$ |
52,953 |
|
The estimated fair value of mortgage servicing rights included in the Consolidated Statements of Financial Condition at March 31, 2004 was approximately $50.7 million. The estimated fair value of capitalized 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 |
|
Change |
|
|||||||
(Dollars in thousands) |
|
2004 |
|
2003 |
|
$ |
|
% |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Servicing income |
|
$ |
4,625 |
|
$ |
5,433 |
|
$ |
(808 |
) |
(14.9 |
)% |
Less mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|||
Amortization |
|
3,676 |
|
7,801 |
|
(4,125 |
) |
(52.9 |
) |
|||
Provision for impairment |
|
|
|
9,500 |
|
(9,500 |
) |
(100.0 |
) |
|||
Subtotal |
|
3,676 |
|
17,301 |
|
(13,625 |
) |
(78.8 |
) |
|||
Net servicing income (loss) |
|
949 |
|
(11,868 |
) |
12,817 |
|
N.M. |
|
|||
Gains on sales of loans |
|
2,136 |
|
10,626 |
|
(8,490 |
) |
(79.9 |
) |
|||
Other income |
|
370 |
|
812 |
|
(442 |
) |
(54.4 |
) |
|||
Total mortgage banking revenue |
|
$ |
3,455 |
|
$ |
(430 |
) |
$ |
3,885 |
|
N.M. |
|
N.M. Not meaningful
9
Gains on sales of loans include the changes in fair value of residential mortgage loans held for sale, loan applications in process and related forward sales contracts. The net unrealized gains (losses) related to these items are summarized as follows:
|
|
At |
|
At |
|
Change |
|
|||||
(Dollars in thousands) |
|
2004 |
|
2003 |
|
$ |
|
% |
|
|||
Unrealized Gains (Losses): |
|
|
|
|
|
|
|
|
|
|||
Residential loans held for sale |
|
$ |
1,009 |
|
$ |
1,092 |
|
$ |
(83 |
) |
(7.6 |
)% |
Loan applications in process |
|
(148 |
) |
195 |
|
(343 |
) |
(175.9 |
) |
|||
Subtotal |
|
861 |
|
1,287 |
|
(426 |
) |
(33.1 |
) |
|||
Forward sales contracts |
|
(534 |
) |
(1,105 |
) |
571 |
|
51.7 |
|
|||
Net unrealized gains |
|
$ |
327 |
|
$ |
182 |
|
$ |
145 |
|
79.7 |
|
At March 31, 2004 and 2003, TCF was servicing real estate loans for others with aggregate unpaid principal balances of approximately $5 billion and $5.4 billion, respectively. At March 31, 2004 and 2003, TCF had custodial funds of $173.4 million and $262.8 million, respectively, relating to the servicing of residential real estate loans, 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.
(6) Long-term Borrowings
|
|
|
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||
(Dollars in thousands) |
|
Year of |
|
Amount |
|
Weighted- |
|
Amount |
|
Weighted- |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
Federal Home Loan Bank (FHLB) advances and securities sold under repurchase agreements |
|
2004 |
|
$ |
|
|
|
% |
$ |
3,000 |
|
4.76 |
% |
|
|
2005 |
|
1,191,500 |
|
3.04 |
|
741,500 |
|
3.82 |
|
||
|
|
2006 |
|
303,000 |
|
4.20 |
|
303,000 |
|
4.20 |
|
||
|
|
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 |
|
|
|
1,917,000 |
|
3.71 |
|
1,470,000 |
|
4.31 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
Discounted lease rentals |
|
2004 |
|
67,195 |
|
5.90 |
|
43,607 |
|
6.24 |
|
||
|
|
2005 |
|
29,845 |
|
5.59 |
|
18,097 |
|
5.68 |
|
||
|
|
2006 |
|
10,828 |
|
5.55 |
|
4,134 |
|
5.55 |
|
||
|
|
2007 |
|
2,811 |
|
5.60 |
|
522 |
|
5.30 |
|
||
|
|
2008 |
|
936 |
|
5.56 |
|
53 |
|
5.54 |
|
||
|
|
2009 |
|
9 |
|
5.55 |
|
|
|
|
|
||
Total discounted lease rentals |
|
|
|
111,624 |
|
5.77 |
|
66,413 |
|
6.04 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
Other borrowings |
|
2005 |
|
2,200 |
|
4.50 |
|
|
|
|
|
||
|
|
2006 |
|
2,200 |
|
4.50 |
|
|
|
|
|
||
|
|
2007 |
|
2,200 |
|
4.50 |
|
|
|
|
|
||
|
|
2008 |
|
2,200 |
|
4.50 |
|
|
|
|
|
||
Total other borrowings |
|
|
|
8,800 |
|
4.50 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
Total long-term borrowings |
|
|
|
$ |
2,037,424 |
|
3.83 |
|
$ |
1,536,413 |
|
4.38 |
|
Included in long-term borrowings at March 31, 2004 were $767.5 million of fixed-rate Federal Home Loan Bank (FHLB) advances and repurchase agreements with other financial institutions, which are callable at par on certain anniversary dates and, for most, quarterly thereafter until maturity. If called, replacement funding will be provided by the counterparties at the then-prevailing market interest rates. 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 March 31, 2004, the contract rate exceeded the market rate on all of the fixed-rate callable advances and repurchase agreements.
10
For certain equipment leases, TCF utilizes its lease rentals and underlying equipment as collateral to borrow from other financial institutions at fixed rates on either a partial recourse or non-recourse basis. In the event of default by the customer on these financings, the other financial institution has a first lien on the underlying leased equipment. In the case of non-recourse financings, the other financial institution has no further recourse against TCF.
(7) Stockholders Equity
Treasury stock and other consists of the following:
(In thousands) |
|
At |
|
At |
|
||
|
|
|
|
|
|
||
Treasury stock, at cost |
|
$ |
(750,425 |
) |
$ |
(751,586 |
) |
Shares held in trust for deferred compensation plans, at cost |
|
(68,118 |
) |
(71,103 |
) |
||
Unamortized stock compensation |
|
(15,390 |
) |
(16,712 |
) |
||
|
|
$ |
(833,933 |
) |
$ |
(839,401 |
) |
TCF purchased 13,445 shares of its common stock during the first quarter of 2004, compared with 757,097 shares for the same 2003 period. At March 31, 2004, TCF had 3.7 million shares remaining in its stock repurchase program authorized by the Board of Directors.
(8) Regulatory Capital Requirements
The following table sets forth TCFs and TCF National Banks regulatory tier 1 leverage, tier 1 risk-based and total risk-based capital levels, and applicable percentages of adjusted assets, together with the excess over minimum capital requirements:
|
|
Actual |
|
Minimum Capital |
|
Excess |
|
|||||||||
(Dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|||
As of March 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 leverage capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF Financial Corporation |
|
$ |
791,245 |
|
6.91 |
% |
$ |
343,723 |
|
3.00 |
% |
$ |
447,522 |
|
3.91 |
% |
TCF National Bank |
|
787,369 |
|
6.89 |
|
342,665 |
|
3.00 |
|
444,704 |
|
3.89 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF Financial Corporation |
|
791,245 |
|
9.78 |
|
323,527 |
|
4.00 |
|
467,718 |
|
5.78 |
|
|||
TCF National Bank |
|
787,369 |
|
9.75 |
|
322,865 |
|
4.00 |
|
464,504 |
|
5.75 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF Financial Corporation |
|
870,330 |
|
10.76 |
|
647,054 |
|
8.00 |
|
223,276 |
|
2.76 |
|
|||
TCF National Bank |
|
866,454 |
|
10.73 |
|
645,730 |
|
8.00 |
|
220,724 |
|
2.73 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 leverage capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF Financial Corporation |
|
$ |
765,271 |
|
6.87 |
% |
$ |
334,402 |
|
3.00 |
% |
$ |
430,869 |
|
3.87 |
% |
TCF National Bank |
|
754,599 |
|
6.83 |
|
331,649 |
|
3.00 |
|
422,950 |
|
3.83 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tier 1 risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF Financial Corporation |
|
765,271 |
|
9.75 |
|
313,825 |
|
4.00 |
|
451,446 |
|
5.75 |
|
|||
TCF National Bank |
|
754,599 |
|
9.64 |
|
313,143 |
|
4.00 |
|
441,456 |
|
5.64 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
TCF Financial Corporation |
|
841,982 |
|
10.73 |
|
627,650 |
|
8.00 |
|
214,332 |
|
2.73 |
|
|||
TCF National Bank |
|
831,310 |
|
10.62 |
|
626,286 |
|
8.00 |
|
205,024 |
|
2.62 |
|
11
At March 31, 2004, TCF and TCF National 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.
(9) Employee Benefit Plans
The following table sets forth the net benefit cost (credit) included in compensation and employee benefits expense for TCFs Pension Plan and Postretirement Plan for the three months ended March 31, 2004 and 2003:
|
|
Pension Plan |
|
Postretirement Plan |
|
||||||||
|
|
Three Months Ended March 31, |
|
Three Months Ended March 31, |
|
||||||||
(In thousands) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
Service cost |
|
$ |
1,158 |
|
$ |
987 |
|
$ |
14 |
|
$ |
15 |
|
Interest cost |
|
791 |
|
737 |
|
179 |
|
185 |
|
||||
Expected return on plan assets |
|
(1,489 |
) |
(1,593 |
) |
|
|
|
|
||||
Amortization of transition obligation |
|
|
|
|
|
52 |
|
52 |
|
||||
Amortization of prior service cost |
|
(58 |
) |
(90 |
) |
|
|
|
|
||||
Recognized actuarial gain |
|
|
|
|
|
68 |
|
57 |
|
||||
Net periodic benefit cost |
|
$ |
402 |
|
$ |
41 |
|
$ |
313 |
|
$ |
309 |
|
TCF currently does not have any minimum contribution requirement for the Pension Plan in 2004 and may contribute up to $2.6 million under the maximum contributions formulas for 2003. During the first quarter of 2004, TCF contributed $260 thousand to the Postretirement Plan.
(10) Derivative Instruments and Hedging Activities
All derivative instruments, including derivatives embedded in other financial instruments or contracts, are recognized as either assets or liabilities in the Consolidated Statements of Financial Condition at fair value. Changes in the fair value of a derivative are recorded in the Consolidated Statements of Income.
TCFs pipeline of locked residential mortgage loan commitments, adjusted for loans not expected to close, and forward sales contracts are considered derivatives and are recorded at fair value, with the changes in fair value recognized in gains on sales of loans under mortgage banking revenue in the Consolidated Statements of Income. TCF utilizes forward sales contracts to hedge its risk of changes in the fair value, due to changes in interest rates, of both locked residential mortgage loan commitments and its residential loans held for sale. Residential mortgage loans held for sale are carried at the lower of cost or market as adjusted for the effects of fair value hedges using quoted market prices. Because the fair value of the residential loans held for sale is hedged with forward sales contracts of the same loan types, or substantially the same loan types, the hedges are highly effective at managing the risk of changing fair values of such loans. Any differences between the changes in fair value of the hedged residential loans held for sale and in the fair value of the forward sales contracts are not expected to be and were not material due to the nature of the hedging instruments and were recorded in gains on sales of loans. Forward mortgage loan sales commitments totaled $227.4 million at March 31, 2004 and $149.1 million at December 31, 2003.
12
(11) Business Segments
The following table sets forth certain information about the reported profit or loss and assets for each of TCFs reportable segments, including a reconciliation of TCFs consolidated totals.
(In thousands) |
|
Banking |
|
Leasing and |
|
Mortgage |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||
At or For the Three Months Ended March 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
$ |
127,028 |
|
$ |
20,868 |
|
$ |
1,120 |
|
$ |
203 |
|
$ |
|
|
$ |
149,219 |
|
Non-interest income |
|
101,318 |
|
10,395 |
|
3,455 |
|
8 |
|
|
|
115,176 |
|
||||||
Total |
|
$ |
228,346 |
|
$ |
31,263 |
|
$ |
4,575 |
|
$ |
211 |
|
$ |
|
|
$ |
264,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest income |
|
$ |
103,763 |
|
$ |
12,459 |
|
$ |
2,169 |
|
$ |
(212 |
) |
$ |
314 |
|
$ |
118,493 |
|
Provision for credit losses |
|
776 |
|
384 |
|
|
|
|
|
|
|
1,160 |
|
||||||
Non-interest income |
|
101,318 |
|
10,395 |
|
3,769 |
|
24,464 |
|
(24,770 |
) |
115,176 |
|
||||||
Non-interest expense |
|
125,789 |
|
9,380 |
|
6,609 |
|
23,384 |
|
(24,456 |
) |
140,706 |
|
||||||
Income tax expense (benefit) |
|
26,732 |
|
4,678 |
|
(238 |
) |
(30 |
) |
|
|
31,142 |
|
||||||
Net income (loss) |
|
$ |
51,784 |
|
$ |
8,412 |
|
$ |
(433 |
) |
$ |
898 |
|
$ |
|
|
$ |
60,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total assets |
|
$ |
11,252,459 |
|
$ |
1,325,736 |
|
$ |
179,370 |
|
$ |
119,510 |
|
$ |
(1,152,756 |
) |
$ |
11,724,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
At or For the Three Months Ended March 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
$ |
148,336 |
|
$ |
20,279 |
|
$ |
3,500 |
|
$ |
(1 |
) |
$ |
|
|
$ |
172,114 |
|
Non-interest income |
|
98,207 |
|
13,607 |
|
(430 |
) |
12 |
|
|
|
111,396 |
|
||||||
Total |
|
$ |
246,543 |
|
$ |
33,886 |
|
$ |
3,070 |
|
$ |
11 |
|
$ |
|
|
$ |
283,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest income |
|
$ |
106,670 |
|
$ |
10,452 |
|
$ |
5,465 |
|
$ |
(278 |
) |
$ |
103 |
|
$ |
122,412 |
|
Provision for credit losses |
|
984 |
|
1,726 |
|
|
|
|
|
|
|
2,710 |
|
||||||
Non-interest income |
|
98,207 |
|
13,607 |
|
(327 |
) |
23,339 |
|
(23,430 |
) |
111,396 |
|
||||||
Non-interest expense |
|
121,334 |
|
10,366 |
|
6,585 |
|
23,792 |
|
(23,327 |
) |
138,750 |
|
||||||
Income tax expense (benefit) |
|
28,658 |
|
4,444 |
|
(511 |
) |
(370 |
) |
|
|
32,221 |
|
||||||
Net income (loss) |
|
$ |
53,901 |
|
$ |
7,523 |
|
$ |
(936 |
) |
$ |
(361 |
) |
$ |
|
|
$ |
60,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total assets |
|
$ |
11,709,029 |
|
$ |
1,089,997 |
|
$ |
312,733 |
|
$ |
89,800 |
|
$ |
(1,074,287 |
) |
$ |
12,127,272 |
|
13
(12) Earnings Per Common Share
The computation of basic and diluted earnings per share is presented in the following table:
|
|
Three
Months Ended |
|
||||
(Dollars in thousands, except per-share data) |
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
||
Basic Earnings Per Common Share |
|
|
|
|
|
||
|
|
|
|
|
|
||
Net income |
|
$ |
60,661 |
|
$ |
60,127 |
|
|
|
|
|
|
|
||
Weighted average shares outstanding |
|
70,501,098 |
|
73,527,939 |
|
||
Unvested restricted stock grants (1) |
|
(1,510,155 |
) |
(1,506,887 |
) |
||
Weighted average common shares outstanding for basic earnings per common share |
|
68,990,943 |
|
72,021,052 |
|
||
|
|
|
|
|
|
||
Basic earnings per common share |
|
$ |
.88 |
|
$ |
.83 |
|
|
|
|
|
|
|
||
Diluted Earnings Per Common Share |
|
|
|
|
|
||
|
|
|
|
|
|
||
Net income |
|
$ |
60,661 |
|
$ |
60,127 |
|
|
|
|
|
|
|
||
Weighted average number of common shares outstanding adjusted for effect of dilutive securities: |
|
|
|
|
|
||
Weighted average common shares outstanding used in basic earnings per common share calculation |
|
68,990,943 |
|
72,021,052 |
|
||
Net dilutive effect of: |
|
|
|
|
|
||
Stock option grants |
|
90,544 |
|
96,741 |
|
||
Restricted stock grants (1) |
|
195,525 |
|
169,876 |
|
||
|
|
69,277,012 |
|
72,287,669 |
|
||
|
|
|
|
|
|
||
Diluted earnings per common share |
|
$ |
.88 |
|
$ |
.83 |
|
(1) At March 31, 2004 and March 31, 2003, there were 1,071,123 shares of performance-based restricted stock granted to certain executive officers which will vest only if certain earnings per share goals are achieved by 2008. Failure to achieve the goals will result in all or a portion of the shares being forfeited. In accordance with SFAS No. 128, Earnings per Share, these shares have been deducted from weighted average shares outstanding used for the computation of basic and diluted earnings per common share, as all necessary conditions for inclusion have not been satisfied. The remaining unvested restricted stock grants vest over specified time periods, and are included in the computation of diluted earnings per common share in accordance with the treasury stock method prescribed in SFAS No. 128.
14
(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 |
|
||||
(In thousands) |
|
2004 |
|
2003 |
|
||
Net income |
|
$ |
60,661 |
|
$ |
60,127 |
|
|
|
|
|
|
|
||
Other comprehensive income (loss) before tax: |
|
|
|
|
|
||
Unrealized holding gains (losses) arising during the period on securities available for sale |
|
23,893 |
|
(1,829 |
) |
||
|
|
|
|
|
|
||
Reclassification adjustment for gains included in net income |
|
(12,717 |
) |
(21,137 |
) |
||
|
|
|
|
|
|
||
Income tax expense (benefit) |
|
4,001 |
|
(8,326 |
) |
||
|
|
|
|
|
|
||
Total other comprehensive income (loss) |
|
7,175 |
|
(14,640 |
) |
||
|
|
|
|
|
|
||
Comprehensive income |
|
$ |
67,836 |
|
$ |
45,487 |
|
15
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
TCF is a national financial holding company located in Wayzata, Minnesota. Its principal subsidiary, TCF National Bank, is headquartered in Minnesota and had 406 banking offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana at March 31, 2004.
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. TCFs philosophy is to generate net interest income and fees and other revenue growth through business lines that emphasize higher yielding assets and lower or no interest-cost deposits. The Companys 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.
TCFs core businesses are comprised of traditional and supermarket bank branches, campus banking, EXPRESS TELLER® ATMs, VISA® debit cards, commercial lending, small business banking, consumer lending, mortgage banking, leasing and equipment finance and investment, brokerage and insurance services. TCF emphasizes the Totally Free checking account as its anchor account, which provides opportunities to cross sell other convenience products and services and generate additional fee income.
At March 31, 2004, 232, or 57%, of TCFs 406 branches were newly opened since January 1, 1998 and consist of 188 supermarket branches and 44 traditional branches. Opening new branches is an integral part of TCFs 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 24-30 months of operations before they become profitable, and therefore the level and timing of new branch expansion can have a significant impact on TCFs profitability. TCFs growth in checking accounts is primarily occurring in new branches with growth in older, mature branches being slower and more difficult to generate. The success of TCFs 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 from new grocery retailers may have an adverse impact on the supermarket industry and therefore reduce customer activity in TCFs 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.
TCFs 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, and are virtually all secured. TCFs 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 leases technology and data processing equipment to companies nationwide, TCF Leasing, Inc. (TCF Leasing), a general leasing and equipment finance business and VGM Leasing, Inc. (VGM), a wholly-owned subsidiary of TCF Leasing, acquired in March 2004, specializing in home medical equipment financing. TCFs leasing and equipment finance businesses operate in all 50 states.
As a primarily secured lender, TCF emphasizes credit quality over asset growth. As a result, TCFs 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-
16
offs and managements
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 and leases and on investments and interest expense paid on deposits and short-term and long-term borrowings, represents 50.7% of TCFs 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. TCF does not utilize any unconsolidated subsidiaries or special purpose entities to provide off-balance sheet borrowings. See Interest Rate Risk for further discussion of TCFs interest rate risk position.
The Companys VISAÒ debit card program has grown significantly since its inception in 1996. TCF was the 13th largest VISAÒ Classic debit card issuer in the United States based on sales volume of $1.1 billion for the 2003 fourth quarter, according to VISAâ, USA. TCF earns interchange revenue from customer debit card transactions. During the first quarter of 2004, 89.5% of TCFs debit card sales volume was generated from off-line (signature-based) transactions. The average interchange rate on these off-line transactions declined from 1.59% for the first quarter of 2003 to 1.32% for the first quarter of 2004. The decline in the average off-line interchange rate was the result of VISAÒ USA lowering interchange rates for many merchants effective August 1, 2003, as part of the settlement of class action lawsuits brought by these merchants against VISA challenging rules imposed by VISA governing the acceptance of debit cards by merchants. Additionally, as part of the settlement, VISA established new interchange rates which took effect in February 2004, and these rates increased slightly from the rates established August 1, 2003. The average off-line interchange rate since February 1, 2004 has been 1.38%. In late 2003, TCF renegotiated its contract with VISA and agreed to an extension through 2013. The effect of this new contract is to lower various costs that TCF pays for processing and marketing of the VISA debit cards. The continued success of TCFs debit card program is dependent on the success and viability of VISA and the continued use by customers and acceptance by merchants of debit cards.
TCFs mortgage banking business originates residential mortgage loans and sells them to investors, primarily retaining the servicing rights and related servicing revenue. Generally accepted accounting principles require TCF to record the value of the servicing rights on the balance sheet at the time the loans are sold. Capitalized servicing rights are amortized based on the expected pattern and life of related servicing revenues and are also evaluated quarterly for impairment. As interest rates fall, there is a higher probability of prepayment as the customer can generally refinance the loan with relative ease. In addition, as property values increase, customers home equity increases, enabling customers to engage in cash-out refinance transactions where the customer refinances an existing mortgage into a higher balance loan in order to draw out the increased home equity. At March 31, 2004, 63% of TCFs third party servicing portfolio consisted of loans with interest rates below 6%. If interest rates remain at current levels or increase in 2004, there should be reduced refinance activity and reduced related amortization and provision for impairment as compared with 2003. TCF does not utilize derivatives to manage the impairment risk in its capitalized mortgage servicing rights.
The following portions of the Managements Discussion and Analysis focus in more detail on the results of operations for the first quarter of 2004 and 2003 and on information about TCFs balance sheet, credit quality, liquidity and funding resources, capital and other matters.
17
RESULTS OF OPERATIONS
TCF reported diluted earnings per common share of 88 cents for the first quarter of 2004, compared with 83 cents for the first quarter of 2003. Net income was $60.7 million for the first quarter of 2004, compared with $60.1 million for the same 2003 period. For the first quarter of 2004, return on average assets and return on average common equity were 2.11% and 25.90%, respectively, up from 1.99% and 24.70% for the same 2003 period.
BANKING, comprised of deposits and investment products, commercial banking, small business banking, consumer lending, residential lending and treasury services, reported net income of $51.8 million for the first quarter of 2004, down 4% from $53.9 million for the same 2003 period. Banking net interest income for the first quarter of 2004 was $103.8 million, compared with $106.7 million for the same 2003 period. The provision for credit losses totaled $776 thousand for the first quarter of 2004, compared with $984 thousand for the same 2003 period. Non-interest income totaled $101.3 million for the first quarter of 2004, up 3.2% from $98.2 million for the same 2003 period. During the first quarter of 2004, TCF sold mortgage-backed securities and realized gains of $12.7 million, compared with gains on sale of securities of $21.1 million in the first quarter of 2003. Also in the first quarter of 2003, TCF prepaid $150 million of Federal Home Loan Bank (FHLB) advances and recorded losses on termination of debt of $6.6 million. There were no similar debt terminations during the first quarter of 2004. See Results of Operations Consolidated Net Interest Income for further discussion of the sales of mortgage-backed securities during the first quarter of 2004. In addition to the gains and losses discussed above, fees, service charges, debit card and other revenues were $86.6 million for the first quarter of 2004, up $5 million, or 6.2%, from the first quarter of 2003. These increases resulted primarily from TCFs expanding branch network and customer base. Non-interest expense totaled $125.8 million for the first quarter of 2004, up 3.7% from $121.3 million for the same 2003 period. The increase was primarily due to costs associated with new branches.
TCF had 406 branches, including 240 full service branches in supermarkets at March 31, 2004. During the first quarter of 2004, TCF opened four new branches, including two new traditional branches and two new supermarket branches. TCF has opened 232 new branches since January 1, 1998. TCF plans to open 24 more new branches in the remainder of 2004, consisting of 20 traditional branches and four supermarket branches. See Consolidated Financial Condition Analysis New Branch Expansion for further information.
LEASING AND EQUIPMENT FINANCE, an operating segment comprised of TCFs wholly-owned subsidiaries Winthrop and TCF Leasing, which includes TCF Leasings newly acquired subsidiary VGM, provides a broad range of comprehensive lease and equipment finance products. Effective March 1, 2004, TCF Leasing acquired VGM, a company specializing in home medical equipment financing. This acquisition added 40 leasing professionals in Waterloo, Iowa and $80 million of portfolio balances.
This operating segment reported net income of $8.4 million for the first quarter of 2004, up 11.8% from $7.5 million for the same 2003 period. Net interest income for the first quarter of 2004 was $12.5 million, up 19.2% from $10.5 million for the same 2003 period. The provision for credit losses for this operating segment totaled $384 thousand for the first quarter of 2004, down from $1.7 million for the same 2003 period, primarily as a result of a $1.1 million recovery on a single credit during the first quarter of 2004. Non-interest income totaled $10.4 million for the first quarter of 2004, down from $13.6 million for the same 2003 period due primarily to lower sales-type and operating lease revenues in Winthrop. Leasing and Equipment Finance revenues may fluctuate from quarter to quarter based on customer driven factors not entirely within the control of TCF. Non-interest expense totaled $9.4 million for the first quarter of 2004, down $986 thousand from $10.4 million for the same 2003 period.
18
MORTGAGE BANKING activities include the origination of residential mortgage loans, generally for sale to third parties with servicing retained. This operating segment reported a net loss of $433 thousand for the first quarter of 2004, compared with a net loss of $936 thousand for the same 2003 period. TCFs mortgage banking operations funded $241.8 million in loans during the first quarter of 2004, down 67% from $729.6 million in the same 2003 period. Non-interest income totaled $3.8 million for the first quarter of 2004, up $4.1 million from a negative $327 thousand for the same 2003 period. The increase in non-interest income was primarily due to a decline in amortization and provision for impairment of mortgage servicing rights compared with the first quarter of 2003, related to lower levels of prepayments, partially offset by declines in gains on sales of loans. Mortgage applications in process (mortgage pipeline) increased $203 million from December 31, 2003 to $444.1 million at March 31, 2004. See Note 5 of Notes to the Consolidated Financial Statements for further discussion. Mortgage Bankings non-interest expense totaled $6.6 million for the first quarter of 2004, unchanged from $6.6 million for the first quarter of 2003.
Consolidated Net Interest Income
Net interest income for the first quarter of 2004 was $118.5 million, down from $122.4 million for the first quarter of 2003 and $119.1 million for the 2003 fourth quarter. The net interest margin for the first quarter 2004 was 4.52%, compared with 4.45% for the same 2003 period and 4.68% for the fourth quarter of 2003. The change in net interest income from the first quarter of 2003 primarily reflects the $517.5 million decrease in average interest earning assets partially offset by the 7 basis point increase in net interest margin. The decrease in asset balances reflects an $896.8 million increase in consumer and commercial loans and leasing and equipment finance balances offset by a $1.3 billion decrease in residential real estate loans and mortgage-backed securities (MBSs). The decrease in residential real estate loans and MBSs reflects managements decision to delay investing in long-term fixed-rate residential real estate loans and MBSs in the very low interest rate environment over the course of the last 12 months. The increase in the net interest margin in the first quarter 2004 over the same period in 2003 reflects a 59 basis point reduction in asset yields due to significant refinancing of fixed-rate assets and an increase in variable-rate assets as a percentage of total assets offset by a 68 basis point reduction in funding costs due to the 2003 prepayment of $954 million higher cost borrowings and the continued decline in the average rate paid on deposits. The decrease in the net interest margin in the first quarter of 2004 of 16 basis points from the fourth quarter of 2003 was driven by a 16 basis point decline in asset yields as TCF continued to experience refinancings of fixed-rate consumer and commercial loans coupled with customer preference for lower cost variable rate loans. TCFs funding costs remained relatively unchanged from the fourth quarter at 1.20%.
19
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 March 31, 2004 and 2003:
|
|
Three Months Ended March 31, |
|
|
|
|
|
|||||||||
|
|
2004 |
|
2003 |
|
Change |
|
|||||||||
(Dollars in thousands) |
|
Average |
|
Yields |
|
Average |
|
Yields |
|
Average |
|
Yields |
|
|||
Interest-earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Investments |
|
$ |
141,770 |
|
2.18 |
% |
$ |
118,828 |
|
4.72 |
% |
$ |
22,942 |
|
(254 |
) bps |
Securities available for sale (2) |
|
1,519,374 |
|
5.35 |
|
2,341,002 |
|
5.77 |
|
(821,628 |
) |
(42 |
) |
|||
Loans held for sale |
|
359,238 |
|
3.16 |
|
488,110 |
|
4.28 |
|
(128,872 |
) |
(112 |
) |
|||
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Consumer |
|
3,706,061 |
|
6.08 |
|
3,047,799 |
|
6.78 |
|
658,262 |
|
(70 |
) |
|||
Commercial real estate |
|
1,942,494 |
|
5.46 |
|
1,848,125 |
|
6.07 |
|
94,369 |
|
(61 |
) |
|||
Commercial business |
|
427,824 |
|
4.06 |
|
438,681 |
|
4.35 |
|
(10,857 |
) |
(29 |
) |
|||
Leasing and equipment finance |
|
1,194,235 |
|
6.99 |
|
1,039,213 |
|
7.81 |
|
155,022 |
|
(82 |
) |
|||
Subtotal |
|
7,270,614 |
|
5.94 |
|
6,373,818 |
|
6.57 |
|
896,796 |
|
(63 |
) |
|||
Residential real estate |
|
1,193,435 |
|
5.78 |
|
1,680,170 |
|
6.42 |
|
(486,735 |
) |
(64 |
) |
|||
Total loans and leases (3) |
|
8,464,049 |
|
5.92 |
|
8,053,988 |
|
6.54 |
|
410,061 |
|
(62 |
) |
|||
Total interest-earning assets |
|
$ |
10,484,431 |
|
5.69 |
|
$ |
11,001,928 |
|
6.26 |
|
$ |
(517,497 |
) |
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Deposits and Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Checking |
|
$ |
3,329,383 |
|
.05 |
% |
$ |
2,858,113 |
|
.04 |
% |
$ |
471,270 |
|
1 |
bps |
Savings |
|
1,923,295 |
|
.36 |
|
2,057,542 |
|
.70 |
|
(134,247 |
) |
(34 |
) |
|||
Money market |
|
832,695 |
|
.37 |
|
886,552 |
|
.70 |
|
(53,857 |
) |
(33 |
) |
|||
Subtotal |
|
6,085,373 |
|
.19 |
|
5,802,207 |
|
.38 |
|
283,166 |
|
(19 |
) |
|||
Certificates of deposit |
|
1,580,107 |
|
1.93 |
|
1,901,136 |
|
2.74 |
|
(321,029 |
) |
(81 |
) |
|||
Total deposits |
|
7,665,480 |
|
.55 |
|
7,703,343 |
|
.96 |
|
(37,863 |
) |
(41 |
) |
|||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Short-term borrowings |
|
735,475 |
|
1.28 |
|
869,735 |
|
1.30 |
|
(134,260 |
) |
(2 |
) |
|||
Long-term borrowings |
|
1,812,508 |
|
3.94 |
|
2,080,713 |
|
5.46 |
|
(268,205 |
) |
(152 |
) |
|||
Total borrowings |
|
2,547,983 |
|
3.17 |
|
2,950,448 |
|
4.23 |
|
(402,465 |
) |
(106 |
) |
|||
Total deposits and borrowings |
|
$ |
10,213,463 |
|
1.20 |
|
$ |
10,653,791 |
|
1.87 |
|
$ |
(440,328 |
) |
(67 |
) |
(1) Annualized.
(2) Average balance and yield of securities available for sale are based upon the historical amortized cost.
(3) Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income.
20
The following table presents the components of the changes in net interest income by volume and rate:
|
|
Three
Months Ended |
|
|||||||
(In thousands) |
|
Increase (Decrease) Due to |
|
|||||||
|
|
Volume(1) |
|
Rate(1) |
|
Total |
|
|||
Interest income: |
|
|
|
|
|
|
|
|||
Investments |
|
$ |
232 |
|
$ |
(862 |
) |
$ |
(630 |
) |
Securities available for sale |
|
(11,141 |
) |
(2,291 |
) |
(13,432 |
) |
|||
Loans held for sale |
|
(1,199 |
) |
(1,186 |
) |
(2,385 |
) |
|||
Loans and leases: |
|
|
|
|
|
|
|
|||
Consumer |
|
10,375 |
|
(5,722 |
) |
4,653 |
|
|||
Commercial real estate |
|
1,384 |
|
(2,915 |
) |
(1,531 |
) |
|||
Commercial business |
|
(116 |
) |
(318 |
) |
(434 |
) |
|||
Leasing and equipment finance |
|
2,839 |
|
(2,250 |
) |
589 |
|
|||
Residential real estate |
|
(7,235 |
) |
(2,490 |
) |
(9,725 |
) |
|||
Total interest income |
|
(7,869 |
) |
(15,026 |
) |
(22,895 |
) |
|||
|
|
|
|
|
|
|
|
|||
Interest expense: |
|
|
|
|
|
|
|
|||
Checking |
|
63 |
|
42 |
|
105 |
|
|||
Savings |
|
(223 |
) |
(1,661 |
) |
(1,884 |
) |
|||
Money market |
|
(89 |
) |
(687 |
) |
(776 |
) |
|||
Certificates of deposit |
|
(1,961 |
) |
(3,422 |
) |
(5,383 |
) |
|||
Short-term borrowings |
|
(430 |
) |
(50 |
) |
(480 |
) |
|||
Long-term borrowings |
|
(3,376 |
) |
(7,182 |
) |
(10,558 |
) |
|||
Total interest expense |
|
(1,990 |
) |
(16,986 |
) |
(18,976 |
) |
|||
Net interest income |
|
(5,825 |
) |
1,906 |
|
(3,919 |
) |
|||
(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 in net interest income are dependent upon the movement of interest rates, the volume and mix of interest-earning assets and deposits and borrowings and the level of non-performing assets. Achieving net interest margin growth over time is dependent on TCFs 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 more asset sensitive (i.e. more assets than liabilities will be maturing, repricing, or prepaying during the next twelve months). Although this positive gap position will benefit TCF in a rising rate environment, if interest rates remain at current levels or fall further, the net interest margin may continue to compress and net interest income may decline. An increase in interest rates would affect TCFs fixed-rate/variable-rate product origination mix and would extend the estimated life of its residential real estate loan and mortgage-backed securities portfolios. 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. Competition for checking, savings and money market deposits, important sources of lower-cost funds for TCF, is intense. A decline in these low-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 Interest-Rate Risk and Consolidated Financial Condition Analysis Deposits for further discussion on TCFs interest rate risk position.
TCF provided $1.2 million for credit losses in the first quarter of 2004, down from $2.7 million for the same period in 2003. Net loan and lease charge-offs were $516 thousand, or .02% (annualized) of average loans and leases, in the first quarter of 2004, down from $1.9 million, or .09% (annualized) of average loans and leases, for the same 2003 period. Leasing and equipment finance had net recoveries of $106 thousand during the first quarter of 2004, compared with net charge-offs of $971 thousand for the same period in 2003. The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses.
21
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 managements 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 TCFs results of operations. Providing a wide range of retail banking services is an integral component of TCFs business philosophy and a major strategy for generating additional non-interest income. Total non-interest income was $115.2 million for the first quarter of 2004, compared with $111.4 million for the same period in 2003. Significantly contributing to the increase in non-interest income during the first quarter of 2004 were gains on securities available for sale and losses on termination of debt in 2003.
Fees and Service Charges
Fees and service charges increased $5.2 million, or 9.6%, to $59.7 million for the first quarter of 2004, compared with $54.4 million for the first quarter of 2003. This increase primarily reflects the impact of the investment in new branch expansion and the increase in the number of checking accounts, which totaled 1,472,615 accounts at March 31, 2004, up from 1,358,594 accounts at March 31, 2003.
Debit Card Revenue
For the first quarter of 2004, debit card revenue totaled $13.5 million, up $258 thousand, or 1.9%, from the first quarter of 2003. Debit card revenue includes interchange fees on the TCF Check Card. Interchange fees have been adversely impacted as a result of the settlement of litigation against VISAÒ USA in the second quarter of 2003. As part of the settlement, VISA lowered interchange rates for certain merchants from August 2003 through February 2004. Additionally, as part of the settlement, VISA established new interchange rates, which took effect in February 2004, and these rates increased slightly from the rate established August 1, 2003. The average off-line interchange rate of 1.32% for the first quarter of 2004 was up 12 basis points from the fourth quarter of 2003 rate of 1.20%. The average off-line interchange rate since February 1, 2004 has been 1.38%.
The following table sets forth information about TCFs debit cards:
|
|
At March 31, |
|
Change |
|
|||||||
(Dollars in thousands) |
|
2004 |
|
2003 |
|
Amount |
|
% |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Average number of checking accounts with debit cards |
|
1,258,593 |
|
1,148,926 |
|
109,667 |
|
9.5 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Percentage of customers with debit cards who were active users |
|
54.3 |
% |
53.7 |
% |
|
|
60 |
bps |
|||
|
|
|
|
|
|
|
|
|
|
|||
Average number of transactions per month on active debit cards for the quarter ended |
|
12.6 |
|
11.9 |
|
0.7 |
|
5.9 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Sales volume for the quarter ended: |
|
|
|
|
|
|
|
|
|
|||
Off-line (Signature) |
|
$ |
964,168 |
|
$ |
809,908 |
|
$ |
154,260 |
|
19.0 |
|
On-line (PIN) |
|
112,775 |
|
74,697 |
|
38,078 |
|
51.0 |
|
|||
Total |
|
$ |
1,076,943 |
|
$ |
884,605 |
|
$ |
192,338 |
|
21.7 |
|
|
|
|
|
|
|
|
|
|
|
|||
Off-line sales volume as a percentage of total |
|
89.5 |
% |
91.6 |
% |
|
|
(210 |
)bps |
|||
|
|
|
|
|
|
|
|
|
|
|||
Average off-line interchange rate |
|
1.32 |
% |
1.59 |
% |
|
|
(27 |
) |
22
ATM Revenue
For the first quarter of 2004, ATM revenue was $10 million, down slightly from $10.4 million for the first quarter of 2003. The decline in ATM revenue in the first quarter of 2004 was attributable to a decline in utilization of non-owned ATM machines by TCF customers and declines in utilization of TCFs ATM machines by non-customers. At March 31, 2004, TCF had 1,147 EXPRESS TELLERÒ ATM machines, compared with 1,167 machines at March 31, 2003.
Leasing and Equipment Finance Revenue
Leasing and equipment finance revenues totaled $10.2 million for the first quarter of 2004, compared with $13.6 million for the same 2003 period, primarily due to lower sales-type and operating lease revenues in Winthrop. 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
Mortgage banking revenue increased $3.9 million, to $3.5 million in the first quarter of 2004, compared with a negative $430 thousand for the same 2003 period. The increase in mortgage banking revenue was primarily due to a $13.6 million decrease in amortization and provision for impairment of mortgage servicing rights, partially offset by an $8.5 million decline in gains on sales of loans due to lower volumes and increased pricing competition.
The following table sets forth information about mortgage banking revenues:
|
|
Three Months Ended March 31, |
|
Change |
|
|||||||
(Dollars in thousands) |
|
2004 |
|
2003 |
|
$ |
|
% |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Servicing income |
|
$ |
4,625 |
|
$ |
5,433 |
|
$ |
(808 |
) |
(14.9 |
)% |
Less mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|||
Amortization |
|
3,676 |
|
7,801 |
|
(4,125 |
) |
(52.9 |
) |
|||
Provision for impairment |
|
|
|
9,500 |
|
(9,500 |
) |
(100.0 |
) |
|||
Subtotal |
|
3,676 |
|
17,301 |
|
(13,625 |
) |
(78.8 |
) |
|||
Net servicing income (loss) |
|
949 |
|
(11,868 |
) |
12,817 |
|
N.M. |
|
|||
Gains on sales of loans |
|
2,136 |
|
10,626 |
|
(8,490 |
) |
(79.9 |
) |
|||
Other income |
|
370 |
|
812 |
|
(442 |
) |
(54.4 |
) |
|||
Total mortgage banking revenue |
|
$ |
3,455 |
|
$ |
(430 |
) |
$ |
3,885 |
|
N.M. |
|
N.M. Not meaningful
23
The following table sets forth further information about mortgage banking:
|
|
At |
|
At |
|
Change |
|
|||||
(Dollars in thousands) |
|
|
|
$ |
|
% |
|
|||||
|
|
|
|
|
|
|
|
|
|
|||
Third party servicing portfolio |
|
$ |
5,005,082 |
|
$ |
5,122,741 |
|
$ |
(117,659 |
) |
(2.3 |
) % |
Weighted average note rate |
|
5.92 |
% |
5.97 |
% |
(5 |
) bps |
N.A. |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Mortgage applications in process |
|
$ |
444,124 |
|
$ |
241,126 |
|
$ |
202,998 |
|
84.2 |
|
|
|
|
|
|
|
|
|
|
|
|||
Capitalized mortgage servicing rights, net |
|
$ |
50,726 |
|
$ |
52,036 |
|
$ |
(1,310 |
) |
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Mortgage servicing rights as a percentage of servicing portfolio |
|
1.01 |
% |
1.02 |
% |
(1 |
) bps |
N.A. |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Average service fee (basis points) |
|
31.6 |
bps |
31.7 |
bps |
(.1 |
) bps |
N.A. |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Mortgage servicing rights as a multiple of average service fee |
|
3.2 |
X |
3.2 |
X |
|
X |
N.A. |
|
N.A. Not applicable.
Mortgage banking 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. During the first quarter of 2003, TCF recorded $9.5 million in provision for impairment on its capitalized mortgage serving rights as a result of strong refinance activity and high prepayments in the servicing portfolio during the first quarter of 2003. No similar provision for impairment was recorded in the first quarter of 2004. 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 managements best estimates. The range in prepayment assumptions at March 31, 2004 and December 31, 2003 reflects managements assumption of higher initial prepayments in early periods that decline over time and level off to a constant prepayment speed. See Note 5 of Notes to the Consolidated Financial Statements for additional information concerning TCFs mortgage servicing rights.
The following tables summarize the servicing portfolio by interest rate tranche, the range of prepayment speed assumptions and the weighted average remaining life of the loans by interest tranche used in the determination of the valuation and amortization of mortgage servicing rights as of March 31, 2004 and December 31, 2003:
|
|
March 31, 2004 |
|
|||||||||
(Dollars in thousands) |
|
|
|
Prepayment Speed Assumption |
|
Weighted |
|
|||||
|
|
|
|
|
|
|
|
Weighted |
|
|
||
Interest Rate Tranche |
|
Unpaid Balance |
|
High |
|
Low |
|
|
|
|||
0 to 5.50% |
|
$ |
1,699,516 |
|
17.2 |
% |
14.6 |
% |
15.0 |
% |
6.3 |
|
5.51 to 6.00% |
|
1,447,536 |
|
26.9 |
|
22.9 |
|
23.5 |
|
4.3 |
|
|
6.01 to 6.50% |
|
776,703 |
|
38.9 |
|
33.1 |
|
34.3 |
|
2.7 |
|
|
6.51 to 7.00% |
|
647,749 |
|
41.9 |
|
35.6 |
|
37.2 |
|
2.3 |
|
|
7.01 and higher |
|
433,578 |
|
40.7 |
|
34.6 |
|
36.1 |
|
2.2 |
|
|
|
|
$ |
5,005,082 |
|
25.4 |
|
21.6 |
|
22.4 |
|
4.3 |
|
24
|
|
December 31, 2003 |
|
||||||||||||
(Dollars in thousands) |
|
|
|
Prepayment Speed Assumption |
|
Weighted |
|
||||||||
|
|
|
|
|
|
|
|
Weighted |
|
|
|||||
Interest Rate Tranche |
|
Unpaid Balance |
|
High |
|
Low |
|
|
|
||||||
0 to 5.50% |
|
$ |
1,648,918 |
|
15.1 |
% |
13.0 |
% |
13.3 |
% |
7.2 |
|
|||
6.51 to 6.00% |
|
1,407,315 |
|
20.5 |
|
17.7 |
|
17.9 |
|
5.6 |
|
||||
6.01 to 6.50% |
|
830,161 |
|
28.8 |
|
24.9 |
|
25.4 |
|
3.8 |
|
||||
6.51 to 7.00% |
|
740,675 |
|
35.9 |
|
31.0 |
|
31.8 |
|
2.7 |
|
||||
7.01 and higher |
|
495,672 |
|
39.8 |
|
34.4 |
|
35.5 |
|
2.3 |
|
||||
|
|
$ |
5,122,741 |
|
21.6 |
|
18.6 |
|
19.0 |
|
5.1 |
|
|||
At March 31, 2004 and December 31, 2003, 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:
(Dollars in millions) |
|
At |
|
At |
|
||
|
|
|
|
|
|
||
Fair value of mortgage servicing rights |
|
$ |
50.7 |
|
$ |
58.0 |
|
Weighted-average life (in years) |
|
4.3 |
|
5.1 |
|
||
Weighted-average prepayment speed assumption (annual rate) |
|
22.4 |
% |
19.0 |
% |
||
Weighted-average discount rate |
|
7.5 |
% |
7.5 |
% |
||
Impact on fair value of 10% adverse change in prepayment speed assumptions |
|
$ |
(3.0 |
) |
$ |
(3.2 |
) |
Impact on fair value of 25% adverse change in prepayment speed assumptions |
|
$ |
(6.8 |
) |
$ |
(7.4 |
) |
Impact on fair value of 10% adverse change in discount rate |
|
$ |
(1.1 |
) |
$ |
(1.3 |
) |
Impact on fair value of 25% adverse change in discount rate |
|
$ |
(2.6 |
) |
$ |
(3.3 |
) |
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. As reflected above, a significant increase in future prepayment speeds can have a significant impact on the impairment of the mortgage servicing rights. TCF does not use derivatives to hedge its mortgage servicing rights asset.
Other Non-Interest Income
Gains on sales of securities available for sale of $12.7 million and $21.1 million were recognized, on the sales of $854 million and $532.2 million in mortgage-backed securities in the first quarter of 2004 and 2003, respectively. During the first quarter of 2003, TCF prepaid $150 million of higher cost FHLB advances and recorded losses on termination of debt of $6.6 million. There were no similar prepayments of debt during the first quarter of 2004.
Consolidated Non-Interest Expense
Non-interest expense totaled $140.7 million for the first quarter 2004, up 1.4% from $138.8 million for the same 2003 period. Compensation and employee benefits expense totaled $78.9 million for the 2004 first quarter, compared with $76.6 million, or an increase of 3%, from the comparable period in 2003 and was driven by a $1.4 million increase related to new branches opened in the past 12 months. Occupancy and equipment expense totaled $23.5 million for the first quarter 2004, up $1.9 million from the same 2003 period with $862 thousand relating to costs associated with new branch expansion. Advertising and promotions totaled $5.9 million for the first quarter of 2004, down 7.0% from $6.4 million for the same 2003 period. Other non-interest expense totaled $32.4 million for the first quarter of 2004, reflecting a decrease of 5.2% from $34.2 million for the same 2003 period, primarily attributable to the lower mortgage banking volumes and declines in operating lease depreciation and other expenses
25
in the leasing and equipment finance segment. Included in other non-interest expense are deposit account losses of $4.2 million for the first quarter of 2004, compared with $3.7 million for the same 2003 period.
Income Taxes
TCF recorded income tax expense of $31.1 million for the first quarter, or 33.92% of income before income tax expense, compared with $32.2 million, or 34.89% of income before income tax expense, for the comparable 2003 period. The lower effective tax rate in 2004 primarily reflects the benefits from increased investments in affordable housing partnerships.
TCF has a Real Estate Investment Trust (REIT) and related companies, that acquire, hold and manage mortgage assets and other authorized investments to generate income. These companies are consolidated with TCF National Bank and are therefore included in the consolidated financial statements of TCF Financial Corporation. The REIT must meet specific provisions of the Internal Revenue Code (IRC) to continue to qualify as a REIT. Two specific provisions applicable to the REIT are an income test and an asset test. At least 75% of the REITs gross income, excluding gross income from prohibited transactions, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property. Additionally, at least 75% of the REITs assets must be represented by real estate assets. At March 31, 2004, TCFs REIT met the applicable provisions of the IRC to qualify as a REIT. State laws may also impose limitations or restrictions on operations of the REIT and the related companies. These laws are subject to change and are currently under review in Minnesota and Illinois. If these companies fail to meet any of the required provisions of Federal and state tax laws or if the state tax laws change unfavorably, TCFs tax expense would increase.
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 the Consolidated Statements of Income.
26
CONSOLIDATED FINANCIAL CONDITION ANALYSIS
Investments
Total investments, which include interest-bearing deposits with banks, federal funds sold, FHLB stock, Federal Reserve Bank stock and other investments, were $411.9 million at March 31, 2004, up $336.7 million from December 31, 2003. The increase was primarily the result of a temporary increase of $314 million in federal funds sold due to securities sales. In April 2004, the $314 million in federal funds sold was used to purchase mortgage-backed securities discussed below.
Securities Available for Sale
The Company purchased $668.1 million and $812.2 million of mortgage-backed securities during the first quarter of 2004 and 2003, respectively, to replace the prepayments of residential real estate loans and mortgage-backed securities. TCF sold $854 million and $532.2 million of mortgage-backed securities during the first quarter of 2004 and 2003, respectively. At March 31, 2004, the unrealized gain on TCFs mortgage-backed securities available for sale portfolio was $20 million. TCF may, from time to time, sell additional mortgage-backed securities, capture the gains before these securities prepay and utilize the proceeds to either reduce borrowings or to fund growth in loans and leases. In April 2004, TCF purchased $400 million of mortgage-backed securities with a weighted average yield of 5.23%.
Loans and Leases
The following table sets forth information about loans and leases held in TCFs portfolio, excluding loans held for sale:
|
|
At |
|
At |
|
|
|
|
|
|||
|
|
|
|
Change |
|
|||||||
(Dollars in thousands) |
|
|
|
$ |
|
% |
|
|||||
Consumer: |
|
|
|
|
|
|
|
|
|
|||
Home equity |
|
$ |
3,782,820 |
|
$ |
3,588,027 |
|
$ |
194,793 |
|
5.4 |
% |
Other secured |
|
24,676 |
|
27,265 |
|
(2,589 |
) |
(9.5 |
) |
|||
Unsecured |
|
14,152 |
|
15,049 |
|
(897 |
) |
(6.0 |
) |
|||
Total consumer |
|
3,821,648 |
|
3,630,341 |
|
191,307 |
|
5.3 |
|
|||
Commercial: |
|
|
|
|
|
|
|
|
|
|||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|||
Permanent |
|
1,797,838 |
|
1,745,435 |
|
52,403 |
|
3.0 |
|
|||
Construction and development |
|
165,977 |
|
171,266 |
|
(5,289 |
) |
(3.1 |
) |
|||
Total commercial real estate |
|
1,963,815 |
|
1,916,701 |
|
47,114 |
|
2.5 |
|
|||
Commercial business |
|
428,588 |
|
427,696 |
|
892 |
|
.2 |
|
|||
Total commercial |
|
2,392,403 |
|
2,344,397 |
|
48,006 |
|
2.0 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Leasing and equipment finance: |
|
|
|
|
|
|
|
|
|
|||
Equipment finance loans |
|
292,019 |
|
309,740 |
|
(17,721 |
) |
(5.7 |
) |
|||
Lease financings: |
|
|
|
|
|
|
|
|
|
|||
Direct financing leases |
|
981,781 |
|
853,395 |
|
128,386 |
|
15.0 |
|
|||
Sales-type leases |
|
30,917 |
|
33,073 |
|
(2,156 |
) |
(6.5 |
) |
|||
Lease residuals, excluding leveraged leases |
|
34,450 |
|
34,171 |
|
279 |
|
.8 |
|
|||
Unearned income and deferred lease costs |
|
(102,896 |
) |
(92,710 |
) |
(10,186 |
) |
11.0 |
|
|||
Investment in leveraged leases |
|
20,106 |
|
22,728 |
|
(2,622 |
) |
(11.5 |
) |
|||
Total lease financings |
|
964,358 |
|
850,657 |
|
113,701 |
|
13.4 |
|
|||
Total leasing and equipment finance |
|
1,256,377 |
|
1,160,397 |
|
95,980 |
|
8.3 |
|
|||
Total consumer, commercial and leasing and equipment finance |
|
7,470,428 |
|
7,135,135 |
|
335,293 |
|
4.7 |
|
|||
Residential real estate |
|
1,152,357 |
|
1,212,643 |
|
(60,286 |
) |
(5.0 |
) |
|||
Total loans and leases |
|
$ |
8,622,785 |
|
$ |
8,347,778 |
|
$ |
275,007 |
|
3.3 |
|
27
The following table sets forth information about loans and leases by state, excluding loans held for sale:
(Dollars in thousands) |
|
At March 31, 2004 |
|
|||||||||||||
|
|
Consumer |
|
Commercial |
|
Leasing
and |
|
Residential |
|
Total |
|
|||||
Minnesota |
|
$ |
1,514,011 |
|
$ |
690,235 |
|
$ |
61,225 |
|
$ |
563,470 |
|
$ |
2,828,941 |
|
Michigan |
|
681,336 |
|
714,795 |
|
85,670 |
|
301,136 |
|
1,782,937 |
|
|||||
Illinois |
|
999,978 |
|
399,837 |
|
46,077 |
|
216,151 |
|
1,662,043 |
|
|||||
Wisconsin |
|
389,293 |
|
323,217 |
|
31,668 |
|
34,086 |
|
778,264 |
|
|||||
Colorado |
|
186,324 |
|
11,436 |
|
28,883 |
|
4,587 |
|
231,230 |
|
|||||
California |
|
657 |
|
27,186 |
|
149,864 |
|
|
|
177,707 |
|
|||||
Florida |
|
12,107 |
|
21,197 |
|
77,196 |
|
753 |
|
111,253 |
|
|||||
Ohio |
|
6,253 |
|
23,813 |
|
48,622 |
|
7,621 |
|
86,309 |
|
|||||
Texas |
|
797 |
|
1,362 |
|
78,608 |
|
1,425 |
|
82,192 |
|
|||||
Other |
|
30,892 |
|
179,325 |
|
648,564 |
|
23,128 |
|
881,909 |
|
|||||
Total |
|
$ |
3,821,648 |
|
$ |
2,392,403 |
|
$ |
1,256,377 |
|
$ |
1,152,357 |
|
$ |
8,622,785 |
|
At March 31, 2004, 55% of TCFs consumer and commercial loans consist of variable-rate loans. The variable-rate consumer loans have their interest rates tied to TCFs base interest rate, while variable-rate commercial loans (consisting of commercial business and commercial real estate loans) may have their interest rates tied to either TCFs base 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. The following table provides additional information relating to TCFs consumer and commercial loan balances at March 31, 2004:
(Dollars in millions) |
|
At March 31, 2004 |
|
|||||||
|
|
Consumer |
|
Commercial |
|
Total |
|
|||
Variable-rate loans: |
|
|
|
|
|
|
|
|||
Loans without an interest rate floor |
|
$ |
47 |
|
$ |
602 |
|
$ |
649 |
|
Loans with a variable rate greater than the interest rate floor |
|
415 |
|
86 |
|
501 |
|
|||
Loans with a variable rate equal to the interest rate floor |
|
938 |
|
53 |
|
991 |
|
|||
Subtotal (1) |
|
1,400 |
|
741 |
|
2,141 |
|
|||
Loans with a variable rate less than the interest rate floor |
|
|
|
|
|
|
|
|||
1 - 25 basis points (bps) (2) |
|
484 |
|
119 |
|
603 |
|
|||
26 bps or more (2) |
|
419 |
|
247 |
|
666 |
|
|||
|
|
|
|
|
|
|
|
|||
Total variable-rate loans |
|
2,303 |
|
1,107 |
|
3,410 |
|
|||
Fixed-rate loans |
|
1,519 |
|
387 |
|
1,906 |
|
|||
Adjustable-rate loans (3) |
|
|
|
898 |
|
898 |
|
|||
Total loans |
|
$ |
3,822 |
|
$ |
2,392 |
|
$ |
6,214 |
|
|
|
|
|
|
|
|
|
|||
Variable-rate loans as a percentage of total loans |
|
60 |
% |
46 |
% |
55 |
% |
(1) Loans subject to an immediate increase in interest rate if there is an increase in TCFs base rate or LIBOR.
(2) The base rate or LIBOR would need to increase by these basis points, before the loan rate would change from the floor interest rate.
(3) 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.
28
Approximately 69% of the home equity loan portfolio at March 31, 2004 consisted of closed-end loans, compared with 70% at December 31, 2003. In addition, 61% of this portfolio at March 31, 2004 carries a variable interest rate tied to the prime rate, compared with 60% at December 31, 2003. At March 31, 2004, the weighted average loan-to-value ratio for the home equity portfolio was 74%, unchanged from December 31, 2003.
The following table sets forth additional information about the loan-to-value ratios for TCFs home equity loan portfolio:
(Dollars in thousands) |
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||||||
Loan-to-Value Ratios (1): |
|
Balance |
|
Percent |
|
Over
30-Day |
|
Balance |
|
Percent |
|
Over
30-Day |
|
||
Over 100% (2) |
|
$ |
37,948 |
|
1.0 |
% |
6.55 |
% |
$ |
39,452 |
|
1.1 |
% |
4.81 |
% |
Over 90% to 100% |
|
366,440 |
|
9.7 |
|
.51 |
|
361,374 |
|
10.1 |
|
.78 |
|
||
Over 80% to 90% |
|
1,471,429 |
|
38.9 |
|
.29 |
|
1,370,523 |
|
38.2 |
|
.40 |
|
||
80% or less |
|
1,907,003 |
|
50.4 |
|
.33 |
|
1,816,678 |
|
50.6 |
|
.39 |
|
||
Total |
|
$ |
3,782,820 |
|
100.0 |
% |
.37 |
|
$ |
3,588,027 |
|
100.0 |
% |
.48 |
|
(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 tables summarize TCFs commercial real estate loan portfolio by property type:
|
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(Dollars in thousands) |
|
Permanent |
|
Construction |
|
Total |
|
Permanent |
|
Construction |
|
Total |
|
||||||
Apartments |
|
$ |
523,449 |
|
$ |
4,380 |
|
$ |
527,829 |
|
$ |
519,622 |
|
$ |
28,983 |
|
$ |
548,605 |
|
Office buildings |
|
397,268 |
|
36,242 |
|
433,510 |
|
399,112 |
|
33,262 |
|
432,374 |
|
||||||
Retail services |
|
308,361 |
|
14,594 |
|
322,955 |
|
304,295 |
|
10,139 |
|
314,434 |
|
||||||
Warehouse/industrial buildings |
|
189,388 |
|
1,790 |
|
191,178 |
|
189,635 |
|
1,253 |
|
190,888 |
|
||||||
Hotel and motels |
|
128,825 |
|
19,220 |
|
148,045 |
|
131,367 |
|
19,270 |
|
150,637 |
|
||||||
Health care facilities |
|
39,444 |
|
9,195 |
|
48,639 |
|
32,157 |
|
17,664 |
|
49,821 |
|
||||||
Other |
|
211,103 |
|
80,556 |
|
291,659 |
|
169,247 |
|
60,695 |
|
229,942 |
|
||||||
Total |
|
$ |
1,797,838 |
|
$ |
165,977 |
|
$ |
1,963,815 |
|
$ |
1,745,435 |
|
$ |
171,266 |
|
$ |
1,916,701 |
|
|
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||
(Dollars in thousands) |
|
Balance |
|
Over
30-Day |
|
Balance |
|
Over 30-Day |
|
||
Apartments |
|
$ |
527,829 |
|
.02 |
% |
$ |
548,605 |
|
|
% |
Office buildings |
|
433,510 |
|
|
|
432,374 |
|
|
|
||
Retail services |
|
322,955 |
|
|
|
314,434 |
|
|
|
||
Warehouse/industrial buildings |
|
191,178 |
|
|
|
190,888 |
|
|
|
||
Hotel and motels |
|
148,045 |
|
|
|
150,637 |
|
|
|
||
Health care facilities |
|
48,639 |
|
|
|
49,821 |
|
|
|
||
Other |
|
291,659 |
|
.07 |
|
229,942 |
|
.03 |
|
||
Total |
|
$ |
1,963,815 |
|
.02 |
|
$ |
1,916,701 |
|
|
|
29
TCF continues to expand its commercial business and commercial real estate lending activity to borrowers located in its primary midwestern markets. With a focus on secured lending, at March 31, 2004, approximately 99% of TCFs commercial real estate and commercial business loans were secured either by real estate properties or underlying business assets. At March 31, 2004 and December 31, 2003, the construction and development portfolio had no loans over 30-days delinquent. At March 31, 2004, approximately 91% of TCFs commercial real estate loans outstanding were secured by properties located in its primary markets.
The following tables summarize TCFs leasing and equipment finance portfolio by marketing segment and by equipment type:
(Dollars in thousands) |
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||||||
|
|
|
|
|
|
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) |
|
$ |
626,949 |
|
49.9 |
% |
.68 |
% |
$ |
595,812 |
|
51.3 |
% |
.88 |
% |
Winthrop (2) |
|
220,251 |
|
17.5 |
|
1.44 |
|
229,441 |
|
19.8 |
|
1.14 |
|
||
Wholesale (3) |
|
128,837 |
|
10.3 |
|
.66 |
|
137,062 |
|
11.8 |
|
.29 |
|
||
Small ticket (4) |
|
215,521 |
|
17.2 |
|
1.38 |
|
124,178 |
|
10.7 |
|
.56 |
|
||
Leveraged leases |
|
20,106 |
|
1.6 |
|
|
|
22,728 |
|
2.0 |
|
|
|
||
Subtotal |
|
1,211,664 |
|
96.5 |
|
.93 |
|
1,109,221 |
|
95.6 |
|
.81 |
|
||
Truck and trailer (5) |
|
44,713 |
|
3.5 |
|
3.67 |
|
51,176 |
|
4.4 |
|
3.66 |
|
||
Total |
|
$ |
1,256,377 |
|
100.0 |
% |
1.02 |
|
$ |
1,160,397 |
|
100.0 |
% |
.93 |
|
(1) Middle market consists primarily of lease financing of construction and manufacturing equipment and specialty vehicles.
(2) Winthrops portfolio consists primarily of technology and data processing equipment.
(3) Wholesale includes the discounting and purchasing of lease receivables sourced by third party lessors.
(4) Small ticket includes lease financings to small- and mid-size companies through programs with vendors, manufacturers, distributors, buying groups, and franchise organizations, which as of March 31, 2004 includes the portfolio of VGM. Individual contracts generally range from $25 thousand to $250 thousand.
(5) TCF discontinued originations in the truck and trailer marketing segment during 2001. TCF will continue to provide financing on trucks and trailers to customers in the middle market segment for use in their businesses which are unrelated to the over-the-road trucking industry. See the portfolio summary by equipment type below for TCFs total financing of trucks and trailers.
(Dollars in thousands) |
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||
Equipment Type |
|
Balance |
|
Percent |
|
Balance |
|
Percent |
|
||
Technology and data processing |
|
$ |
239,640 |
|
19.1 |
% |
$ |
249,515 |
|
21.5 |
% |
Specialty vehicles |
|
225,365 |
|
17.9 |
|
225,073 |
|
19.4 |
|
||
Manufacturing |
|
212,541 |
|
16.9 |
|
198,321 |
|
17.1 |
|
||
Construction |
|
140,227 |
|
11.2 |
|
133,104 |
|
11.5 |
|
||
Medical |
|
125,425 |
|
10.0 |
|
33,462 |
|
2.9 |
|
||
Trucks and trailers |
|
84,113 |
|
6.7 |
|
89,262 |
|
7.7 |
|
||
Furniture and fixtures |
|
51,674 |
|
4.1 |
|
54,052 |
|
4.7 |
|
||
Printing |
|
39,715 |
|
3.2 |
|
38,977 |
|
3.3 |
|
||
Material handling |
|
26,809 |
|
2.1 |
|
27,111 |
|
2.3 |
|
||
Aircraft |
|
24,152 |
|
1.9 |
|
23,965 |
|
2.1 |
|
||
Other |
|
86,716 |
|
6.9 |
|
87,555 |
|
7.5 |
|
||
Total |
|
$ |
1,256,377 |
|
100.0 |
% |
$ |
1,160,397 |
|
100.0 |
% |
The leasing and equipment finance portfolio increased $96 million from December 31, 2003. TCF Leasings acquisition of VGM, in March 2004, added $80 million of portfolio balances to the small ticket marketing segment and is medical type equipment. This was the combined effect of the addition of $111.4 million of leasing and equipment finance portfolio at VGM, of which $31.4 million had been financed on a non-recourse basis with TCF Leasing. This financial arrangement was terminated upon the acquisition and replaced with intercompany debt. The
30
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. At March 31, 2004, lease residuals, excluding leveraged lease residuals, totaled $34.5 million, up from $34.2 million at December 31, 2003. The lease residuals on leveraged leases are included in investments in leveraged leases and totaled $18.1 million at March 31, 2004, down from $18.7 million at December 31, 2003. Lease residual values are initially determined at the inception of the lease and reviewed on an ongoing basis. Any downward revisions are recorded in the periods in which they become known. Included in the investment in leveraged leases, at March 31, 2004, is $20.1 million for a 100% equity interest in a Boeing 767-300 aircraft on lease to Delta Airlines in the United States. The investment in leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of the leased assets less related unearned income. TCF has no obligation for principal and interest on the note representing the third-party participation related to this leveraged lease; such note, which totaled $19.2 million at March 31, 2004, down from $22.6 million at December 31, 2003, is recorded as an offset against the related rental receivable. An economic slowdown and other factors have adversely impacted the airline industry and could have an adverse impact on the lessees ability to meet its lease obligations and the residual value of the aircraft. The lessee is current on the lease payments and the lease expires in 2010. This lease represents TCFs only material direct exposure to the commercial airline industry.
Total loan and lease originations for TCFs leasing businesses were $137.8 million for the first quarter of 2004, compared with $121.1 million for the same 2003 period. The backlog of approved transactions increased to $209.3 million at March 31, 2004, from $155.2 million at December 31, 2003. TCFs leasing activity is subject to risk of cyclical downturns and other adverse economic developments. TCFs 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 values, general economic conditions and other factors. The determination of the allowance for loan and lease losses is a critical accounting policy which involves managements judgment on a number of factors such as net charge-offs, delinquencies in the loan and lease portfolio, general economic conditions and managements assessment of credit risk in the current loan and lease portfolio. The Company considers the allowance for loan and lease losses of $79.1 million appropriate to cover losses inherent in the loan and lease portfolios as of March 31, 2004. 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 TCFs 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 TCFs 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 detail information regarding TCFs 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 TCFs 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 foreclosure laws.
31
The key indicators of TCFs credit quality and allowance coverage at March 31, 2004, include the ratio of annualized net charge-offs to average loans and leases, the allowance as a multiple of annualized net charge-offs, and income before income taxes and provision for loan losses as a multiple of annualized net charge-offs.
The following table sets forth information detailing the allowance for loan and lease losses and selected key indicators:
|
|
Three
Months |
|
||||
(Dollars in thousands) |
|
2004 |
|
2003 |
|
||
Balance at beginning of period |
|
$ |
76,619 |
|
$ |
77,008 |
|
Charge-offs |
|
(2,499 |
) |
(2,732 |
) |
||
Recoveries |
|
1,983 |
|
827 |
|
||
Net charge-offs |
|
(516 |
) |
(1,905 |
) |
||
Provision charged to operations |
|
1,160 |
|
2,710 |
|
||
Acquired allowance |
|
1,791 |
|
- |
|
||
Balance at end of period |
|
$ |
79,054 |
|
$ |
77,813 |
|
Key Indicators: |
|
|
|
|
|
Ratio of annualized net loan and lease charge-offs to average loans and leases outstanding |
|
.02 |
% |
.09 |
% |
Period end allowance as a multiple of annualized net charge-offs |
|
38.3 |
X |
10.2 |
X |
Income before income taxes and provision for loan losses as a multiple of net charge-offs |
|
180.2 |
X |
49.9 |
X |
The allocation of TCFs allowance for loan and lease losses, including general and specific loss allocations, is as follows:
|
|
At or For
the Quarter |
|
At or For
the Year |
|
||||||||||||||
(Dollars in thousands) |
|
Allowance
for |
|
Total
Loans |
|
Allowance |
|
Allowance
for |
|
Total
Loans |
|
Allowance |
|
||||||
Consumer |
|
$ |
9,285 |
|
$ |
3,821,648 |
|
.24 |
% |
$ |
9,084 |
|
$ |
3,630,341 |
|
.25 |
% |
||
Commercial real estate |
|
25,831 |
|
1,963,815 |
|
1.32 |
|
25,142 |
|
1,916,701 |
|
1.31 |
|
||||||
Commercial business |
|
11,117 |
|
428,588 |
|
2.59 |
|
11,797 |
|
427,696 |
|
2.76 |
|
||||||
Leasing and equipment finance |
|
15,795 |
|
1,256,377 |
|
1.26 |
|
13,515 |
|
1,160,397 |
|
1.16 |
|
||||||
Unallocated |
|
16,139 |
|
|
|
N.A. |
|
16,139 |
|
|
|
N.A. |
|
||||||
Subtotal |
|
78,167 |
|
7,470,428 |
|
1.05 |
|
75,677 |
|
7,135,135 |
|
1.06 |
|
||||||
Residential real estate |
|
887 |
|
1,152,357 |
|
.08 |
|
942 |
|
1,212,643 |
|
.08 |
|
||||||
Total |
|
$ |
79,054 |
|
$ |
8,622,785 |
|
.92 |
|
$ |
76,619 |
|
$ |
8,347,778 |
|
.92 |
|
||
The allocated allowance balances for TCFs residential and consumer loan portfolios, at March 31, 2004, reflect the Companys credit quality and related low level of net loan charge-offs for these portfolios. The allocated allowances for the loan and lease portfolios do not reflect any significant changes in estimation methods or assumptions.
Net loan and lease charge-offs were $516 thousand, or .02% (annualized), of average loans and leases outstanding in the first quarter of 2004, down from $1.9 million, or .09% (annualized), of average loans and leases for the same period of 2003. During the first quarter of 2004, TCF recognized a $1.1 million recovery on a single credit in leasing and equipment finance that was charged-off in late 2003.
32
The following table sets forth additional information regarding net charge-offs:
|
|
Three Months Ended |
|
||||||||
|
|
March 31, 2004 |
|
March 31, 2003 |
|
||||||
(Dollars in thousands) |
|
Net
Charge-offs |
|
% of
Average |
|
Net
Charge-offs |
|
% of
Average |
|
||
Consumer |
|
$ |
574 |
|
.06 |
% |
$ |
1,045 |
|
.14 |
% |
Commercial real estate |
|
(33 |
) |
(.01 |
) |
2 |
|
|
|
||
Commercial business |
|
73 |
|
.07 |
|
(84 |
) |
(.08 |
) |
||
Leasing and equipment finance: |
|
|
|
|
|
|
|
|
|
||
Middle market |
|
425 |
|
.28 |
|
374 |
|
.41 |
|
||
Winthrop |
|
16 |
|
.03 |
|
68 |
|
.11 |
|
||
Wholesale |
|
(1,226 |
) |
(3.71 |
) |
186 |
|
.43 |
|
||
Small ticket |
|
707 |
|
1.90 |
|
161 |
|
.61 |
|
||
Leveraged leases |
|
|
|
|
|
|
|
|
|
||
Subtotal |
|
(78 |
) |
(.03 |
) |
789 |
|
.33 |
|
||
Truck and trailer |
|
(28 |
) |
(.21 |
) |
182 |
|
.76 |
|
||
Total leasing and equipment finance |
|
(106 |
) |
(.04 |
) |
971 |
|
.37 |
|
||
Subtotal |
|
508 |
|
.03 |
|
1,934 |
|
.12 |
|
||
Residential real estate |
|
8 |
|
|
|
(29 |
) |
(.01 |
) |
||
Total |
|
$ |
516 |
|
.02 |
|
$ |
1,905 |
|
.09 |
|
(1) Annualized.
Non-Performing Assets
Non-performing assets consist of non-accrual loans and leases and other real estate owned. Approximately 56% of non-performing assets at March 31, 2004 consisted of, or were secured by, residential real estate. Non-performing assets are summarized in the following table:
(Dollars in thousands) |
|
At |
|
At |
|
$ Change |
|
|||
Non-accrual loans and leases: |
|
|
|
|
|
|
|
|||
Consumer |
|
$ |
14,428 |
|
$ |
12,052 |
|
$ |
2,376 |
|
Commercial real estate |
|
3,120 |
|
2,490 |
|
630 |
|
|||
Commercial business |
|
3,102 |
|
2,931 |
|
171 |
|
|||
Leasing and equipment finance, net |
|
11,219 |
|
13,241 |
|
(2,022 |
) |
|||
Residential real estate |
|
4,473 |
|
3,993 |
|
480 |
|
|||
Total non-accrual loans and leases, net |
|
36,342 |
|
34,707 |
|
1,635 |
|
|||
Non-recourse discounted lease rentals |
|
644 |
|
699 |
|
(55 |
) |
|||
Total non-accrual loans and leases, gross |
|
36,986 |
|
35,406 |
|
1,580 |
|
|||
Other real estate owned: |
|
|
|
|
|
|
|
|||
Residential |
|
18,960 |
|
20,462 |
|
(1,502 |
) |
|||
Commercial |
|
11,549 |
|
12,992 |
|
(1,443 |
) |
|||
Total other real estate owned |
|
30,509 |
|
33,454 |
|
(2,945 |
) |
|||
Total non-performing assets, gross |
|
$ |
67,495 |
|
$ |
68,860 |
|
$ |
(1,365 |
) |
Total non-performing assets, net |
|
$ |
66,851 |
|
$ |
68,161 |
|
$ |
(1,310 |
) |
|
|
|
|
|
|
|
|
|||
Gross non-performing assets as a percentage of net loans and leases |
|
.79 |
% |
.83 |
% |
|
|
|||
Gross non-performing assets as a percentage of total assets |
|
.58 |
% |
.61 |
% |
|
|
Included in non-performing assets are loans that are considered impaired. The recorded investment in impaired loans was $10.1 million at March 31, 2004, up from $9.1 million at December 31, 2003. The related allowance for credit losses was $4.5 million at March 31, 2004, and December 31, 2003. All of the impaired loans were on non-accrual status. There were no impaired loans at March 31, 2004 or December 31, 2003 which did not have a related allowance for loan losses. The average recorded investment in impaired loans during the three months ended March 31, 2004 was $9.4 million, compared with $10.3 million during the three months ended December 31, 2003.
33
Past Due Loans and Leases
The following table sets forth information regarding TCFs delinquent loan and lease portfolio, excluding loans held for sale and non-accrual loans and leases. TCFs delinquency rates are determined using the contractual method.
|
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||
(Dollars in thousands) |
|
Principal |
|
Percentage
of |
|
Principal |
|
Percentage
of |
|
||
Accruing loans and leases delinquent for: |
|
|
|
|
|
|
|
|
|
||
30-59 days |
|
$ |
20,424 |
|
.24 |
% |
$ |
24,187 |
|
.29 |
% |
60-89 days |
|
7,095 |
|
.08 |
|
8,953 |
|
.11 |
|
||
90 days or more |
|
6,405 |
|
.08 |
|
5,604 |
|
.07 |
|
||
Total |
|
$ |
33,924 |
|
.40 |
% |
$ |
38,744 |
|
.47 |
% |
The following table summarizes TCFs over 30-day delinquent loan and lease portfolio by loan type:
|
|
At March 31, 2004 |
|
At December 31, 2003 |
|
||||||
(Dollars in thousands) |
|
Principal |
|
Percentage
of |
|
Principal |
|
Percentage
of |
|
||
Consumer |
|
$ |
14,262 |
|
.37 |
% |
$ |
17,673 |
|
.49 |
% |
Commercial real estate |
|
319 |
|
.02 |
|
58 |
|
|
|
||
Commercial business |
|
128 |
|
.03 |
|
282 |
|
.07 |
|
||
Leasing and equipment finance |
|
12,716 |
|
1.02 |
|
10,619 |
|
.93 |
|
||
Residential real estate |
|
6,499 |
|
.57 |
|
10,112 |
|
.84 |
|
||
Total |
|
$ |
33,924 |
|
.40 |
|
$ |
38,744 |
|
.47 |
|
TCFs over 30-day delinquency on consumer loans was .37% of total consumer loans at March 31, 2004, down from .49% at December 31, 2003. Included in leasing and equipment finance delinquencies at March 31, 2004 are approximately $1.7 million of delinquent accounts acquired in the VGM acquisition.
Potential Problem Loans and Leases
In addition to the non-performing assets, there were $58.4 million of loans and leases at March 31, 2004, for which management has concerns regarding the ability of the borrowers to meet existing repayment terms, compared with $48.1 million at December 31, 2003. 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 allowance for loan and lease losses.
Potential problem loans and leases are summarized as follows:
|
|
At March 31, |
|
At December 31, |
|
Change |
|
|||||
(Dollars in thousands) |
|
2004 |
|
2003 |
|
$ |
|
% |
|
|||
Commercial real estate |
|
$ |
30,316 |
|
$ |
20,279 |
|
$ |
10,037 |
|
49.5 |
% |
Commercial business |
|
13,072 |
|
12,721 |
|
351 |
|
2.8 |
|
|||
Leasing and equipment finance |
|
15,043 |
|
15,094 |
|
(51 |
) |
(.3 |
) |
|||
Total |
|
$ |
58,431 |
|
$ |
48,094 |
|
$ |
10,337 |
|
21.5 |
|
34
Leasing and equipment finance potential problem loans and leases include $724 thousand and $1.1 million funded on a non-recourse basis at March 31, 2004 and December 31, 2003, respectively. Commercial real estate potential problem loans increased $10 million due primarily to the addition of one customers $10 million loan.
Deposits
Checking, savings and money market deposits are an important source of low cost funds and fee income for TCF. Deposits totaled $7.9 billion at March 31, 2004, up $257.4 million from December 31, 2003. Lower interest-cost checking, savings and money market deposits totaled $6.3 billion, up $329.1 million from December 31, 2003, and comprised 80.4% of total deposits at March 31, 2004, compared with 78.8% of total deposits at December 31, 2003. Average annualized fee revenue per retail checking account for the twelve months ended March 31, 2004 was $225, compared with $226 for the comparable period ended March 31, 2003. Higher interest-cost certificates of deposit decreased $71.8 million from December 31, 2003, as other lower-cost funding sources were available to TCF. TCFs weighted-average rate for deposits, including non-interest-bearing deposits, was .52% at March 31, 2004, down from .58% at December 31, 2003.
New Branch Expansion
Key to TCFs 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 TCFs expansion strategy, the opportunity to add new supermarket branches within TCFs markets has slowed from prior years. Therefore, TCF has continued 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 first quarter of 2004, TCF opened four new branches, including two new traditional branches and two new supermarket branches. TCF now has 232 new branches opened since January 1, 1998. TCF plans to open 24 more new branches during the remainder of 2004, consisting of 20 new traditional branches and four new supermarket branches.
Additional information regarding the results of TCFs new branches opened since January 1, 1998 is displayed in the table below:
|
|
At or For the Quarter Ended |
|
|
|
|
|
|||||
|
|
March 31, |
|
Increase |
|
|
|
|||||
(Dollars in thousands) |
|
2004 |
|
2003 |
|
(Decrease) |
|
% Change |
|
|||
Number of new branches* at March 31, |
|
|
|
|
|
|
|
|
|
|||
Traditional |
|
44 |
|
28 |
|
16 |
|
57.1 |
% |
|||
Supermarket |
|
188 |
|
185 |
|
3 |
|
1.6 |
|
|||
Total |
|
232 |
|
213 |
|
19 |
|
8.9 |
|
|||
Percentage of total branches |
|
57 |
% |
54 |
% |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Number of checking accounts |
|
518,105 |
|
416,460 |
|
101,645 |
|
24.4 |
|
|||
Deposits: |
|
|
|
|
|
|
|
|
|
|||
Checking |
|
$ |
715,530 |
|
$ |
517,209 |
|
$ |
198,321 |
|
38.3 |
|
Savings |
|
418,604 |
|
424,641 |
|
(6,037 |
) |
(1.4 |
) |
|||
Money market |
|
67,246 |
|
71,912 |
|
(4,666 |
) |
(6.5 |
) |
|||
Subtotal |
|
1,201,380 |
|
1,013,762 |
|
187,618 |
|
18.5 |
|
|||
Certificates of deposits |
|
149,582 |
|
160,118 |
|
(10,536 |
) |
(6.6 |
) |
|||
Total deposits |
|
$ |
1,350,962 |
|
$ |
1,173,880 |
|
$ |
177,082 |
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
|||
Total fees and other revenue (quarter ended) |
|
$ |
32,176 |
|
$ |
27,017 |
|
$ |
5,159 |
|
19.1 |
|
* New branches opened since January 1, 1998.
Borrowings
Borrowings totaled $2.5 billion at March 31, 2004, up $92.3 million from year-end 2003. Included in long-term borrowings at March 31, 2004, are $767.5 million of fixed-rate FHLB advances and repurchase agreements with other financial institutions, which are callable by the counterparty at par on certain anniversary dates and, for most,
35
quarterly thereafter until maturity. If called, replacement funding will be provided by the counterparties at the then-prevailing market rate of interest for the remaining term-to-maturity of the advances and repurchase agreements, subject to standard terms and conditions. The weighted-average rate on borrowings increased to 3.36% at March 31, 2004, from 3.24% at December 31, 2003 as a result of a reduction in short term borrowings as a percentage of total borrowings. During the first quarter of 2004, TCF entered into $450 million of 18-month FHLB advances at a weighted average interest rate of 1.70%. TCF Financial Corporation has a $105 million bank line of credit agreement maturing in April 2004, which is unsecured and contains certain covenants common to such agreements. At March 31, 2004, TCF had $34 million outstanding on this bank line of credit, which was included in short-term borrowings. Subsequent to March 31, 2004, TCF Financial Corporation entered into a $105 million bank line of credit agreement with a new banking group which matures in April 2005. This new credit facility is also unsecured and contains similar covenants to the previous agreement. Proceeds from this new credit facility were used to pay-off the outstanding balance on the previous agreement.
Contractual Obligations And Commercial Commitments
TCF has certain obligations and commitments to make future payments under contracts. At March 31, 2004, the aggregate contractual obligations (excluding bank deposits) and commercial commitments are as follows:
(Dollars in thousands) |
|
Payments Due by Period |
|
|||||||||||||
Contractual Obligations |
|
Total |
|
Less than |
|
1-3 |
|
4-5 |
|
After 5 |
|
|||||
Total borrowings |
|
$ |
2,507,087 |
|
$ |
546,940 |
|
$ |
1,527,902 |
|
$ |
132,245 |
|
$ |
300,000 |
|
Annual rental commitments under non-cancelable operating leases |
|
162,168 |
|
22,903 |
|
39,180 |
|
32,615 |
|
67,470 |
|
|||||
Purchase obligations (construction contracts and land purchase commitments for future branch sites) |
|
11,046 |
|
11,046 |
|
|
|
|
|
|
|
|||||
|
|
$ |
2,680,301 |
|
$ |
580,889 |
|
$ |
1,567,082 |
|
$ |
164,860 |
|
$ |
367,470 |
|
(Dollars in thousands) |
|
Amount of Commitment - Expiration by Period |
|
|||||||||||||
Other Commercial Commitments |
|
Total |
|
Less than |
|
1-3 |
|
4-5 |
|
After 5 |
|
|||||
Commitments to lend: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Consumer |
|
$ |
1,442,985 |
|
$ |
19,812 |
|
$ |
14,903 |
|
$ |
22,137 |
|
$ |
1,386,133 |
|
Commercial |
|
863,830 |
|
685,714 |
|
156,940 |
|
2,494 |
|
18,682 |
|
|||||
Leasing and equipment finance |
|
65,627 |
|
65,627 |
|
|
|
|
|
|
|
|||||
Other |
|
5,289 |
|
5,289 |
|
|
|
|
|
|
|
|||||
Total commitments to lend |
|
2,377,731 |
|
776,442 |
|
171,843 |
|
24,631 |
|
1,404,815 |
|
|||||
Loans serviced with recourse |
|
123,300 |
|
2,838 |
|
6,294 |
|
6,090 |
|
108,078 |
|
|||||
Standby letters of credit and guarantees on industrial revenue bonds |
|
38,768 |
|
19,418 |
|
18,865 |
|
485 |
|
|
|
|||||
|
|
$ |
2,539,799 |
|
$ |
798,698 |
|
$ |
197,002 |
|
$ |
31,206 |
|
$ |
1,512,893 |
|
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.
Loans serviced with recourse represent a contingent guarantee based upon the failure to perform by another party. These loans consist of $119.1 million of Veterans Administration (VA) loans and $4.2 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 VAs 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 VAs guarantee or repurchase the loan sold to FNMA may not materialize, the actual cash requirements are expected to be less than the amount provided in the table above.
36
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 the year 2009. 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 March 31, 2004 was $966 million, or 8.2% of total assets, up from $920.9 million, or 8.1% of total assets, at December 31, 2003. TCF repurchased 13,445 shares of its common stock during the first quarter of 2004 at an average cost of $51.66 per share. At March 31, 2004, TCF had 3.7 million shares remaining in its stock repurchase program authorized by its Board of Directors. Since January 1, 1998, the Company has repurchased 25.1 million shares of its common stock at an average cost of $33.34 per share. For the first quarter of 2004, average total equity to average assets was 8.13% compared with 8.03% for the year ended December 31, 2003. On April 27, 2004, TCF declared a regular quarterly dividend of 37.5 cents per common share, payable on May 28, 2004, to shareholders of record as of May 7, 2004. TCF does not have any trust preferred securities or other quasi-equity instruments.
TCFs results of operations are dependent to a large degree on its net interest income and its ability to manage its interest rate risk. Although TCF manages other risks, such as credit 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).
TCFs Asset/Liability Committee manages TCFs interest-rate risk based on interest rate expectations and other factors. The principal objective of TCFs asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate risk and liquidity risk and facilitating the funding needs of the Company.
Although the measure is subject to a number of assumptions and is only one of a number of measurements, management believes that the interest rate gap (difference between interest-earning assets and interest-bearing liabilities repricing within a given period) is an important indication of TCFs exposure to interest rate risk and the related volatility of net interest income in a changing interest rate environment. While the interest rate gap measurement has some limitations, which include no assumptions regarding future asset or liability production and the possibility of a static interest rate environment which can result in large quarterly changes due to changes of the above items, interest rate gap calculates the net asset or liability sensitivity at a point in time. In addition to the interest rate gap analysis, management also utilizes a simulation model to measure and manage TCFs interest rate risk, relative to a base case scenario.
TCF has positioned its balance sheet to benefit from a rising interest rate environment. TCFs one-year interest rate gap (the difference between interest-earning assets and interest-bearing liabilities repricing or maturing within the next twelve months), assuming no change in interest rates, was a positive $1.2 billion, or 10% of total assets, at March 31, 2004, compared with a positive $161.3 million, or 1% of total assets, at December 31, 2003. As a result of variable-rate consumer and commercial loans at or near their interest rate floors and after taking into consideration other factors such as changes in prepayment rates, TCF becomes more asset sensitive in a rising interest rate environment. In a falling interest rate environment TCFs asset sensitivity remains relatively unchanged as the assumed increase in fixed-rate asset runoff is offset by the increase in variable-rate consumer and commercial loans at their floors. The sensitivity of TCFs one-year interest rate gap is summarized as follows:
37
|
|
One-Year Interest Rate GAP |
|
|||
(Dollars in millions) |
|
$ |
|
% of Total Assets |
|
|
|
|
|
|
|
|
|
Assumed Interest Rates |
|
|
|
|
|
|
Increase 50 basis points * |
|
$ |
1,861 |
|
15.9 |
% |
Flat rates as of March 31, 2004 |
|
1,167 |
|
10.0 |
|
|
Decrease 50 basis points * |
|
1,303 |
|
11.1 |
|
|
* Assumes an immediate parallel change in interest rates as of March 31, 2004.
The one-year interest rate gap is subject to a number of assumptions and is only one of a number of interest rate risk measurements and is best used as a general measure of the effect on the net interest income of rising or falling interest rates. In general, TCFs net interest income would increase with rising interest rates and decrease to a somewhat lesser degree with falling interest rates.
As stated above, TCFs balance sheet is generally positioned to benefit from rising interest rates due to a positive interest rate gap position. TCF would also likely benefit from an increase in interest rates as this might signify that economic conditions are improving. The favorable impact of an increase in interest rates on net interest income would be partially diminished by the fact that at March 31, 2004, $1.8 billion of variable-rate consumer loans and $419.2 million of variable-rate commercial loans were at their interest rate floors. These loans will remain at their interest rate floors until interest rates rise above the floor rates. See Consolidated Financial Condition Analysis Loans and Leases for additional information regarding TCFs consumer and commercial variable-rate loans. Additionally, increases in interest rates could have an adverse impact on TCFs checking account balances, if customers transfer some of these funds to higher interest rate deposit products or other investments and would likely result in an increase in the cost of interest-bearing deposits. An increase in interest rates would affect TCFs fixed-rate/variable-rate product origination mix and origination volumes and would likely slow loan prepayments.
While this positive interest rate gap may compress net interest income in the short-term, TCF believes this positive interest rate gap to be warranted because current rates are well below historical averages, and consequently, there is a greater possibility over time of higher interest rates versus lower interest rates. However, if interest rates remain at current levels or fall further, TCF could continue to experience an increase in prepayments of residential loans, mortgage-backed securities and fixed-rate consumer and commercial real estate loans and may continue to experience further compression of its net interest income.
The one-year interest rate gap could be significantly affected by external factors such as prepayment rates other than those assumed, 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 TCFs counterparties will exercise their option to call certain of TCFs 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, TCFs 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 slow prepayments on the $2.4 billion of mortgage-backed securities and residential real estate loans at March 31, 2004 by approximately $360 million, or 45% in the first year. A slowing in prepayments would increase the estimated life of the mortgage-backed securities and residential real estate loan portfolios and may adversely impact net interest income or net interest margin in the future.
Recent Accounting Developments
In December 2003, the Financial Accounting Standards Board (FASB) issued a revised version of Interpretation (FIN) No. 46 Consolidation of Variable Interest Entities. The revised FIN 46 clarifies some of the provisions of the original Interpretation and adds new scope exceptions. There was no impact on TCFs financial statements from adoption of the revised Interpretation.
38
On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Act) was signed into law. This Act includes a prescription drug benefit for enrollees and a federal subsidy for sponsors of retiree healthcare plans beginning in 2006. TCF offers a prescription drug benefit to retirees in its postretirement medical plan.
In January 2004, the FASB issued Staff Position (FSP) 106-1 Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. This FSP provided limited guidance regarding the effects of the Act on the estimated costs of providing this retirement benefit under SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions with various implementation options.
In accordance with this FSP, TCF has not included the impact of the Act in the determination of its postretirement benefit obligation and expense. TCF is currently reviewing the Act and considering its options. Specific authoritative guidance on the federal subsidy is pending and, when issued, could require TCF to change previously reported information. The effects of this Act are not expected to be significant.
Earnings Teleconference and Website Information
TCF hosts quarterly conference calls to discuss its financial results. Additional information regarding TCFs conference calls can be obtained from the investor relations section within TCFs website at www.tcfexpress.com or by contacting TCFs Corporate Communications Department at (952) 745-2760. The website also includes free access to company news releases, TCFs annual report, quarterly reports, investor presentations and Securities and Exchange Commission (SEC) filings. Replays of prior quarterly conference calls webcasts discussing financial results may also be accessed at the investor relations section within TCFs website.
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. The ultimate impact of these proposals cannot be predicted at this time, but if adopted, they could result in the imposition of additional deposit insurance premium costs on TCF.
On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the Act) was signed into law by the President of the United States. The Act provides for sweeping changes dealing with corporate governance, accounting practices and disclosure requirements for public companies, and also for their directors and officers. Section 302 of the Act, entitled Corporate Responsibility for Financial Reports, required the SEC to adopt rules to implement certain requirements noted in the Act and it did so effective August 29, 2002. The new rules require a companys chief executive and chief financial officers to certify the financial and other information included in the companys quarterly and annual reports. The rules also require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the companys disclosure controls and procedures; that they have made certain disclosures to the auditors and to the audit committee of the board of directors about the companys controls and procedures; and that they have included information in their quarterly and annual filings about their evaluation and whether there have been significant changes in disclosure controls or internal controls over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect internal control over financial reporting. These certificates called for under Section 302 of the Act are filed as an exhibit to this document. See Controls and Procedures for TCFs evaluation of disclosure controls and procedures. TCF is also filing as an exhibit to this report certificates called for under Section 906 of the Act.
39
On June 5, 2003, the SEC published its final rules on Section 404 of the Act, requiring public companies to complete an annual assessment of the effectiveness of internal control over financial reporting. The rules are effective in 2004 and a management report must be included in the 2004 Form 10-K describing managements responsibility for establishing and maintaining adequate internal control over financial reporting and its assessment of the effectiveness of such controls as of year-end. The Companys independent auditors will also be required to complete an attestation report on managements assessment.
In September 2002, the SEC issued its final ruling covering the acceleration of periodic report filing dates. The rule 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 TCFs 2004 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 2005. TCF has taken steps to modify its financial reporting process to meet these accelerated filing deadlines.
Forward-Looking Information
This report and other reports issued by the Company, including reports filed with the SEC, may contain forward-looking statements that deal with future results, plans or performance. In addition, TCFs management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCFs future results may differ materially from historical performance and forward-looking statements about TCFs expected financial results or other plans 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; ability 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 TCFs supermarket banking relationships or any of the supermarket chains in which TCF maintains supermarket branches; changes in accounting policies and guidelines, or monetary, fiscal or tax policies of the federal or state governments; changes in credit and other risks posed by TCFs loan, lease and investment portfolios, including declines in commercial or residential real estate values; 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 banking business, which could adversely affect earnings; and results of litigation or other significant uncertainties. Investors should consult TCFs Annual Report to Shareholders and reports on Forms 10-K, 10-Q and 8-K for additional important information about the Company.
The Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer, the Companys Chief Financial Officer and Treasurer (Principal Financial Officer) and its Controller and Assistant Treasurer (Principal Accounting Officer), of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (Exchange Act). Based upon that evaluation, the Companys Chief Executive Officer, the Companys Chief Financial Officer and Treasurer and its Controller and Assistant Treasurer concluded that the Companys disclosure controls and procedures are effective, as of March 31, 2004, in alerting them in a timely manner to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic SEC filings. There were no significant changes in the Companys disclosure controls or internal controls over financial reporting during the first quarter of 2004.
Disclosure controls and procedures are designed to ensure information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Companys management, including the Chief Executive Officer, the Chief Financial Officer and Treasurer and the Controller and Assistant Treasurer, 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.
40
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.
41
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, |
|
At March
31, |
|
At Dec.
31, |
|
At Sept.
30, |
|
At June
30, |
|
At March
31, |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
SELECTED FINANCIAL CONDITION DATA: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Securities available for sale |
|
$ |
1,269,293 |
|
$ |
1,533,288 |
|
$ |
1,604,282 |
|
$ |
1,980,830 |
|
$ |
2,442,724 |
|
Residential real estate loans |
|
1,152,357 |
|
1,212,643 |
|
1,283,640 |
|
1,393,183 |
|
1,568,430 |
|
|||||
Subtotal |
|
2,421,650 |
|
2,745,931 |
|
2,887,922 |
|
3,374,013 |
|
4,011,154 |
|
|||||
Loans and leases excluding real estate loans |
|
7,470,428 |
|
7,135,135 |
|
6,863,683 |
|
6,705,169 |
|
6,485,179 |
|
|||||
Total assets |
|
11,724,319 |
|
11,319,015 |
|
11,253,906 |
|
11,807,764 |
|
12,127,272 |
|
|||||
Deposits |
|
7,869,128 |
|
7,611,749 |
|
7,712,603 |
|
7,979,737 |
|
7,965,338 |
|
|||||
Borrowings |
|
2,507,087 |
|
2,414,825 |
|
2,243,725 |
|
2,506,039 |
|
2,767,890 |
|
|||||
Stockholders equity |
|
965,950 |
|
920,858 |
|
931,968 |
|
952,069 |
|
971,413 |
|
|||||
|
|
|
|
|||||||||||||
|
|
|
|
|||||||||||||
|
|
Three Months Ended |
|
|||||||||||||
|
|
March 31, |
|
Dec. 31, |
|
Sept. 30, |
|
June 30, |
|
March 31, |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
SELECTED OPERATIONS DATA: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income |
|
$ |
149,219 |
|
$ |
148,919 |
|
$ |
156,482 |
|
$ |
164,004 |
|
$ |
172,114 |
|
Interest expense |
|
30,726 |
|
29,827 |
|
36,605 |
|
44,240 |
|
49,702 |
|
|||||
Net interest income |
|
118,493 |
|
119,092 |
|
119,877 |
|
119,764 |
|
122,412 |
|
|||||
Provision for credit losses |
|
1,160 |
|
4,037 |
|
2,658 |
|
3,127 |
|
2,710 |
|
|||||
Net interest income after provision for credit losses |
|
117,333 |
|
115,055 |
|
117,219 |
|
116,637 |
|
119,702 |
|
|||||
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Fees and other revenues |
|
102,459 |
|
114,865 |
|
118,089 |
|
101,003 |
|
96,835 |
|
|||||
Gains on sales of securities available for sale |
|
12,717 |
|
|
|
|
|
11,695 |
|
21,137 |
|
|||||
Gains (losses) on termination of debt |
|
|
|
|
|
(37,769 |
) |
|
|
(6,576 |
) |
|||||
Total non-interest income |
|
115,176 |
|
114,865 |
|
80,320 |
|
112,698 |
|
111,396 |
|
|||||
Non-interest expense |
|
140,706 |
|
142,244 |
|
142,382 |
|
136,733 |
|
138,750 |
|
|||||
Income before income tax expense |
|
91,803 |
|
87,676 |
|
55,157 |
|
92,602 |
|
92,348 |
|
|||||
Income tax expense |
|
31,142 |
|
28,180 |
|
19,193 |
|
32,311 |
|
32,221 |
|
|||||
Net income |
|
$ |
60,661 |
|
$ |
59,496 |
|
$ |
35,964 |
|
$ |
60,291 |
|
$ |
60,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Per common share: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic earnings |
|
$ |
.88 |
|
$ |
.86 |
|
$ |
.51 |
|
$ |
.85 |
|
$ |
.83 |
|
Diluted earnings |
|
$ |
.88 |
|
$ |
.86 |
|
$ |
.51 |
|
$ |
.85 |
|
$ |
.83 |
|
Dividends declared |
|
$ |
.375 |
|
$ |
.325 |
|
$ |
.325 |
|
$ |
.325 |
|
$ |
.325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FINANCIAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Return on average assets (1) |
|
2.11 |
% |
2.13 |
% |
1.24 |
% |
2.04 |
% |
1.99 |
% |
|||||
Return on average common equity (1) |
|
25.90 |
|
26.18 |
|
15.77 |
|
25.17 |
|
24.70 |
|
|||||
Net interest margin (1) |
|
4.52 |
|
4.68 |
|
4.57 |
|
4.45 |
|
4.45 |
|
|||||
Average total equity to average assets |
|
8.13 |
|
8.13 |
|
7.89 |
|
8.11 |
|
8.06 |
|
(1) Annualized.
42
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
|
|
Three Months Ended March 31, |
|
||||||||||||||
|
|
2004 |
|
2003 |
|
||||||||||||
(Dollars in thousands) |
|
Average |
|
Interest (1) |
|
Average |
|
Average |
|
Interest (1) |
|
Average |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments |
|
$ |
141,770 |
|
$ |
773 |
|
2.18 |
% |
$ |
118,828 |
|
$ |
1,403 |
|
4.72 |
% |
Securities available for sale (3) |
|
1,519,374 |
|
20,332 |
|
5.35 |
|
2,341,002 |
|
33,764 |
|
5.77 |
|
||||
Loans held for sale |
|
359,238 |
|
2,841 |
|
3.16 |
|
488,110 |
|
5,226 |
|
4.28 |
|
||||
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer |
|
3,706,061 |
|
56,306 |
|
6.08 |
|
3,047,799 |
|
51,653 |
|
6.78 |
|
||||
Commercial real estate |
|
1,942,494 |
|
26,523 |
|
5.46 |
|
1,848,125 |
|
28,054 |
|
6.07 |
|
||||
Commercial business |
|
427,824 |
|
4,341 |
|
4.06 |
|
438,681 |
|
4,775 |
|
4.35 |
|
||||
Leasing and equipment finance |
|
1,194,235 |
|
20,868 |
|
6.99 |
|
1,039,213 |
|
20,279 |
|
7.81 |
|
||||
Subtotal |
|
7,270,614 |
|
108,038 |
|
5.94 |
|
6,373,818 |
|
104,761 |
|
6.57 |
|
||||
Residential real estate |
|
1,193,435 |
|
17,235 |
|
5.78 |
|
1,680,170 |
|
26,960 |
|
6.42 |
|
||||
Total loans and leases (4) |
|
8,464,049 |
|
125,273 |
|
5.92 |
|
8,053,988 |
|
131,721 |
|
6.54 |
|
||||
Total interest-earning assets |
|
10,484,431 |
|
149,219 |
|
5.69 |
|
11,001,928 |
|
172,114 |
|
6.26 |
|
||||
Other assets (5) |
|
1,041,213 |
|
|
|
|
|
1,075,990 |
|
|
|
|
|
||||
Total assets |
|
$ |
11,525,644 |
|
|
|
|
|
$ |
12,077,918 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-interest bearing deposits |
|
$ |
2,255,675 |
|
|
|
|
|
$ |
2,083,099 |
|
|
|
|
|
||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Checking |
|
1,187,865 |
|
409 |
|
.14 |
|
990,411 |
|
304 |
|
.12 |
|
||||
Savings |
|
1,809,138 |
|
1,734 |
|
.38 |
|
1,842,145 |
|
3,618 |
|
.79 |
|
||||
Money market |
|
832,695 |
|
768 |
|
.37 |
|
886,552 |
|
1,544 |
|
.70 |
|
||||
Subtotal |
|
3,829,698 |
|
2,911 |
|
.30 |
|
3,719,108 |
|
5,466 |
|
.59 |
|
||||
Certificates of deposit |
|
1,580,107 |
|
7,628 |
|
1.93 |
|
1,901,136 |
|
13,011 |
|
2.74 |
|
||||
Total interest-bearing deposits |
|
5,409,805 |
|
10,539 |
|
.78 |
|
5,620,244 |
|
18,477 |
|
1.32 |
|
||||
Total deposits |
|
7,665,480 |
|
10,539 |
|
.55 |
|
7,703,343 |
|
18,477 |
|
.96 |
|
||||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term borrowings |
|
735,475 |
|
2,350 |
|
1.28 |
|
869,735 |
|
2,830 |
|
1.30 |
|
||||
Long-term borrowings |
|
1,812,508 |
|
17,837 |
|
3.94 |
|
2,080,713 |
|
28,395 |
|
5.46 |
|
||||
Total borrowings |
|
2,547,983 |
|
20,187 |
|
3.17 |
|
2,950,448 |
|
31,225 |
|
4.23 |
|
||||
Total interest-bearing liabilities |
|
7,957,788 |
|
30,726 |
|
1.54 |
|
8,570,692 |
|
49,702 |
|
2.32 |
|
||||
Total deposits and borrowings |
|
10,213,463 |
|
30,726 |
|
1.20 |
|
10,653,791 |
|
49,702 |
|
1.87 |
|
||||
Other liabilities (5) |
|
375,192 |
|
|
|
|
|
450,534 |
|
|
|
|
|
||||
Total liabilities |
|
10,588,655 |
|
|
|
|
|
11,104,325 |
|
|
|
|
|
||||
Stockholders equity (5) |
|
936,989 |
|
|
|
|
|
973,593 |
|
|
|
|
|
||||
Total liabilities and stockholders equity |
|
$ |
11,525,644 |
|
|
|
|
|
$ |
12,077,918 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net interest income and margin |
|
|
|
$ |
118,493 |
|
4.52 |
% |
|
|
$ |
122,412 |
|
4.45 |
% |
(1) Tax-exempt income was not significant and thus has not been presented on a tax equivalent basis. Tax-exempt income of $138,000 and $133,000 was recognized during the quarter ended March 31, 2004 and 2003, respectively.
(2) Annualized.
(3) Average balance and yield of securities available for sale are based upon the historical amortized cost.
(4) Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income.
(5) Average balance is based upon month-end balances.
43
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 loan and leasing collection activities. From time to time, customers or others have also brought actions against TCF, in some cases claiming substantial amounts of damages. Financial services companies are frequently the subject of class action litigation involving a wide variety of causes of action, and TCF has had such actions brought against it from time to time. After review with its legal counsel, management believes that the ultimate disposition of existing litigation will not have a material effect on TCFs financial condition, but litigation is often unpredictable and the actual results of litigation cannot be determined with certainty.
Item 2. Changes in Securities.
The following table summarizes share repurchase activity for the quarter ended March 31, 2004:
|
|
Shares Repurchased |
|
Share Repurchase Authorizations (1) |
|
||||
(Dollars in thousands) |
|
Number |
|
Average
Price |
|
October 22, |
|
July 21, |
|
Balance, December 31, 2003 |
|
|
|
|
|
143,871 |
|
3,574,984 |
|
January 2004 |
|
13,445 |
|
$51.66 |
|
(13,445 |
) |
|
|
February 2004 |
|
|
|
|
|
|
|
|
|
March 2004 |
|
|
|
|
|
|
|
|
|
Balance, March 31, 2004 |
|
13,445 |
|
$51.66 |
|
130,426 |
|
3,574,984 |
|
(1) The current share repurchase authorizations were approved by Board of Directors on October 22, 2001 and July 21, 2003. Each authorization was for a repurchase of up to an additional 5% of TCFs common stock outstanding at the time of the authorization, or 3.8 million shares and 3.6 million shares, respectively. These authorizations do not have expiration dates.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
44
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
See Index to Exhibits on page 47 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated January 15, 2004, was submitted furnishing a press release dated January 15, 2004, announcing results of operations for the quarter and year ended December 31, 2003, under Item 12, filed under Item 7 of Form 8-K.
A Current Report on Form 8-K, dated January 23, 2004, was submitted furnishing certain investor presentation materials under Item 12, filed under Item 7 and 9 of Form 8-K.
A Current Report on Form 8-K, dated March 9, 2004, was submitted filing an announcement dated March 9, 2004, relating to a temporary suspension of trading related to a blackout period under the employee benefit plans under Item 11, filed under Item 7 of Form 8-K.
A Current Report on Form 8-K, dated March 23, 2004, was submitted furnishing a press release dated March 23, 2004, announcing the acquisition of VGM Leasing, Inc. of Waterloo, Iowa by TCF Leasing, Inc. under Item 5, filed under Item 7 of Form 8-K.
45
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, |
|
|
|
/s/ Neil W. Brown |
|
Neil W. Brown, Executive Vice President, |
|
|
|
/s/ David M. Stautz |
|
David M. Stautz, Senior Vice President, |
|
|
|
|
Dated: April 28, 2004 |
|
46
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
FOR FORM 10-Q
Exhibit |
|
Description |
|
Sequentially |
4(a) |
|
Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request. |
|
|
|
|
|
|
|
10(o)# |
|
Management Incentive Plan-Executive [incorporated by reference to Plan filed with registrants definitive proxy statement dated March 16, 1994, No. 001-10253]; and 1995 Plan Acknowledgment [incorporated by reference to Exhibit 10(s) to TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253]; 1996 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(t) to TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253]; 1997 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(t) to TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 001-10253]; and 1998 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(s) to TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 001-10253]; 1999 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(r) to TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1998, No. 001-10253]; and 2000 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(q) to TCF Financial Corporations quarterly report on Form 10-Q for the quarter ended March 31, 2000, No. 001-10253]; and 2001 Management Incentive Plan-Executive [incorporated by reference from TCF Financial Corporations Report on Form 10-Q for the quarter ended March 31, 2001, No. 001-10253]; and 2002 Management Incentive Plan-Executive [incorporated by reference from TCF Financial Corporations Report on Form 10-Q for the quarter ended March 31, 2002, No. 001-10253]; and 2004 Management Incentive Plan Executive |
|
|
|
|
|
|
|
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
47