TCF reported diluted earnings per common share of 62 cents for the first quarter of 2001, compared with 51 cents for the first quarter of 2000. Net income was $48.2 million for the first quarter of 2001, compared with $40.7 million for the same 2000 period. The 2001 first quarter results included a $2.1 million after-tax gain on sale of a branch, or 3 cents per diluted common share. Return on average assets was 1.71% for the first quarter of 2001, compared with 1.53% for the same 2000 period. Return on average realized common equity was 21.47% for the first quarter of 2001, compared with 19.24% for the same 2000 period. Diluted cash earnings per common share, which excludes amortization and reduction of goodwill, net of income tax benefits, was 64 cents for the first quarter of 2001, compared with 53 cents for the same 2000 period. On the same basis, cash return on average assets was 1.77% for the first quarter of 2001, compared with 1.60% for the same 2000 period, and cash return on average realized equity was 22.31% for the first quarter of 2001, compared with 20.12% for the same 2000 period.
TCF has significantly expanded its retail banking franchise in recent periods and had 352 retail banking branches at March 31, 2001. Since January 1, 1998, TCF has opened 164 new branches, of which 155 were supermarket branches. TCF continued to expand its supermarket franchise by opening 2 new branches during the 2001 first quarter. TCF anticipates opening approximately 30 more branches in the remainder of 2001, including 20 to 25 supermarket branches and 5 to 10 traditional branches.
BANKING, comprised of deposits and investment products, commercial lending, consumer lending, residential lending and treasury services, reported net income of $42.4 million for the first quarter of 2001, up 15.1% from $36.8 million for the same 2000 period. Net interest income for the first quarter of 2001 was $100 million, up from $99.4 million for the same 2000 period. The provision for credit losses totaled $612,000 for the first quarter of 2001, up from $111,000 for the same 2000 period. Non-interest income (excluding the gain on the sale of a branch) totaled $70 million for the first quarter of 2001, up 15.6% from $60.5 million for the same 2000 period. This improvement was primarily due to increased fees and service charges and electronic funds transfer revenues, reflecting TCF’s expanded retail banking operations and customer base. Non-interest expense (excluding the amortization of goodwill and deposit base intangibles) totaled $102.2 million for the first quarter of 2001, up 4.8% from $97.6 million for the same 2000 period. The increase was primarily due to the costs associated with TCF’s continued retail banking expansion, including de novo supermarket branches, offset by sales of underperforming branches.
LEASING AND EQUIPMENT FINANCE, an operating segment comprised of TCF’s wholly owned subsidiaries Winthrop and TCF Leasing, provides a broad range of comprehensive lease and equipment finance products. This operating segment reported net income of $4.6 million for the first quarter of 2001, down 3.4% from $4.7 million for the same 2000 period. As previously discussed in Note 4, due to changes in methodologies of certain allocations, first quarter 2001 results for the leasing operating segment include a $500,000, after-tax, increase in intercompany expense allocations compared with 2000. Net interest income for the first quarter of 2001 was $10.2 million, up 78.8% from $5.7 million for the same 2000 period. Leasing and equipment finance’s provision for credit losses totaled $1.8 million for the first quarter of 2001, up from $879,000 for the same 2000 period, primarily as a result of the significant growth in the portfolio and increased delinquencies. Non-interest income totaled $8.2 million for the first quarter of 2001, down 8.8% from $9 million for the same 2000 period. Non-interest expense (excluding the amortization of goodwill) totaled $9.2 million for the first quarter of 2001, up 51.1% from $6.1 million for the same 2000 period, primarily as a result of the growth experienced in TCF Leasing during the past year.
MORTGAGE BANKING activities include the origination and purchase of residential mortgage loans, generally for sale to third parties with servicing retained. This operating segment reported net income of $1.1 million for the first quarter of 2001, compared with a net loss of $258,000 for the same 2000 period. As a result of changes in methodologies of certain allocations in 2001 as discussed in Note 4, the first quarter 2001 results for the mortgage banking operating segment include a reduction of $249,000, after-tax, in intercompany expense compared with 2000. Non-interest income totaled $7.3 million for the first quarter of 2001, up 25.5% from $5.8 million for the same 2000 period. This increase is primarily due to an $889,000 increase in service fees and other fees on mortgage loans and $345,000 in gains on sales of loans held for sale. As a result of declines in interest rates during the first quarter of 2001, the mortgage banking segment has experienced an increase in refinance activity. During the first quarter of 2001, this operating segment generated $898.7 million in new loan applications and $395.5 million in closed loans, up from $367.2 million and $184.5 million, respectively in the 2000 first quarter. TCF’s mortgage pipeline (applications in process but not yet closed) was $671 million at March 31, 2001, compared with $221 million at December 31, 2000. The third-party servicing portfolio was $4.009 billion at March 31, 2001 with a weighted average coupon on loans of 7.40%, compared with $3.971 billion at December 31, 2000 with a weighted average coupon on loans of 7.42%. Non-interest expense totaled $7.5 million for the first quarter of 2001, up 1.6% from $7.4 million for the same 2000 period. Mortgage servicing rights totaled $43.7 million or 1.09% of the servicing portfolio at March 31, 2001, compared with $40.1 million or 1.01% at December 31, 2000. During the first quarter of 2001, this operating segment had increased amortization of mortgage servicing rights of $894,000 and recorded $400,000 in additional valuation allowance expense, both due to the larger servicing portfolio and accelerating prepayments.
Net Interest Income
Net interest income for the first quarter of 2001 was $113.8 million, compared with $106.8 million for the first quarter of 2000 and $110.8 million for the 2000 fourth quarter. The net interest margin for the first quarter of 2001 was 4.35%, compared with 4.32% for the same 2000 period and 4.33% for the fourth quarter of 2000. TCF’s first quarter 2001 net interest income increased $7 million over the comparable 2000 period. Net interest income improved by $12 million due to volume changes and decreased $5.1 million due to rate changes. The increase in net interest income and net interest margin during the first quarter of 2001 is primarily due to the growth in higher yielding commercial loans and leases along with strong growth in low cost deposits. Changes in net interest income are dependent upon the movement of interest rates, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. Achieving net interest margin growth is dependent on TCF’s ability to generate higher-yielding assets and lower-cost retail deposits. If variable index rates (e.g., prime) were to decline, TCF may experience additional compression of its net interest margin depending on the timing and amount of any reductions, as it is possible that interest rates paid on retail deposits will not decline as quickly, or to the same extent, as the decline in the yield on interest-rate-sensitive assets such as home equity loans. Competition for checking, savings and money market deposits, important sources of lower cost funds for TCF, is intense. TCF may also experience compression in its net interest margin if the rates paid on deposits increase or as a result of new pricing strategies and lower rates offered on loan products in order to respond to competitive conditions. See “Market Risk - Interest-Rate Risk” and “Financial Condition - Deposits.”
The following rate/volume analysis details the increases (decreases) in net interest income resulting from interest rate and volume changes during the first quarter of 2001 as compared with the same period last year. 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.
| | Three Months Ended |
| | March 31, 2001 |
| | Versus Same Period in 2000
|
| | Increase (Decrease) Due to
|
| (In thousands) | Volume
| Rate
| Total
|
| Investments | $111
| $(181)
| $(70)
|
| Securities available for sale | (881)
| 80
| (801)
|
| Loans held for sale | 1,557
| (294)
| 1,263
|
| Loans and leases: | | | |
| Residential real estate | (6,285) | 1,267 | (5,018) |
| Commercial real estate | 5,843 | (396) | 5,447 |
| Commercial business | 1,013 | (99) | 914 |
| Consumer | 4,262 | (136) | 4,126 |
| Leasing and equipment finance | 9,517
| 26
| 9,543
|
| Total loans and leases | 14,350
| 662
| 15,012
|
| Total interest income | 15,137
| 267
| 15,404
|
| Deposits: | | | |
| Checking | 27 | (38) | (11) |
| Passbook and statement | (198) | (256) | (454) |
| Money market | 1,137 | 1,097 | 2,234 |
| Certificates | (1,640)
| 4,717
| 3,077
|
| Total deposits | (674)
| 5,520
| 4,846
|
| Borrowings: | | | |
| Securities sold under repurchase agreements and federal funds purchased | 3,557 | (22) | 3,535 |
| FHLB advances | 1,587 | (374) | 1,213 |
| Discounted lease rentals | (256) | 34 | (222) |
| Other borrowings | (1,117)
| 198
| (919)
|
| Total borrowings | 3,771
| (164)
| 3,607
|
| Total interest expense | 3,097
| 5,356
| 8,453
|
| Net interest income | $12,040
| $(5,089)
| $6,951
|
Provision for Credit Losses
TCF provided $2.4 million for credit losses in the first quarter of 2001, compared with $990,000 for the same prior-year period. Net loan and lease charge-offs were $958,000 in the 2001 first quarter, compared with net loan and lease recoveries of $30,000 in the 2000 first quarter. The increase in provision during the 2001 first quarter is primarily the result of the significant increase in the overall loan portfolio. At March 31, 2001, the allowance for loan and lease losses totaled $68.1 million, compared with $66.7 million at December 31, 2000. See “Financial Condition - Allowance for Loan and Lease Losses.”
Non-Interest Income
Non-interest income is a significant source of revenues for TCF and an important factor in TCF’s results of operations. Providing a wide range of retail banking services is an integral component of TCF’s business philosophy and a major strategy for generating additional non-interest income. Excluding the gain on sale of a branch, non-interest income increased $10.3 million, or 14.1%, to $83.2 million for the first quarter of 2001, compared with $73 million for the same period in 2000. The increase was primarily due to increased fee and service charges and electronic funds transfer revenues, and reflects TCF’s expanded retail banking and customer base.
Electronic funds transfer revenues totaled $19.4 million for the first quarter of 2001, representing an increase of 12% from $17.4 million for the same 2000 period. These increases reflect TCF’s efforts to provide banking services through its ATM network and debit cards. Included in electronic funds transfer revenues are debit card interchange fees of $8 million and $6 million for the quarter ended March 31, 2001 and 2000, respectively. The significant increase in these fees reflects an increase in the distribution of debit cards, and an increase in utilization resulting from TCF’s phone card promotion which rewards customers with long distance minutes based on usage, a promotion begun in February 2000. TCF had 1.3 million ATM cards outstanding at March 31, 2001, of which 1.1 million were debit cards. At March 31, 2000, TCF had 1.1 million ATM cards outstanding of which 968,000 were debit cards. The percentage of TCF’s checking account base with debit cards increased to 78.3% during the first quarter of 2001, from 73.3% during the first quarter of 2000. The average number of transactions per month on active debit cards increased to 10.1 during the first quarter of 2001, from 9.2 during the first quarter of 2000. TCF had 1,368 ATMs in its network at March 31, 2001, compared with 1,405 at March 31, 2000. Electronic funds transfer revenues in future periods may be negatively impacted by pending legislative proposals which, if enacted and not judicially restrained, could limit ATM fees.
Leasing revenues totaled $8.2 million for the first quarter of 2001, compared with $9 million for the same 2000 period. The volume and type of new lease transactions and the resulting revenues may fluctuate from period to period based upon factors not within the control of TCF, such as economic conditions. The decrease in total leasing revenues from the first quarter of 2000 is primarily due to a decrease of $1.3 million from sales-type lease transactions, partially offset by increases of $453,000 in other lease revenues.
Gains on sales of loans held for sale totaled $1.3 million for the first quarter of 2001, an increase of $389,000 from the $955,000 recognized during the same period in 2000. The increase resulted from increased volume of originations and sales of residential loans in the relatively lower interest rate environment. Gains or losses on sales of loans held for sale and securities available for sale may fluctuate significantly from period to period due to changes in interest rates and volumes, and results in any period related to these transactions may not be indicative of results which will be obtained in future periods.
During the first three months of 2001, TCF recognized a gain of $3.3 million on the sale of one Michigan branch with $30 million in deposits. No branch sales occurred in the first quarter of 2000.
Non-Interest Expense
Non-interest expense totaled $120.5 million for the first quarter of 2001, compared with $112.6 million for the same 2000 period. Compensation and employee benefits expense totaled $62.8 million for the 2001 first quarter, compared with $58.4million for the comparable period in 2000. The increase in compensation and employee benefits over the first quarter of 2000 is primarily due to TCF’s continued leasing and de novo retail banking expansion. Advertising and promotions expenses totaled $5.3 million for the first quarter of 2001, compared with $4.2 million for the same period in 2000. The increase in 2001, is primarily due to costs associated with expanded retail banking activities and promotional expenses associated with TCF Express Phone Card, where customers earn free long distance minutes for use of their debit cards. During the first quarter of 2001, TCF awarded over 12.7 million minutes under this promotion, compared with 3.2 million during the first quarter of 2000.
Other non-interest expense totaled $30.4 million for the first quarter of 2001, reflecting an increase of 6.3% from $28.6 million for the same 2000 period. This increase is primarily due to the increase in amortization of mortgage servicing rights and the increase in valuation allowances recorded during the first quarter of 2001.
Income Taxes
TCF recorded income tax expense of $29.2 million for the first quarter of 2001, or 37.75% of income before income tax expense, compared with $25.5 million, or 38.5% of income before income tax expense, for the comparable 2000 period. The lower tax rates in 2001 reflect lower state taxes, and the impact of relatively lower non-deductible expenses in 2001.
FINANCIAL CONDITION
Investments and Securities Available for Sale
In the first quarter of 2001, TCF purchased $550 million of mortgage-backed securities in response to expected declines in the residential real estate loan portfolio.
Loans and Leases
The following table sets forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale:
| | At March 31, | At December 31, | % Change from December 31, |
| (In thousands) | 2001
| 2000
| 2000
|
| | | | |
| Residential real estate | $3,443,889 | $3,666,765 | (6.1)% |
| Unearned premiums and deferred loan fees | 6,422
| 7,066
| (9.1)
|
| | 3,450,311
| 3,673,831
| (6.1)
|
| Consumer: | | | |
| Home equity | 2,209,520 | 2,168,827 | 1.9 |
| Other secured | 52,784 | 56,919 | (7.3) |
| Unsecured | 23,677 | 25,175 | (6.0) |
| Unearned discounts and deferred loan fees | (16,396)
| (16,787)
| 2.3
|
| | 2,269,585
| 2,234,134
| 1.6
|
| | | | |
| Commercial real estate: | | | |
| Apartments | 344,002 | 324,666 | 6.0 |
| Other permanent | 933,367 | 871,614 | 7.1 |
| Construction and development | 156,266 | 178,372 | (12.4) |
| Unearned discounts and deferred loan fees | (3,106)
| (2,811)
| 10.5
|
| | 1,430,529
| 1,371,841
| 4.3
|
| | | | |
| Commercial business | 412,997 | 409,915 | .8 |
| Deferred loan costs | 467
| 507
| (7.9)
|
| | 413,464
| 410,422
| .7
|
| Leasing and equipment finance: | | | |
| Loans: | | | |
| Equipment finance loans | 234,728 | 204,351 | 14.9 |
| Deferred loan costs | 2,927
| 2,708
| 8.1
|
| | 237,655
| 207,059
| 14.8
|
| Lease financings: | | | |
| Direct financing leases | 667,520 | 658,678 | 1.3 |
| Sales-type leases | 36,572 | 37,645 | (2.9) |
| Lease residuals | 31,532 | 30,426 | 3.6 |
| Unearned income and deferred lease costs | (93,208) | (94,506) | 1.4 |
| Investment in leveraged leases | 16,607
| 17,169
| (3.3)
|
| | 659,023
| 649,412
| 1.5
|
| | 896,678
| 856,471
| 4.7
|
| | $8,460,567
| $8,546,699
| (1.0)
|
Approximately 68.9% of the home equity loan portfolio at March 31, 2001 consists of closed-end loans, compared with 68% at December 31, 2000. In addition, at March 31, 2001, 45.5% of this portfolio carries a variable interest rate, compared with 47% at December 31, 2000. At March 31, 2001, the weighted average loan-to-value ratio for the home equity loan portfolio was 77%, unchanged from December 31, 2000.
The following table sets forth additional information about the loan-to-value ratios for TCF’s home equity loan portfolio:
| (Dollars in thousands) | At March 31, 2001
| At December 31, 2000
|
| | | Percent | | Percent |
| Loan-to-Value Ratios (1): | Balance
| of Total
| Balance
| of Total
|
| Over 100% (2) | $46,708 | 2.1% | $45,633 | 2.1% |
| Over 90% to 100% | 493,603 | 22.3 | 486,536 | 22.4 |
| Over 80 to 90% | 671,049 | 30.4 | 648,218 | 29.9 |
| 80% or less | 998,160
| 45.2
| 988,440
| 45.6
|
| Total | $2,209,520
| 100.0%
| $2,168,827
| 100.0%
|
| (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 original amount of senior liens, if any. Property values represent the most recent appraised value or property tax assessment value known to TCF. In most cases, this value was obtained at the loan origination date and does not reflect subsequent appreciation or depreciation in property values, if any. |
| |
| (2) Amount reflects the outstanding loan balance. The portion of the loan balance in excess of 100% of the property value is substantially less. |
TCF continues to expand its commercial business and commercial real estate lending activity to borrowers located in its primary midwestern markets. At March 31, 2001, approximately 87% of TCF’s commercial real estate loans outstanding were secured by properties located in its primary markets. In addition, approximately 97% of TCF’s commercial business and commercial real estate loans are secured either by properties or underlying business assets. At March 31, 2001 and December 31, 2000, there were no commercial real estate loans with terms that have been modified in troubled debt restructurings included in performing loans.
Total loan and lease originations for TCF’s leasing business were $122.4 million for the first three months of 2001, compared with $125.2 million during the same 2000 period. At March 31, 2001, the backlog of approved transactions related to TCF’s leasing business totaled $162.3 million, compared with $165.6 million at December 31, 2000. The increase in the leasing and equipment finance portfolio is primarily due to the de novo expansion activity of TCF Leasing which began in 1999. Included in this portfolio at March 31, 2001 are $143.7 million of loans and leases secured by trucks and trailers, compared with $144.4 million at December 31, 2000. TCF’s expanded leasing activity is subject to the risk of cyclical downturns and other adverse economic developments affecting these industries and markets. TCF’s ability to grow 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. TCF Leasing has originated most of its portfolio during recent periods, and consequently the performance of this portfolio may not be reflective of future results and credit quality.
Loan and lease originations, including loans held for sale, for the first three months of 2001 and 2000 were as follows:
| | Three Months Ended March 31,
|
| (In thousands) | 2001
| 2000
|
| | | |
| Consumer (1) | $333,759 | $261,879 |
| Commercial | 140,035 | 206,878 |
| Leasing and equipment finance | 122,394 | 125,218 |
| Residential real estate (1) | 389,152
| 183,462
|
| Total | $985,340
| $777,437
|
(1) Includes loans held for sale.
Allowance for Loan and Lease Losses
A summary of the activity of the allowance for loan and lease losses and selected statistics follows:
| | Three Months |
| | Ended March 31,
|
| (Dollars in thousands) | 2001
| 2000
|
| | | |
| Balance at beginning of period | $66,669 | $55,755 |
| Provision for credit losses | 2,425 | 990 |
| Charge-offs | (2,259) | (1,941) |
| Recoveries | 1,301
| 1,971
|
| Net (charge-offs) recoveries | (958)
| 30
|
| Balance at end of period | $68,136
| $56,775
|
| | | |
| Ratio of annualized net loan and lease charge-offs to average loans and leases outstanding | .05% | -% |
| | | |
| Allowance for loan and lease losses as a percentage of total loans and leases at period end | .81% | .70% |
Additional information on the allowance for loan and lease losses follows:
| | At or For the Quarter Ended March 31, 2001
| At or For the Year Ended December 31, 2000
|
| | Allowance for Loan and Lease Losses
| Total Loans and Leases
| Allowance as a % of Portfolio
| Net Charge Offs (Recoveries)(1)
| Allowance for Loan and Lease Losses
| Total Loans and Leases
| Allowance as a % of Portfolio
| Net Charge Offs (Recoveries)
|
(Dollars in thousands)
|
| Commercial real estate | $21,021 | $1,430,529 | $1.47% | .01% | $20,753 | $1,371,841 | 1.51% | (.02)% |
| Commercial business | 10,377 | 413,464 | 2.51 | (.10) | 9,668 | 410,422 | 2.36 | (.15) |
| Consumer | 9,231 | 2,269,585 | .41 | .06 | 9,764 | 2,234,134 | .44 | .12 |
| Leasing and equipment finance | 8,733 | 896,678 | .97 | .30 | 7,583 | 856,471 | .89 | .33 |
| Unallocated | 16,139
| -
| .19
| N.A.
| 16,139
| -
| .19
| N.A.
|
| Subtotal | 65,501 | 5,010,256 | 1.31 | .08 | 63,907 | 4,872,868 | 1.31 | .09 |
| Residential real estate | 2,635
| 3,450,311
| .08
| -
| 2,762
| 3,673,831
| .08
| -
|
| Total | $68,136
| $8,460,567
| .81
| .05
| $66,669
| $8,546,699
| .78
| .05
|
(1) Annualized.
N.A. Not applicable.
The ratio of annualized net loan charge-offs to average loans outstanding for TCF’s consumer portfolio were .06% and .08% for the three months ended March 31, 2001 and 2000, respectively. Included in the net loan and lease charge-offs for the first quarter of 2001 were net recoveries related to the consumer finance automobile loans of $514,000, compared with $215,000 for the same period of 2000.
As previously noted, TCF provided $2.4 million for credit losses in the first quarter of 2001, compared with $990,000 for the first quarter of 2000 and $4.7 million for the fourth quarter of 2000. At March 31, 2001, the allowance for loan and lease losses totaled $68.1 million, compared with $66.7 million at December 31, 2000. The increase in the provision for credit losses and the allowance for loan and lease losses during the first quarter of 2001 reflects the impact of the growth in the higher-risk commercial loan and lease portfolios.
On an ongoing basis, TCF’s loan and lease portfolios are reviewed and analyzed as to credit risk, performance, collateral value and quality. The allowance for loan and lease losses is maintained at a level believed to be appropriate by management to provide for probable loan and lease losses inherent in the portfolio. Management’s judgment as to the amount of the allowance, including the allocated and unallocated elements, is a result of ongoing review of larger individual loans and leases, the overall risk characteristics of the portfolios, changes in the character or size of the portfolios, the level of non-performing assets, historical net charge-off amounts, geographic location and prevailing economic conditions. The allowance for loan and lease losses is established for probable losses inherent in TCF’s loan and lease portfolios as of the balance sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. Loans and leases are charged off to the extent they are deemed to be uncollectible.
The amount of the allowance for loan and lease losses is highly dependent upon management’s estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees or properties. These estimates are reviewed periodically and adjustments, if necessary, are reported in the provision for credit losses in the periods in which they become known.
Non-Performing Assets
Non-performing assets, consisting of principally non-accrual loans and leases and other real estate owned, totaled $46.7 million, or .56% of net loans and leases at March 31, 2001, compared with $46.7 million, or .55% at December 31, 2000. Included in non-accrual leasing and equipment finance at March 31, 2001 are $2.9 million of leases that have been funded on a non-recourse basis by third-party financial institutions. Approximately 58% of non-performing assets at March 31, 2001 consist of, or are secured by, residential real estate. Non-performing assets are summarized in the following table:
| | At March 31, | At December 31, |
| (Dollars in thousands) | 2001
| 2000
|
| Non-accrual loans and leases: | | |
| Consumer | $12,055 | $13,027 |
| Residential real estate | 4,854 | 4,829 |
| Commercial real estate | 4,741 | 5,820 |
| Commercial business | 504 | 236 |
| Leasing and equipment finance, net | 9,747
| 7,376
|
| Total non-accrual loans and leases, net | 31,901 | 31,288 |
| Non-recourse discounted lease rentals | 2,873
| 3,910
|
| Total non-accrual loans and leases, gross | 34,774 | 35,198 |
| Other real estate owned and other repossessed assets | 11,930
| 11,524
|
| | | |
| Total non-performing assets, gross | $46,704
| $46,722
|
| | | |
| Total non-performing assets, net | $43,831
| $42,812
|
| | | |
| Accruing loans and leases 90 days or more past due | $6,887
| $5,020
|
| | | |
| Gross non-performing assets as a percentage of net loans and leases | .56% | .55% |
| | | |
| Gross non-performing assets as a percentage of total assets | .39% | .42% |
The over 30-day delinquency rate on TCF’s loans and leases (excluding loans held for sale and non-accrual loans and leases) was .72% of loans and leases outstanding at March 31, 2001, compared with .69% at year-end 2000. TCF’s delinquency rates are determined using the contractual method. The following table sets forth information regarding TCF’s over 30-day delinquent loan and lease portfolio, excluding loans held for sale and non-accrual loans and leases:
| | At March 31, 2001
| At December 31, 2000
| |
| Principal Balances
| Percentage of Portfolio
| Principal Balances
| Percentage of Portfolio
| |
| (Dollars in thousands) | |
| Consumer | $21,756 | .96% | $20,628 | .93% | |
| Residential real estate | 14,214 | .41 | 16,971 | .46 | |
| Commercial real estate | 3,913 | .27 | 1,793 | .13 | |
| Commercial business | 10,488 | 2.54 | 3,958 | .96 | |
| Leasing and equipment finance | 10,659
| 1.21
| 15,508
| 1.83
| |
| Total | $61,030
| .72
| $58,858
| .69
| |
TCF’s over 30-day delinquency rate on total consumer loans was .96% at March 31, 2001, compared to .93% at year-end 2000. TCF’s over 30-day delinquency rate on commercial business loans was 2.54% at March 31, 2001, and included a $6.6 million loan with a customer, which was brought current April 4, 2001. Excluding this item, the delinquency rate for commercial business loans would have been .95% at March 31, 2001. TCF’s over 30-day delinquency on total leasing and equipment finance decreased to 1.21% at March 31, 2001 from 1.83% at December 31, 2000. Included in delinquent leasing and equipment finance at March 31, 2001 are $1 million of leases that have been funded on a non-recourse basis by third-party financial institutions. Contributing to the decrease in leasing and equipment finance delinquencies is a decrease in delinquencies for the truck and trailer segment. At March 31, 2001, approximately $5.2 million of the truck and trailer segment was over 30-days delinquent, compared with $10.6 million at December 31, 2000. Management continues to monitor the leasing and equipment finance and consumer loan portfolios, which will generally have higher delinquencies than other categories.
In addition to the non-accrual loans and leases, there were commercial real estate and commercial business loans with an aggregate principal balance of $21.2 million outstanding at March 31, 2001 for which management has concerns regarding the ability of the borrowers to meet existing repayment terms. This amount consists of loans that were classified for regulatory purposes as substandard or doubtful, or were to borrowers that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. This compares with $19.9 million of such loans at December 31, 2000. Although these loans are secured by commercial real estate or other corporate assets, they may be subject to future modifications of their terms or may become non-performing. The recorded investment in loans that are considered to be impaired was $5.2 million and $6.1 million at March 31, 2001 and December 31, 2000, respectively. The related allowance for credit losses was $930,000 at March 31, 2001, compared with $1.2 million at December 31, 2000. All of the impaired loans were on non-accrual status. The average recorded investment in impaired loans during three months ended March 31, 2001 was $6.2 million, unchanged from the 2000 fourth quarter. Management monitors the performance and classification of such loans and leases and the financial condition of these borrowers.
Deposits
Checking, savings and money market deposits are an important source of lower cost funds and fee income for TCF. Deposits totaled $7 billion at March 31, 2001, up $139 million from December 31, 2000. The increase in deposits is net of the impact of the previously noted sale of one branch during the first three months of 2001. Lower interest-cost checking, savings and money market deposits totaled $4.3 billion, up $194.6 million from December 31, 2000, and comprised 60.9% of total deposits at March 31, 2001. The average annualized fee revenue per retail checking account for the first three months of 2001 was $194, compared with $164 for the comparable 2000 period. Higher interest-cost certificates of deposit decreased $55.6 million from December 31, 2000. TCF’s weighted-average rate for deposits, including non-interest bearing deposits, was 2.75% at March 31, 2001, compared with 3.12% at December 31, 2000.
As previously noted, TCF continued to expand its supermarket banking franchise by opening 2 new branches during the 2001 first quarter. TCF now has 215 supermarket branches, up from 204 such branches a year ago. During the past year, the number of deposit accounts in TCF’s supermarket branches increased 14.5% to 677,856 accounts and the balances increased 22.4% to $1.2 billion. The average rate on these deposits increased from 2.24% at March 31, 2000 to 2.34% at March 31, 2001. Additional information regarding TCF’s supermarket branches is as follows:
| Supermarket Banking Summary: | At or for the Three Months | | |
| | Ended March 31,
| Increase (Decrease)
| % Change
|
| (Dollars in thousands) | 2001
| 2000
|
| Number of branches | 215 | 204 | 11 | 5.4% |
| Number of deposit accounts | 677,856 | 591,956 | 85,900 | 14.5 |
| Deposits: | | | | |
| Checking | $536,847 | $427,756 | $109,091 | 25.5 |
| Passbook and statement | 155,897 | 140,838 | 15,059 | 10.7 |
| Money market | 115,746 | 71,173 | 44,573 | 62.6 |
| Certificates | 344,473
| 301,836
| 42,637
| 14.1
|
| Total deposits | $1,152,963
| $941,603
| $211,360
| 22.4
|
| | | | | |
| Average rate on deposits | 2.34%
| 2.24%
| .10%
| 4.5
|
| Total fees and other revenues | $29,636
| $23,314
| $6,322
| 27.1
|
| Consumer loans outstanding | $247,624
| $203,474
| $44,150
| 21.7
|
Borrowings
Borrowings totaled $3.7 billion as of March 31, 2001, up $491.2 million from year-end 2000. The increase was primarily due to increases of $253 million in securities sold under repurchase agreements, $150 million in FHLB advances and $86.2 million in treasury, tax and loan notes and $9 million in federal funds purchased, partially offset by a decrease of $7 million in discounted lease rentals. Included in FHLB advances at March 31, 2001 are $1.8 billion of fixed-rate advances which are callable at par on certain anniversary dates and quarterly thereafter until maturity. If called, the FHLB will provide replacement funding at the then-prevailing market rate of interest for the remaining term-to-maturity of the advances, subject to standard terms and conditions. The weighted-average rate on borrowings decreased to 5.67% at March 31, 2001, from 6.23% at December 31, 2000. At March 31, 2001, borrowings with a maturity of one year or less totaled $1.5 billion.
Stockholders’ Equity
Stockholders’ equity at March 31, 2001 was $895.1 million, or 7.6% of total assets, down from $910.2 million, or 8.1% of total assets, at December 31, 2000. The decrease in stockholders’ equity is primarily due to the repurchase of 1.6 million shares of TCF’s common stock at a cost of $57.4 million and the payment of $19.7 million in dividends on common stock, partially offset by net income of $48.2 million for the first quarter. On April 30, 2001, TCF’s Board of Directors authorized another repurchase of up to 5% of TCF’s common stock, or approximately 3.9 million shares. On April 30, 2001, TCF declared a quarterly dividend of 25 cents per common share, payable on May 31, 2001 to shareholders of record as of May 11, 2001.
At March 31, 2001, TCF and its bank subsidiaries exceeded their regulatory capital requirements and are considered “well-capitalized” under guidelines established by the Federal Reserve Board and the Office of the Comptroller of the Currency pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.
MARKET RISK - INTEREST-RATE RISK
TCF’s results of operations are dependent to a large degree on its net interest income, which is the difference between interest income and interest expense, and the Company’s 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. TCF, like most financial institutions, has a material interest-rate risk exposure to changes in both short-term and long-term interest rates as well as variable index interest rates (e.g., prime). Since TCF does not hold a trading portfolio, the Company is not exposed to market risk from trading activities.
Like most financial institutions, TCF’s interest income and cost of funds are significantly affected by general economic conditions and by policies of regulatory authorities. The mismatch between maturities and interest-rate sensitivities of assets and liabilities results in interest-rate risk. Although the measure is subject to a number of assumptions and is only one of a number of measurements, management believes the interest-rate gap (difference between interest-earnings assets and interest-bearing liabilities repricing within a given period) is an important indication of TCF’s exposure to interest-rate risk and the related volatility of net interest income in a changing interest rate environment. In addition to the interest-rate gap analysis, management also utilizes a simulation model to measure and manage TCF’s interest-rate risk.
For an institution with a negative interest-rate gap for a given period, the amount of its interest-bearing liabilities maturing or otherwise repricing within such period exceeds the amount of its interest-earning assets repricing within the same period. In a rising interest-rate environment, institutions with negative interest-rate gaps will generally experience more immediate increases in the cost of their liabilities than in the yield on their assets. Conversely, the yield on assets of institutions with negative interest-rate gaps will generally decrease more slowly than the cost of their funds in a falling interest-rate environment.
TCF’s Asset/Liability Management Committee manages TCF’s interest-rate risk based on interest rate expectations and other factors. The principal objective of TCF’s asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest-rate risk and liquidity risk and facilitating the funding needs of the Company. Management’s estimates and assumptions 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 and a general rise in interest rates. Decisions by management to purchase or sell assets, or retire debt could change the maturity/repricing and spread relationships. In addition, TCF’s interest-rate risk will increase during periods of rising interest rates due to resulting slower prepayments on loans and mortgage-backed securities, and the increased likelihood that the Federal Home Loan Bank (“FHLB”) will exercise its option to call certain of TCF’s longer-term FHLB advances. See “Financial Condition - Borrowings.” TCF’s one-year adjusted interest-rate gap was a negative $220 million, or (2)% of total assets, at March 31, 2001, compared with a negative $215 million, or (2)% of total assets, at December 31, 2000.
Earnings Teleconference
TCF hosts quarterly conference calls to discuss its financial results. Additional information regarding TCF’s conference calls can be obtained from the investor relations section within TCF’s web site at www.tcfexpress.com or contact TCF’s Corporate Communications Department at (952) 745-2760.
Legislative, Legal and Regulatory Developments
Federal and state legislation imposes numerous legal and regulatory requirements on financial institutions. Future legislative or regulatory change, or changes in enforcement practices or court rulings, may have a dramatic and potentially adverse impact on TCF and its bank and other subsidiaries
Forward-Looking Information
This report and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, may contain “forward-looking” statements that deal with future results, plans or performance. In addition, TCF’s management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCF’s future results may differ materially from historical performance and forward-looking statements about TCF’s expected financial results or other plans are subject to a number of risks and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins; deposit outflows; reduced demand for financial services and loan and lease products; changes in accounting policies or guidelines, or monetary and fiscal policies of the federal government; changes in credit and other risks posed by TCF’s loan, lease and investment portfolios; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation or other significant uncertainties.
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except per-share data)
| At March 31,
2001
| At Dec. 31,
2000
| At Sept. 30,
2000
| At June 30,
2000
| At March 31,
2000
|
| SELECTED FINANCIAL CONDITION DATA: | | | | | |
| Total assets | $11,845,124 | $11,197,462 | $10,980,000 | $10,905,705 | $10,761,821 |
| Investments | 242,065 | 134,059 | 132,173 | 131,635 | 155,265 |
| Securities available for sale | 1,928,338 | 1,403,888 | 1,413,218 | 1,436,836 | 1,470,532 |
| Residential real estate loans | 3,450,311 | 3,673,831 | 3,797,023 | 3,866,659 | 3,932,944 |
| Other loans and leases | 5,010,256 | 4,872,868 | 4,562,644 | 4,364,491 | 4,158,849 |
| Deposits | 7,030,818 | 6,891,824 | 6,810,921 | 6,719,962 | 6,823,248 |
| Borrowings | 3,675,428 | 3,184,245 | 3,115,066 | 3,205,732 | 2,975,080 |
| Stockholders' equity | 895,066 | 910,220 | 859,444 | 807,382 | 780,311 |
| | Three Months Ended
|
| | March 31, | Dec. 31, | Sept. 30, | June 30, | March 31, |
| | 2001
| 2000
| 2000
| 2000
| 2000
|
| SELECTED OPERATIONS DATA: | | | | | |
| Interest income | $212,561 | $214,408 | $210,709 | $204,407 | $197,157 |
| Interest expense | 98,770
| 103,584
| 100,035
| 94,209
| 90,317
|
| Net interest income | 113,791 | 110,824 | 110,674 | 110,198 | 106,840 |
| Provision for credit losses | 2,425
| 4,711
| 3,688
| 5,383
| 990
|
| Net interest income after provision for credit losses | 111,366
| 106,113
| 106,986
| 104,815
| 105,850
|
| Non-interest income: | | | | | |
| Fees and other revenues | 83,245 | 88,122 | 85,276 | 82,438 | 72,953 |
| Gains on sales of branches | 3,316
| 8,947
| -
| 3,866
| -
|
| Total non-interest income | 86,561
| 97,069
| 85,276
| 86,304
| 72,953
|
| Non-interest expense: | | | | | |
| Amortization of goodwill and other intangibles | 2,429 | 2,519 | 2,515 | 2,484 | 2,483 |
| Other non-interest expense | 118,031
| 115,841
| 113,818
| 112,761
| 110,107
|
| Total non-interest expense | 120,460
| 118,360
| 116,333
| 115,245
| 112,590
|
| Income before income tax expense | 77,467 | 84,822 | 75,929 | 75,874 | 66,213 |
| Income tax expense | 29,244
| 32,657
| 29,232
| 29,212
| 25,492
|
| Net income | $48,223
| $52,165
| $46,697
| $46,662
| $40,721
|
| | | | | | |
| Per common share: | | | | | |
| Basic earnings | $.62
| $.67
| $.60
| $.60
| $.51
|
| Diluted earnings | $.62
| $.66
| $.59
| $.59
| $.51
|
| Diluted cash earnings (1) | $.64
| $.68
| $.61
| $.61
| $.53
|
| Dividends declared | $.25
| $.2125
| $.2125
| $.2125
| $.1875
|
| | | | | | |
| FINANCIAL RATIOS: (2) | | | | | |
| Return on average assets | 1.71% | 1.89% | 1.71% | 1.73% | 1.53% |
| Cash return on average assets (1) | 1.77 | 1.96 | 1.78 | 1.80 | 1.60 |
| Return on average realized common equity | 21.47 | 23.17 | 21.52 | 22.19 | 19.24 |
| Return on average common equity | 21.54 | 23.78 | 22.55 | 23.72 | 20.55 |
| Cash return on average realized common equity (1) | 22.31 | 24.01 | 22.39 | 23.09 | 20.12 |
| Average total equity to average assets | 7.93 | 7.95 | 7.60 | 7.28 | 7.44 |
| Average realized tangible equity to average assets | 6.51 | 6.66 | 6.43 | 6.23 | 6.35 |
| Average tangible equity to average assets | 6.48 | 6.45 | 6.06 | 5.72 | 5.84 |
| Net interest margin (3) | 4.35 | 4.33 | 4.38 | 4.38 | 4.32 |
(1) Excludes amortization and reduction of goodwill, net of income tax benefit.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
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,
|
| | 2001
| 2000
|
| | Average Balance
| Interest (1)
| Yields and Rates (2)
| Average Balance
| Interest (1)
| Yields and Rates (2)
|
| |
| (Dollars in thousands) |
| Assets: | | | | | | |
| Investments | $145,135
| $2,296
| 6.33%
| $138,388
| $2,366
| 6.84%
|
| Securities available for sale (3) | 1,511,908
| 25,001
| 6.61
| 1,566,447
| 25,802
| 6.59
|
| Loans held for sale | 285,464
| 4,996
| 7.00
| 197,533
| 3,733
| 7.56
|
| Loans and leases: | | | | | | |
| Residential real estate | 3,586,981 | 64,608 | 7.20 | 3,938,823 | 69,626 | 7.07 |
| Commercial real estate | 1,393,839 | 28,767 | 8.26 | 1,110,105 | 23,320 | 8.40 |
| Commercial business | 402,666 | 8,583 | 8.53 | 355,126 | 7,669 | 8.64 |
| Consumer | 2,247,686 | 55,300 | 9.84 | 2,071,155 | 51,174 | 9.88 |
| Leasing and equipment finance | 879,272
| 23,010
| 10.47
| 515,377
| 13,467
| 10.45
|
| Total loans and leases (4) | 8,510,444
| 180,268
| 8.47
| 7,990,586
| 165,256
| 8.27
|
| Total interest-earning assets | 10,452,951
| 212,561
| 8.13
| 9,892,954
| 197,157
| 7.97
|
| Other assets (5) | 844,279
| | | 757,761
| | |
| Total assets | $11,297,230
| | | $10,650,715
| | |
| | | | | | | |
| Liabilities and Stockholders' Equity: | | | | | | |
| Non-interest bearing deposits | $1,457,149
| | | $1,229,774
| | |
| Interest-bearing deposits: | | | | | | |
| Checking | 748,935 | 1,107 | .59 | 730,299 | 1,118 | .61 |
| Passbook and statement | 983,646 | 2,480 | 1.01 | 1,056,986 | 2,934 | 1.11 |
| Money market | 859,865 | 6,995 | 3.25 | 707,214 | 4,761 | 2.69 |
| Certificates | 2,763,152
| 39,775
| 5.76
| 2,887,390
| 36,698
| 5.08
|
| Total interest-bearing deposits | 5,355,598
| 50,357
| 3.76
| 5,381,889
| 45,511
| 3.38
|
| Total deposits | 6,812,747
| 50,357
| 2.96
| 6,611,663
| 45,511
| 2.75
|
| Borrowings: | | | | | | |
| Securities sold under repurchase agreements and federal funds purchased | 1,127,230 | 16,479 | 5.85 | 883,776 | 12,944 | 5.86 |
| FHLB advances | 1,953,255 | 27,385 | 5.61 | 1,839,953 | 26,172 | 5.69 |
| Discounted lease rentals | 158,155 | 3,228 | 8.16 | 170,713 | 3,450 | 8.08 |
| Other borrowings | 66,147
| 1,321
| 7.99
| 122,890
| 2,240
| 7.29
|
| Total borrowings | 3,304,787
| 48,413
| 5.86
| 3,017,332
| 44,806
| 5.94
|
| Total interest-bearing liabilities | 8,660,385
| 98,770
| 4.56
| 8,399,221
| 90,317
| 4.30
|
| Total deposits and borrowings | 10,117,534
| 98,770
| 3.90
| 9,628,995
| 90,317
| 3.75
|
| Other liabilities (5) | 284,213
| | | 228,949
| | |
| Total liabilities | 10,401,747 | | | 9,857,944 | | |
| Stockholders' equity (5) | 895,483
| | | 792,771
| | |
| Total liabilities and stockholders' equity | $11,297,230
| | | $10,650,715
| | |
| | | | | | | |
| Net interest income | | $113,791
| | | $106,840
| |
| Net interest margin | | | 4.35%
| | | 4.32%
|
(1) Tax-exempt income was not significant and thus has not been presented on a tax equivalent basis. Tax-exempt income of $41,000 and $46,000 was recognized during the three months ended March 31, 2001 and 2000, 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, TCF is a party to legal proceedings arising out of its general lending and operating activities. Management, after review with its legal counsel, believes that the ultimate disposition of its current litigation will not have a material effect on TCF’s financial condition. TCF is and expects to become engaged in a number of foreclosure proceedings and other collection actions as part of its loan collection activities. From time to time, borrowers have also brought actions against TCF, in some cases claiming substantial amounts of damages. There have been a considerable number of consumer class actions brought against banks and financial service companies and TCF is subject to the risk of such actions.
On November 2, 1993, TCF National Bank Minnesota (“TCF Minnesota,” now known as “TCF National Bank”) filed a complaint in the United States Court of Federal Claims seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. TCF Minnesota’s claim is based on the government’s breach of contract in connection with TCF Minnesota’s acquisitions of certain savings institutions prior to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), which contracts allowed TCF Minnesota to treat the “supervisory goodwill” created by the acquisitions as an asset that could be counted toward regulatory capital, and provided for other favorable regulatory accounting treatment. The United States has not yet answered TCF Minnesota’s complaint. TCF Minnesota’s complaint involves approximately $80.3 million in supervisory goodwill.
In August 1995, TCF National Bank Michigan (“TCF Michigan,” now known as “TCF National Bank”) filed with the United States Court of Federal Claims a complaint seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. TCF Michigan’s claim is based on the government’s breach of contract in connection with TCF Michigan’s acquisitions of certain savings institutions prior to the enactment of FIRREA in 1989, which contracts allowed TCF Michigan to treat the “supervisory goodwill” created by the acquisitions as an asset that could be counted toward regulatory capital, and provided for other favorable regulatory accounting treatment. The United States has not yet answered TCF Michigan’s complaint. TCF Michigan’s complaint involves approximately $87.3 million in supervisory goodwill.
On July 1, 1996, the United States Supreme Court issued a decision affirming the August 30, 1995 decision of the United States Court of Appeals for the Federal Circuit, which decision had affirmed the Court of Federal Claims’ liability determinations in three other “supervisory goodwill” cases, consolidated for review under the title Winstar Corp. v. United States, 116 S.Ct. 2432 (1996). In rejecting the United States’ consolidated appeal from the Court of Federal Claims’ decisions, the Supreme Court held in Winstar that the United States had breached contracts it had entered into with the plaintiffs which provided for the treatment of supervisory goodwill, created through the plaintiffs’ acquisitions of failed or failing savings institutions, as an asset that could be counted toward regulatory capital. Two of the three cases consolidated in the Supreme Court proceedings have since been tried before the Court of Federal Claims on the issue of damages, and the third was settled without trial. In one of the cases that proceeded to a damages trial, Glendale Federal Bank, FSB v. United States, 43 Fed. Cl. 390 (1999), the Court of Federal Claims issued a decision on April 9, 1999, awarding the plaintiff in that case $908,948,000 in restitution and non-overlapping reliance damages. The other case which went to trial was settled in June 1998.
The Glendale damages decision was appealed to the United States Court of Appeals for the Federal Circuit, and on February 16, 2001, the Federal Circuit vacated the trial court’s award of damages. The Federal Circuit held that the trial court’s award of approximately $530 million in restitution was erroneous given the facts of the case. The Federal Circuit concluded that for purposes of measuring the loss suffered by Glendale as a result of the Government’s breach, reliance damages provided a “firmer and more rational basis” than the alternative damages theories argued by the parties. The Federal Circuit did not affirm or reverse the trial court’s award of approximately $380 million in non - overlapping post-breach reliance damages, but instead remanded the case to the Court of Federal Claims for a determination of the total reliance damages to which Glendale may be entitled. It is not known whether Supreme Court review of the Federal Circuit’s decision in Glendale will be sought.
On December 22, 1997, the Court of Federal Claims issued a decision finding the existence of contracts and governmental breaches of those contracts in four other “supervisory goodwill” cases, consolidated for purposes of that decision only under the title California Federal Bank v. United States, 39 Fed. Cl. 753 (1997). In reaching its decision, the Court of Federal Claims rejected a number of “common issue” defenses that the government has raised in a number of “supervisory goodwill” cases. In November 1998, the Court of Federal Claims issued another decision in the California Federal case prohibiting the plaintiff in that case from offering evidence as to a lost profits theory of damages. A two-month trial regarding the plaintiff’s other damages theories in that case was concluded in early March 1999. On April 21, 1999, the Court of Federal Claims entered judgment for the plaintiff in California Federal, and awarded the plaintiff $22,966,523.42 in damages under a cost of replacement capital theory. California Federal Bank v. United States, 43 Fed Cl. 445 (1999). The California Federal decision was appealed to the United States Court of Appeals for the Federal Circuit, and on April 2, 2001, the Federal Circuit affirmed-in-part the judgment of the Court of Federal Claims, vacated that judgment in part, and remanded the case for further proceedings in the trial court. The Federal Circuit affirmed the Court of Federal Claims’ decision on liability, and held that the parties had entered into “supervisory goodwill” contracts and that the government had breached these contracts. With respect to damages issues, the Federal Circuit rejected the plaintiff’s argument that the Court of Federal Claims had erred in limiting damages under a cost of replacement capital theory to “floatation costs,” holding that it found “no clear error in the [trial] court’s factual finding that the floatation costs provided an appropriate measure of Cal Fed’s damages incurred in replacing the supervisory goodwill with tangible capital.” The Federal Circuit also held that it found no fault with the Court of Federal Claims’ denial of restitution damages. The Federal Circuit held that the Court of Federal Claims had erred by not permitting the plaintiff to present evidence on its lost profits claim, and remanded for a trial on that claim. It is not known whether en banc or Supreme Court review of the Federal Circuit’s decision in Cal Fed will be sought.
The Court of Federal Claims has also issued damages decisions in several other “supervisory goodwill” cases. While the Court awarded the plaintiffs in some of these cases damages for the government’s breach of “supervisory goodwill” contracts, the Court rejected certain of the plaintiffs’ claims for damages, and awarded the plaintiffs only a portion of the damages they sought. Certain of these decisions are currently on appeal to the United States Court of Appeals for the Federal Circuit, and the Company expects the remaining decisions to be appealed as well. As noted, the Court of Federal Claims has held or is soon to hold trials in several other “supervisory goodwill” cases, and it is expected both that the Court will continue to issue additional decisions on both liability and damages issues and that most, if not all, of the Court’s decisions in these cases will be appealed.
The government has indicated that it will have a number of affirmative defenses against goodwill litigation filed against it. The TCF Minnesota and TCF Michigan actions involve a variety of different types of transactions, contracts and contract provisions. There can be no assurance that the U.S. Supreme Court decision in Winstar or liability and damages decisions in Glendale, California Federal and other cases will mean that a similar result would be obtained in the actions filed by TCF Minnesota and TCF Michigan. There also can be no assurance that the government will be determined liable in connection with the loss of supervisory goodwill by either TCF Minnesota or TCF Michigan or, even if a determination favorable to TCF Minnesota or TCF Michigan is made on the issue of the government’s liability, that a measure of damages will be employed that will permit any recovery on TCF Minnesota’s or TCF Michigan’s claim. Because of the complexity of the issues involved in both the liability and damages phases of this litigation, and the usual risks associated with litigation, the Company cannot predict the outcome of TCF Minnesota’s or TCF Michigan’s cases, and investors should not anticipate any recovery.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
See Index to Exhibits.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated February 1, 2001, was submitted furnishing certain investor presentation materials under Item 9 of Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | TCF FINANCIAL CORPORATION |
| | |
| | |
| | |
| | /s/ Neil W. Brown
|
| | Neil W. Brown, Executive Vice President, |
| | Chief Financial Officer and Treasurer |
| | (Principal Financial Officer) |
| | |
| | |
| | |
| | /s/ David M. Stautz
|
| | David M. Stautz, Senior Vice President, |
| | Controller and Assistant Treasurer |
| | (Principal Accounting Officer) |
| | |
| Dated: May 11, 2001 | |
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
Exhibit Number
| Description
|
| 4(a) | Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request. |
| | |
| 10(b)* | TCF Financial 1995 Incentive Stock Program, as amended October 1, 1995 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 001-10253]; as amended October 22, 1996 [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 001-10253]; as further amended on May 11, 1999 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, No. 001-10253]; and as further amended on January 24, 2000 and approved by shareholders of TCF Financial Corporation at the Annual Meeting on May 10, 2000 [incorporated by reference from TCF Financial Corporation’s Proxy Statement filed March 31, 2000]; as further amended on January 22, 2001 |
| | |
| 10(o)* | Management Incentive Plan-Executive [incorporated by reference to Plan filed with registrant's definitive proxy statement dated March 16, 1994, No. 001-10253]; and 1995 Plan Acknowledgment [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation's 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 Corporation's 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 Corporation's 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 Corporation's 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 Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, No. 001-10253]; 2000 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(q) to TCF Financial Corporation’s quarterly report on Form 10-Q for the quarter ended March 31, 2000, No. 001-10253]; and 2001 Management Incentive Plan – Executive |
| | |
| 11* | Computation of Earnings Per Share |
* Filed herein.
