UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended
June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------
Commission File
No. 001-10253
------------------
TCF FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1591444
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 Marquette Avenue, Mail Code 100-01-A, Minneapolis, Minnesota 55402
----------------------------------------------------------------------
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (612) 661-6500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at
- ---------------------------- July 31, 2000
Common Stock, $.01 par value 80,300,236 shares
1
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information Pages
-----
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at June 30, 2000 and December 31, 1999...........................................3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2000 and 1999......................................4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999..........................................5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1999 and for the Six
Months Ended June 30, 2000.......................................................6
Notes to Consolidated Financial Statements...........................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Six Months Ended June 30, 2000 and 1999...........................11-25
Supplementary Information........................................................26-27
Part II. Other Information
Items 1-6............................................................................28-30
Signatures 31
Index to Exhibits................................................................................32
2
PART 1 - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
AT AT
JUNE 30, 2000 DECEMBER 31, 1999
--------------- ---------------
ASSETS
Cash and due from banks $ 382,464 $ 429,262
Investments 131,635 148,154
Securities available for sale 1,436,836 1,521,661
Loans held for sale 259,085 198,928
Loans and leases:
Residential real estate 3,866,659 3,919,678
Consumer 2,150,763 2,058,584
Commercial real estate 1,191,999 1,073,472
Commercial business 365,807 351,353
Leasing and equipment finance 655,922 492,656
--------------- ---------------
Total loans and leases 8,231,150 7,895,743
Allowance for loan and lease losses (60,997) (55,755)
--------------- ---------------
Net loans and leases 8,170,153 7,839,988
Goodwill 156,432 158,468
Deposit base intangibles 12,340 13,262
Other assets 356,760 351,993
--------------- ---------------
$ 10,905,705 $ 10,661,716
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $ 2,068,761 $ 1,913,279
Passbook and statement 1,128,863 1,091,292
Money market 745,096 708,417
Certificates 2,777,242 2,871,847
--------------- ---------------
Total deposits 6,719,962 6,584,835
--------------- ---------------
Securities sold under repurchase agreements and federal funds purchased 927,331 1,010,000
Federal Home Loan Bank advances 1,948,952 1,759,787
Discounted lease rentals 165,432 178,369
Other borrowings 164,017 135,732
--------------- ---------------
Total borrowings 3,205,732 3,083,888
Accrued interest payable 29,447 40,352
Accrued expenses and other liabilities 143,182 143,659
--------------- ---------------
Total liabilities 10,098,323 9,852,734
--------------- ---------------
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; 92,780,873 and 92,804,205 shares issued 928 928
Additional paid-in capital 505,476 500,797
Retained earnings, subject to certain restrictions 770,541 715,461
Accumulated other comprehensive income (loss) (46,891) (47,382)
Treasury stock at cost, 12,501,737 and 10,863,017 shares, and other (422,672) (360,822)
--------------- ---------------
Total stockholders' equity 807,382 808,982
--------------- ---------------
$ 10,905,705 $ 10,661,716
=============== ===============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ANNUAL FINANCIAL STATEMENTS ARE SUBJECT TO AUDIT.
3
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Interest income:
Loans and leases $ 172,432 $ 152,177 $ 337,688 $ 302,418
Securities available for sale 25,218 28,683 51,020 56,771
Loans held for sale 4,362 3,273 8,095 6,792
Investments 2,395 2,226 4,761 4,421
------------ ------------ ------------ ------------
Total interest income 204,407 186,359 401,564 370,402
------------ ------------ ------------ ------------
Interest expense:
Deposits 46,893 42,965 92,404 86,855
Borrowings 47,316 36,672 92,122 71,986
------------ ------------ ------------ ------------
Total interest expense 94,209 79,637 184,526 158,841
------------ ------------ ------------ ------------
Net interest income 110,198 106,722 217,038 211,561
Provision for credit losses 5,383 2,947 6,373 10,707
------------ ------------ ------------ ------------
Net interest income after provision for
credit losses 104,815 103,775 210,665 200,854
------------ ------------ ------------ ------------
Non-interest income:
Fee and service charge revenues 44,842 37,469 83,693 71,310
Electronic funds transfer revenues 19,914 16,890 37,274 31,287
Leasing revenues 10,144 5,389 19,162 12,983
Commissions on sales of annuities 1,942 2,451 4,044 4,651
Commissions on sales of mutual funds 1,466 1,716 3,077 3,258
Gain on sales of loans held for sale 552 1,061 1,507 2,630
Other 3,578 3,409 6,634 6,185
------------ ------------ ------------ ------------
82,438 68,385 155,391 132,304
------------ ------------ ------------ ------------
Gain (loss) on sales of securities available for sale -- (5) -- 3,194
Gain on sales of loan servicing -- 743 -- 3,076
Gain on sales of branches 3,866 2,382 3,866 2,382
Title insurance revenues -- 4,512 -- 8,978
------------ ------------ ------------ ------------
3,866 7,632 3,866 17,630
------------ ------------ ------------ ------------
Total non-interest income 86,304 76,017 159,257 149,934
------------ ------------ ------------ ------------
Non-interest expense:
Compensation and employee benefits 59,768 60,151 118,187 118,204
Occupancy and equipment 18,772 18,131 37,677 36,240
Advertising and promotions 4,958 4,730 9,135 9,384
Amortization of goodwill and other intangibles 2,484 2,673 4,967 5,348
Other 29,263 27,094 57,869 51,928
------------ ------------ ------------ ------------
Total non-interest expense 115,245 112,779 227,835 221,104
------------ ------------ ------------ ------------
Income before income tax expense 75,874 67,013 142,087 129,684
Income tax expense 29,212 26,024 54,704 51,355
------------ ------------ ------------ ------------
Net income $ 46,662 $ 40,989 $ 87,383 $ 78,329
============ ============ ============ ============
Net income per common share:
Basic $ .60 $ .50 $ 1.10 $ .94
============ ============ ============ ============
Diluted $ .59 $ .49 $ 1.10 $ .94
============ ============ ============ ============
Dividends declared per common share $ .2125 $ .1875 $ .40 $ .35
============ ============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ANNUAL FINANCIAL STATEMENTS ARE SUBJECT TO AUDIT.
4
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 87,383 $ 78,329
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,765 14,479
Amortization of goodwill and other intangibles 4,967 5,348
Provision for credit losses 6,373 10,707
Proceeds from sales of loans held for sale 185,474 299,562
Principal collected on loans held for sale 5,818 6,047
Originations and purchases of loans held for sale (251,374) (245,907)
Net (increase) decrease in other assets and liabilities,
and accrued interest (17,591) 20,321
Gains on sales of assets (3,866) (8,652)
Other, net 1,418 6,990
------------ ------------
Total adjustments (54,016) 108,895
------------ ------------
Net cash provided by operating activities 33,367 187,224
------------ ------------
Cash flows from investing activities:
Principal collected on loans and leases 1,015,021 1,243,168
Originations and purchases of loans (1,156,259) (1,570,146)
Purchases of equipment for lease financing (243,715) (90,999)
Net decrease in interest-bearing deposits with banks 19,977 83,758
Proceeds from sales of securities available for sale -- 288,718
Proceeds from maturities of and principal collected on
securities available for sale 85,463 374,015
Purchases of securities available for sale -- (738,079)
Net decrease in federal funds sold -- 6,000
Sales of deposits, net of cash paid (27,212) (17,684)
Other, net (15,233) (3,804)
------------ ------------
Net cash used by investing activities (321,958) (425,053)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 166,134 (46,840)
Net decrease in securities sold under repurchase
agreements and federal funds purchased (82,669) (165,593)
Proceeds from borrowings 3,268,268 2,384,076
Payments on borrowings (3,010,969) (1,895,299)
Purchases of common stock to be held in treasury (59,993) (59,967)
Payments of dividends on common stock (32,303) (29,573)
Other, net (6,675) (1,879)
------------ ------------
Net cash provided by financing activities 241,793 184,925
------------ ------------
Net decrease in cash and due from banks (46,798) (52,904)
Cash and due from banks at beginning of period 429,262 420,477
------------ ------------
Cash and due from banks at end of period $ 382,464 $ 367,573
============ ============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 188,693 $ 151,325
============ ============
Income taxes $ 51,664 $ 37,375
============ ============
Transfer of loans to other real estate owned
and other assets $ 6,387 $ 19,610
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ANNUAL FINANCIAL STATEMENTS ARE SUBJECT TO AUDIT.
5
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Number of
Common Additional
Shares Common Paid-in Retained
Issued Stock Capital Earnings
----------- ----------- ----------- -----------
Balance, December 31, 1998 92,912,246 $ 929 $ 507,534 $ 610,177
Net income -- -- -- 166,039
Unrealized loss on securities
available for sale, net of tax
and reclassification adjustment -- -- -- --
Dividends on common stock -- -- -- (60,755)
Purchase of 4,091,611 shares
to be held in treasury -- -- -- --
Issuance of 21,050 shares
from treasury -- -- (30) --
Cancellation of shares (108,041) (1) (2,569) --
Amortization of deferred
compensation -- -- -- --
Exercise of stock options,
550,661 shares from treasury -- -- (4,464) --
Shares held in trust for
deferred compensation plans -- -- 326 --
Loan payments by Executive
Deferred Compensation Plan -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1999 92,804,205 928 500,797 715,461
Net income -- -- -- 87,383
Unrealized gain on securities
available for sale, net of tax
and reclassification adjustment -- -- -- --
Dividends on common stock -- -- -- (32,303)
Purchase of 2,861,300 shares
to be held in treasury -- -- -- --
Issuance of 1,188,514 shares
from treasury -- -- (8,510) --
Cancellation of shares (23,332) -- (589) --
Amortization of deferred
compensation -- -- -- --
Issuance of stock options -- -- 1 --
Exercise of stock options,
34,066 shares from treasury -- -- (439) --
Shares held in trust for
deferred compensation plans -- -- 14,071 --
Purchase of TCF stock to
prefund the 401(k) Plan, net -- -- 145 --
Loan to Executive Deferred
Compensation Plan, net
of payments -- -- -- --
----------- ----------- ----------- -----------
Balance, June 30, 2000 92,780,873 $ 928 $ 505,476 $ 770,541
=========== =========== =========== ===========
Accumulated
Other
Comprehensive
Income Treasury Stock
(Loss) and Other Total
-------------- -------------- -----------
Balance, December 31, 1998 $ 7,591 $ (280,729) $ 845,502
Net income -- -- 166,039
Unrealized loss on securities
available for sale, net of tax
and reclassification adjustment (54,973) -- (54,973)
Dividends on common stock -- -- (60,755)
Purchase of 4,091,611 shares
to be held in treasury -- (106,106) (106,106)
Issuance of 21,050 shares
from treasury -- (30) (60)
Cancellation of shares -- 392 (2,178)
Amortization of deferred
compensation -- 9,543 9,543
Exercise of stock options,
550,661 shares from treasury -- 15,044 10,580
Shares held in trust for
deferred compensation plans -- (326) --
Loan payments by Executive
Deferred Compensation Plan -- 1,390 1,390
----------- ----------- -----------
Balance, December 31, 1999 (47,382) (360,822) 808,982
Net income -- -- 87,383
Unrealized gain on securities
available for sale, net of tax
and reclassification adjustment 491 -- 491
Dividends on common stock -- -- (32,303)
Purchase of 2,861,300 shares
to be held in treasury -- (59,993) (59,993)
Issuance of 1,188,514 shares
from treasury -- 8,510 --
Cancellation of shares -- 142 (447)
Amortization of deferred
compensation -- 4,591 4,591
Issuance of stock options -- -- 1
Exercise of stock options,
34,066 shares from treasury -- 924 485
Shares held in trust for
deferred compensation plans -- (14,071) --
Purchase of TCF stock to
prefund the 401(k) Plan, net -- (685) (540)
Loan to Executive Deferred
Compensation Plan, net
of payments -- (1,268) (1,268)
----------- ----------- -----------
Balance, June 30, 2000 $ (46,891) $ (422,672) $ 807,382
=========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ANNUAL FINANCIAL STATEMENTS ARE SUBJECT TO AUDIT.
6
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
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.
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
material under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is written with the
presumption that the users of the interim financial statements have read or
have access to the most recent Annual Report on Form 10-K of TCF Financial
Corporation ("TCF" or the "Company"), which contains the latest audited
financial statements and notes thereto, together with Management's
Discussion and Analysis of Financial Condition and Results of Operations as
of December 31, 1999 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 flows purposes, cash and cash equivalents
include cash and due from banks.
(2) ACCOUNTING FOR STOCK-BASED COMPENSATION
Effective January 1, 2000, TCF adopted the recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," for stock-based transactions beginning in
2000. Under SFAS No. 123, the fair value of an option or similar equity
instrument on the date of grant is amortized to expense over the vesting
period of the grant. The recognition provisions of SFAS No. 123 are applied
prospectively upon adoption. TCF applied the intrinsic value based method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," for stock-based
transactions through December 31, 1999.
TCF believes the fair value method of accounting more appropriately
reflects the substance of the transaction between an entity that issues
stock options, or other stock-based instruments, and its employees; that
is, an entity has granted something of value to an employee generally in
return for their continued employment and services. TCF believes the value
of the instrument granted to the employees should be recognized in the
financial statements because nonrecognition implies that either the
instruments have no value or that they are free to employees, neither of
which is an accurate reflection of the substance of the transaction. The
fair value based method is designated as the preferred method of accounting
by SFAS No. 123.
On a pro forma basis, adopting the recognition provisions of SFAS No. 123
as of the beginning of the periods presented in the accompanying
consolidated financial statements would not have had a material effect on
TCF's results of operations for the three or six months ended June 30,
1999.
(3) UNEARNED ESOP SHARES
During the first quarter of 2000, TCF contributed $1.5 million to the TCF
Employees Stock Purchase Plan (the "Plan") in order to prefund a portion of
TCF's employer match of employee contributions for 2000. The Plan used the
proceeds to purchase 74,919 shares of TCF common stock which are held as
unallocated shares until released to employee accounts as employer matching
contributions. TCF anticipates that all shares will be allocated to
employee accounts by the end of the year. The unallocated shares of TCF
common stock held by the Plan at June 30, 2000 are
7
reflected as a reduction of stockholders' equity as required by generally
accepted accounting principles, and are included in treasury stock and
other in the consolidated statements of financial condition.
(4) COMPREHENSIVE INCOME
The following table summarizes the components of comprehensive income for
the periods noted. 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 securities available for sale. Such
unrealized gains or losses only pertain to a portion of TCF's balance sheet
and do not reflect the increased economic value of TCF's demand deposit
accounts.
Three Months Ended Six Months Ended
(In thousands) June 30, June 30,
------------------------------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 46,662 $ 40,989 $ 87,383 $ 78,329
Other comprehensive income (loss) before tax:
Unrealized holding gains (losses) arising during the
period on securities available for sale 8,269 (38,952) 1,107 (51,132)
Reclassification adjustment for (gains) losses
included in net income -- 5 -- (3,194)
-------- -------- -------- --------
Other comprehensive income (loss), before tax 8,269 (38,947) 1,107 (54,326)
Income tax expense (benefit) 2,650 (14,692) 616 (20,618)
-------- -------- -------- --------
Total other comprehensive income (loss), net of tax 5,619 (24,255) 491 (33,708)
-------- -------- -------- --------
Comprehensive income $ 52,281 $ 16,734 $ 87,874 $ 44,621
======== ======== ======== ========
(5) EARNINGS PER COMMON SHARE
The weighted average number of common shares outstanding used to compute
basic earnings per common share were 78,340,026 and 82,615,789 for the
three months ended June 30, 2000 and 1999, respectively, and 79,159,831
and 83,114,543 for the six months ended June 30, 2000 and 1999,
respectively. The weighted average number of common and common equivalent
shares outstanding used to compute diluted earnings per common share were
79,009,517 and 83,237,841 for the three months ended June 30, 2000 and
1999, respectively, and 79,750,279 and 83,666,921 for the six months ended
June 30, 2000 and 1999, respectively.
8
(6) SEGMENTS
Prior to April 1, 2000, TCF's wholly owned bank subsidiaries located in
Minnesota, Illinois, Wisconsin and Michigan had been identified as
reportable segments. During the fourth quarter of 1999, TCF received the
approval of the Office of the Comptroller of the Currency to merge these
four bank charters into one national bank charter based in Minnesota. The
merger of the bank charters was completed in April 2000 and segment
reporting by individual bank is no longer available.
With the bank charter merger, certain management responsibilities were
realigned within the organization. Management reporting was revised to
reflect this change in responsibilities. Following the bank charter merger,
banking, leasing and equipment finance, and mortgage banking have been
identified as reportable operating segments. Management of TCF's banking
area, which includes commercial lending, consumer lending, residential
lending, treasury services and retail branches, is organized by state.
These separate state operations have been aggregated for purposes of
segment disclosures.
The following table sets forth certain information about the reported
profit or loss and assets for each of TCF's reportable segments, including
reconciliations to TCF's consolidated totals. The results of TCF's parent
bank holding company and other administrative areas comprise the "other"
category in the table below. Prior period data has been restated to reflect
the change in composition of TCF's operating segments.
Leasing and Eliminations
Equipment Mortgage and
(In thousands) Banking Finance Banking Other Reclassifications Consolidated
----------- ----------- ----------- ----------- ----------------- ------------
At or For the Three Months Ended
June 30, 2000
- -----------------------------------
Revenues from External Customers:
Interest Income $ 188,191 $ 15,954 $ 1,324 $ 119 $ (1,181) $ 204,407
Non-Interest Income 72,561 10,146 3,582 15 -- 86,304
----------- ----------- ----------- ----------- ---------- -----------
Total $ 260,752 $ 26,100 $ 4,906 $ 134 $ (1,181) $ 290,711
=========== =========== =========== =========== ========== ===========
Net Income (Loss) $ 42,777 $ 5,628 $ 221 $ (1,964) $ -- $ 46,662
=========== =========== =========== =========== ========== ===========
Total Assets $10,569,767 $ 667,881 $ 143,578 $ 47,018 $ (522,539) $10,905,705
=========== =========== =========== =========== ========== ===========
At or For the Three Months Ended
June 30, 1999
- -----------------------------------
Revenues from External Customers:
Interest Income $ 174,033 $ 11,198 $ 1,016 $ 112 $ -- $ 186,359
Non-Interest Income 65,391 5,386 5,224 16 -- 76,017
----------- ----------- ----------- ----------- ---------- -----------
Total $ 239,424 $ 16,584 $ 6,240 $ 128 $ -- $ 262,376
=========== =========== =========== =========== ========== ===========
Net Income (Loss) $ 37,225 $ 3,742 $ 755 $ (733) $ -- $ 40,989
=========== =========== =========== =========== ========== ===========
Total Assets $ 9,962,308 $ 416,806 $ 137,340 $ 57,314 $ (235,427) $10,338,341
=========== =========== =========== =========== ========== ===========
9
Leasing and Eliminations
Equipment Mortgage and
(In thousands) Banking Finance Banking Other Reclassifications Consolidated
---------------- ------------- ------------- ------------ ---------------- ---------------
At or For the Six Months Ended
June 30, 2000
- -----------------------------------
Revenues from External Customers:
Interest Income $ 372,069 $ 29,421 $ 2,081 $ 206 $ (2,213) $ 401,564
Non-Interest Income 133,110 19,164 6,950 33 -- 159,257
------------ ------------ ------------ ------------ ------------ ------------
Total $ 505,179 $ 48,585 $ 9,031 $ 239 $ (2,213) $ 560,821
============ ============ ============ ============ ============ ============
Net Income (Loss) $ 79,578 $ 10,343 $ (23) $ (2,515) $ -- $ 87,383
============ ============ ============ ============ ============ ============
Total Assets $ 10,569,767 $ 667,881 $ 143,578 $ 47,018 $ (522,539) $ 10,905,705
============ ============ ============ ============ ============ ============
At or For the Six Months Ended
June 30, 1999
- -----------------------------------
Revenues from External Customers:
Interest Income $ 345,181 $ 22,687 $ 2,312 $ 222 $ -- $ 370,402
Non-Interest Income 123,795 12,976 13,184 (21) -- 149,934
------------ ------------ ------------ ------------ ------------ ------------
Total $ 468,976 $ 35,663 $ 15,496 $ 201 $ -- $ 520,336
============ ============ ============ ============ ============ ============
Net Income (Loss) $ 68,436 $ 8,604 $ 3,009 $ (1,720) $ -- $ 78,329
============ ============ ============ ============ ============ ============
Total Assets $ 9,962,308 $ 416,806 $ 137,340 $ 57,314 $ (235,427) $ 10,338,341
============ ============ ============ ============ ============ ============
10
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
TCF reported net income of $46.7 million and $87.4 million for the second
quarter and first six months of 2000, respectively, compared with $41 million
and $78.3 million for the same 1999 periods. Diluted earnings per common share
were 59 cents and $1.10 for the second quarter and first six months of 2000,
respectively, compared with 49 cents and 94 cents for the same 1999 periods.
Return on average assets was 1.73% and 1.63% for the second quarter and first
six months of 2000, respectively, compared with 1.60% and 1.54% for the same
1999 periods. Return on average realized common equity was 22.19% and 20.67% for
the second quarter and first six months of 2000, respectively, compared with
19.81% and 18.93% for the same 1999 periods. Diluted cash earnings per common
share, which excludes amortization and reduction of goodwill, net of income tax
benefit, was 61 cents and $1.14 for the second quarter and first six months of
2000, respectively, compared with 52 cents and 98 cents for the same 1999
periods. On the same basis, cash return on average assets was 1.80% and 1.70%
for the second quarter and first six months of 2000, respectively, compared with
1.67% and 1.61% for the same 1999 periods, and cash return on average realized
equity was 23.09% and 21.56% for the second quarter and first six months of
2000, compared with 20.73% and 19.85% for the same 1999 periods.
TCF has significantly expanded its retail banking franchise in recent periods
and had 347 retail banking branches at June 30, 2000. Since April 1, 1997, TCF
has opened 174 new branches, of which 162 were supermarket branches. TCF
continued to expand its supermarket franchise by opening five new branches
during the 2000 second quarter. TCF anticipates opening approximately 17 more
new branches in the remainder of 2000.
NET INTEREST INCOME
Net interest income for the second quarter of 2000 was $110.2 million, compared
with $106.7 million for the second quarter of 1999 and $106.8 million for the
2000 first quarter. The net interest margin for the second quarter of 2000 was
4.38%, compared with 4.52% for the same 1999 period and 4.32% for the first
quarter of 2000. Net interest income for the first six months of 2000 was $217
million, compared with $211.6 million for the same 1999 period. The net interest
margin for the first six months of 2000 was 4.35%, compared with 4.52% for the
same period of 1999. 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 interest-cost retail deposits. If variable
index rates (e.g., prime) were to decline, TCF may experience 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."
11
The following rate/volume analysis details the increases (decreases) in net
interest income resulting from interest rate and volume changes during the
second quarter and first six months of 2000 as compared with the same periods
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 Six Months Ended
June 30, 2000 June 30, 2000
Versus Same Period in 1999 Versus Same Period in 1999
---------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------------------------------------------------------------------
(In thousands) Volume Rate Total Volume Rate Total
------------ ------------ ------------ ------------ ------------ ------------
Investments $ 11 $ 158 $ 169 $ 1 $ 339 $ 340
------------ ------------ ------------ ------------ ------------ ------------
Securities available for sale (3,725) 260 (3,465) (6,008) 257 (5,751)
------------ ------------ ------------ ------------ ------------ ------------
Loans held for sale 458 631 1,089 144 1,159 1,303
------------ ------------ ------------ ------------ ------------ ------------
Loans and leases:
Residential real estate 2,416 1,061 3,477 5,022 1,703 6,725
Commercial real estate 5,949 432 6,381 11,467 529 11,996
Commercial business 512 1,136 1,648 1,632 1,849 3,481
Consumer direct 7,734 1,867 9,601 17,362 2,122 19,484
Consumer finance automobile (5,470) (138) (5,608) (13,391) 241 (13,150)
Leasing and equipment finance 5,343 (587) 4,756 8,474 (1,740) 6,734
------------ ------------ ------------ ------------ ------------ ------------
Total loans and leases 16,484 3,771 20,255 30,566 4,704 35,270
------------ ------------ ------------ ------------ ------------ ------------
Total interest income 13,228 4,820 18,048 24,703 6,459 31,162
------------ ------------ ------------ ------------ ------------ ------------
Deposits:
Checking 44 -- 44 97 70 167
Passbook and statement (197) -- (197) (338) -- (338)
Money market (30) 929 899 (136) 1,095 959
Certificates (837) 4,019 3,182 (1,081) 5,842 4,761
------------ ------------ ------------ ------------ ------------ ------------
Total deposits (1,020) 4,948 3,928 (1,458) 7,007 5,549
------------ ------------ ------------ ------------ ------------ ------------
Borrowings:
Securities sold under repurchase
agreements and federal funds
purchased 6,189 1,461 7,650 12,347 2,598 14,945
FHLB advances 709 1,428 2,137 1,944 2,690 4,634
Discounted lease rentals (182) 237 55 (380) 227 (153)
Other borrowings 234 568 802 (193) 903 710
------------ ------------ ------------ ------------ ------------ ------------
Total borrowings 6,950 3,694 10,644 13,718 6,418 20,136
------------ ------------ ------------ ------------ ------------ ------------
Total interest expense 5,930 8,642 14,572 12,260 13,425 25,685
------------ ------------ ------------ ------------ ------------ ------------
Net interest income $ 7,298 $ (3,822) $ 3,476 $ 12,443 $ (6,966) $ 5,477
============ ============ ============ ============ ============ ============
PROVISION FOR CREDIT LOSSES
TCF provided $5.4 million for credit losses in the second quarter of 2000,
compared with $2.9 million for the same prior-year period. TCF provided $6.4
million for credit losses for the first six months of 2000, compared with $10.7
million for the same period in 1999. Net loan and lease charge-offs were $1.2
million and $1.1 million during the second quarter and first six months of 2000,
respectively, compared with $6.8 million and $16 million during the same 1999
periods. The decrease in provisions and net loan and lease charge-offs from 1999
reflect the significant provisions and charge-offs recognized in 1999 related to
TCF's discontinued consumer finance automobile loan portfolio. At June 30, 2000,
the allowance for loan and lease losses totaled $61 million, compared with $55.8
million at December 31, 1999. 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 gain (loss) on
sale of securities available for sale, gain on sale of loan servicing, gain on
sale of branches and title insurance revenues, non-interest income increased
$14.1 million, or
12
20.5%, to $82.4 million for the second quarter of 2000, compared with $68.4
million for the same period in 1999. On the same basis, non-interest income
increased $23.1 million, or 17.4%, to $155.4 million for the first six months of
2000, compared with $132.3 million for the same period in 1999. The increases
were primarily due to increased fee and service charge, electronic funds
transfer and leasing revenues, and reflect TCF's expanded retail banking and
leasing operations and customer base. Title insurance revenues totaled $4.5
million and $9 million for the second quarter and first six months of 1999.
During the fourth quarter of 1999, TCF sold its title insurance and appraisal
operations. Title insurance revenues are no longer recognized by TCF as the
result of the sale of these operations.
Fee and service charge revenues totaled $44.8 million and $83.7 million for the
second quarter and first six months of 2000, respectively, representing
increases of 19.7% and 17.4% from $37.5 million and $71.3 million for the same
1999 periods. These increases were primarily due to expanded retail banking
activities.
Electronic funds transfer revenues totaled $19.9 million and $37.3 million for
the second quarter and first six months of 2000, respectively, representing
increases of 17.9% and 19.1% from $16.9 million and $31.3 million for the same
1999 periods. Included in electronic funds transfer revenues are debit card
interchange fees of $7.1 million and $4.9 million for the quarter ended June 30,
2000 and 1999, respectively. The significant increase in these fees reflects an
increase in the distribution of debit cards, and a significant increase in their
utilization by TCF's customers. TCF had 1 million debit cards outstanding at
June 30, 2000, compared with 863,000 debit cards outstanding at June 30, 1999.
TCF's network of automated teller machines ("ATMs") totaled 1,381 machines at
June 30, 2000.
Leasing revenues totaled $10.1 million and $19.2 million for the second quarter
and first six months of 2000, respectively, compared with $5.4 million and $13
million for the same 1999 periods. The year-to-year fluctuations in leasing
revenues and the allocation between types of leasing revenues result primarily
from the manner and timing in which leasing revenues are recognized over the
term of each particular lease. The allocation of revenues is a function of the
lease classification as determined in accordance with generally accepted
accounting principles. In addition, 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.
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.
Gains on sales of loans held for sale totaled $552,000 and $1.5 million for the
second quarter and first six months of 2000, respectively, a decrease of
$509,000 and $1.1 million from the amounts recognized during the same periods in
1999. Sales of securities available for sale produced a $3.2 million gain for
the first six months of 1999. No comparable gain was recorded for the first six
months of 2000. 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.
Gains on the sale of third-party loan servicing rights totaled $743,000 and $3.1
million for the second quarter and the first six months of 1999. No similar
activity was recognized during the same periods of 2000. TCF periodically sells
and purchases loan servicing rights depending on market conditions. TCF's
third-party residential loan servicing portfolio totaled $3.2 billion at June
30, 2000, compared with $2.9 billion at December 31, 1999.
TCF recognized gains of $3.9 million on the sale of three underperforming
Michigan branches with $31 million in deposits during the second quarter and
first six months of 2000, compared with a gain of $2.4 million on the sale of
one branch with $20 million in deposits during the second quarter and first six
months of 1999.
13
NON-INTEREST EXPENSE
Non-interest expense totaled $115.2 million for the second quarter of 2000, up
2.2% from $112.8 million for the same 1999 period. For the first six months of
2000, non-interest expense totaled $227.8 million, up 3% from $221.1 million for
the same 1999 period. Compensation and employee benefits expense totaled $59.8
million and $118.2 million for the second quarter and first six months of 2000,
respectively, compared with $60.2 million and $118.2 million for the comparable
periods in 1999. Occupancy and equipment expenses totaled $18.8 million and
$37.7 million for the second quarter and first six months of 2000, respectively,
compared with $18.1 million and $36.2 million for the same 1999 periods. The
increased occupancy and equipment expenses in 2000 are primarily due to the
costs associated with expanded retail banking activities, partially offset by
the discontinuation of TCF's indirect automobile lending business and the sale
of TCF's title insurance and appraisal operations.
Other non-interest expense totaled $29.3 million and $57.9 million for the
second quarter and first six months of 2000, respectively, reflecting increases
of 8% and 11.4% from $27.1 million and $51.9 million for the same 1999 periods.
These increases are primarily due to the costs associated with expanded retail
banking activities, and include increases of $205,000 and $1.2 million in
deposit account losses over amounts recorded in the second quarter and first six
months of 1999, respectively. These increased losses reflect the growth in the
number of checking accounts to 1.1 million at June 30, 2000, up from 990,000 at
June 30, 1999.
As disclosed in Note 2 of Notes to Consolidated Financial Statements, effective
January 1, 2000 TCF adopted SFAS No. 123 for stock-based compensation
transactions beginning in 2000. During the first quarter of 2000, TCF granted
1,095,000 shares of restricted stock to certain executive officers. Fifty
percent of the shares will vest after TCF achieves a 75 percent increase in
annual earnings per share over 1999 earnings per share. The remaining shares
will vest after TCF achieves a 100 percent increase over 1999 earnings per
share. The shares will be forfeited if not earned based on performance by
year-end 2007. The total grant-date fair value of these shares was $21.6
million. In accordance with SFAS No. 123, the value of the shares expected to be
earned will be recognized as compensation expense ratably over the vesting
period. TCF will periodically assess the performance estimates and adjust the
related compensation expense in accordance with SFAS No. 123.
YEAR 2000
TCF devoted significant resources to address the "Year 2000" computer issue,
which results from the use of two digits rather than four by computer systems to
define the applicable year and the need to make certain that such systems
continue to properly process information as a result of the calendar change to
the Year 2000. Failure of computer systems to properly recognize the Year 2000
could potentially result in the production of erroneous data, miscalculations of
financial information such as interest, system failures, business disruption and
other operational problems. TCF evaluated its data processing and other systems
with imbedded technologies, such as ATMs, vaults and security systems, to
determine whether they were Year 2000 compliant. TCF also developed contingency
plans to mitigate potential delays or other problems. TCF's contingency plans
include back-up solutions for mission-critical applications and business
continuation plans for significant vendors and other business partners.
Based on management's assessment of operations through July 31, 2000, TCF has
not experienced any significant operating difficulties resulting from the change
to the Year 2000, either directly or indirectly through significant vendors or
customers. TCF will continue to monitor this issue and will modify its Year 2000
contingency plans as additional information becomes available.
INCOME TAXES
TCF recorded income tax expense of $29.2 million and $54.7 million for the
second quarter and first six months of 2000, or 38.5% of income before income
tax expense, compared with $26 million and $51.4 million, or 38.8% and 39.6% of
income before income tax expense, respectively, for the comparable 1999 periods.
The lower tax rates in 2000 reflect lower state taxes, and the impact of
relatively lower non-deductible expenses in 2000.
14
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 $646
million, or (6)% of total assets, at June 30, 2000, compared with a negative $1
billion, or (10)% of total assets, at December 31, 1999.
15
FINANCIAL CONDITION
INVESTMENTS
Total investments decreased $16.5 million from year-end 1999 to $131.6 million
at June 30, 2000. The decrease is primarily due to a decrease of $20 million in
interest-bearing deposits with banks, partially offset by an increase of $3.4
million in Federal Home Loan Bank stock. The carrying values of investments,
which approximate their fair values, consist of the following:
(In thousands) At June 30, 2000 At December 31, 1999
------------------- --------------------
Interest-bearing deposits with banks $ 342 $ 20,319
Federal Home Loan Bank stock, at cost 108,020 104,611
Federal Reserve Bank stock, at cost 23,273 23,224
------------ ------------
$ 131,635 $ 148,154
============ ============
SECURITIES AVAILABLE FOR SALE
Securities available for sale are carried at fair value with the unrealized
gains or losses, net of deferred income taxes, reported as accumulated other
comprehensive income (loss), which is a separate component of stockholders'
equity. Securities available for sale decreased $84.8 million from year-end 1999
to $1.4 billion at June 30, 2000. The decrease reflects payment and prepayment
activity. At June 30, 2000, TCF's securities available-for-sale portfolio
included $1.3 billion and $98 million of fixed-rate and adjustable-rate
mortgage-backed securities, respectively. The following table summarizes
securities available for sale:
At June 30, 2000 At December 31, 1999
-------------------------------- --------------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
------------ ------------ ------------ ------------
U.S. Government and other marketable
securities $ 500 $ 500 $ 500 $ 500
Mortgage-backed securities:
FHLMC 881,131 834,941 928,034 880,869
FNMA 558,994 532,199 589,206 561,951
GNMA 24,678 24,550 26,850 26,855
Private issuer 45,221 44,092 51,796 50,862
Collateralized mortgage obligations 554 554 624 624
------------ ------------ ------------ ------------
$ 1,511,078 $ 1,436,836 $ 1,597,010 $ 1,521,661
============ ============ ============ ============
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or market. Education loans
held for sale increased $15.8 million and residential real estate loans held for
sale increased $44.3 million from year-end 1999, and totaled $159.8 million and
$99.3 million at June 30, 2000, respectively.
16
LOANS AND LEASES
The following table sets forth information about loans and leases held in TCF's
portfolio, excluding loans held for sale:
At At
June 30, December 31,
(In thousands) 2000 1999
---------------- ----------------
Residential real estate $3,858,608 $3,911,184
Unearned premiums and deferred loan fees 8,051 8,494
---------------- ----------------
3,866,659 3,919,678
---------------- ----------------
Consumer:
Home equity 2,076,240 1,974,924
Automobile 46,465 55,271
Loans secured by deposits 6,963 6,859
Other secured 10,891 11,148
Unsecured 26,452 26,634
Unearned discounts and deferred loan fees (16,248) (16,252)
---------------- ----------------
2,150,763 2,058,584
---------------- ----------------
Commercial real estate:
Apartments 272,330 276,045
Other permanent 757,384 637,980
Construction and development 165,268 162,570
Unearned discounts and deferred loan fees (2,983) (3,123)
---------------- ----------------
1,191,999 1,073,472
---------------- ----------------
Commercial business 365,281 350,816
Deferred loan costs 526 537
---------------- ----------------
365,807 351,353
---------------- ----------------
Leasing and equipment finance:
Loans:
Equipment finance loans 124,590 43,647
Deferred loan costs 1,634 513
---------------- ----------------
126,224 44,160
---------------- ----------------
Lease financings:
Direct financing leases 526,784 446,351
Sales-type leases 32,521 30,387
Lease residuals 22,641 24,384
Unearned income and deferred lease costs (68,627) (52,626)
Investment in leveraged leases 16,379 --
---------------- ----------------
529,698 448,496
---------------- ----------------
655,922 492,656
---------------- ----------------
$8,231,150 $7,895,743
================ ================
Loans and leases increased $335.4 million from year-end 1999 to $8.2 billion at
June 30, 2000, reflecting increases of $163.3 million in leasing and equipment
finance, $118.5 million in commercial real estate loans, $92.2 million in
consumer loans, $14.5 million in commercial business loans, partially offset by
a decrease of $53 million in residential real estate loans. Unearned discounts
and deferred fees totaled $90.4 million at June 30, 2000 and $62.5 million at
December 31, 1999.
Consumer loans increased $92.2 million from year-end 1999 to $2.2 billion at
June 30, 2000, reflecting an increase of $101.3 million in home equity loans,
partially offset by a decrease of $8.8 million in automobile loans.
17
TCF changed its home equity loan origination programs in early 1999. Under the
new programs and in response to intensifying price competition, TCF implemented
a tiered pricing structure for its home equity loans. TCF also experienced an
increase in the loan-to-value ratios on new home equity loans originated
beginning in 1999. Many of these loans are secured by a first lien on the home
and include an advance to pay-off an existing first lien mortgage loan, and many
have balances exceeding $100,000. These loans may carry a higher level of credit
risk than loans with a lower loan-to-value ratio.
The following table sets forth additional information about the loan-to-value
ratios for TCF's home equity loan portfolio:
(Dollars in thousands) At June 30, 2000 At December 31, 1999
------------------------------- ------------------------------------
Percent Percent
Loan-to-Value Ratios (1): Balance of Total Balance of Total
--------------- ------------- -------------- ------------
Over 100% (2) $ 49,158 2.4 % $ 56,530 2.9 %
Over 90% to 100% 456,264 22.0 398,871 20.2
Over 80% to 90% 614,018 29.5 570,567 28.9
80% or less 956,800 46.1 948,956 48.0
--------------- ------------- -------------- ------------
Total $ 2,076,240 100.0 % $1,974,924 100.0 %
=============== ============= ============== ============
- -----------------------------------------
(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.
Commercial real estate loans increased $118.5 million from year-end 1999 to $1.2
billion at June 30, 2000. Commercial business loans increased $14.5 million in
the first six months of 2000 to $365.8 million at June 30, 2000. TCF is seeking
to expand its commercial business lending activity and its commercial real
estate lending activity to borrowers located in its primary midwestern markets.
At June 30, 2000, approximately 89% of TCF's commercial real estate loans
outstanding were secured by properties located in its primary markets. Included
in commercial real estate loans at June 30, 2000 are $129.4 million of loans
secured by hotel or motel properties, up from $112.7 million at December 31,
1999. At June 30, 2000 and December 31, 1999, there were no commercial real
estate loans with terms that have been modified in troubled debt restructurings
included in performing loans.
At June 30, 2000, the recorded investment in loans that are considered to be
impaired was $2.6 million for which the related allowance for credit losses was
$849,000. All of the impaired loans were on non-accrual status. The average
recorded investment in impaired loans during six months ended June 30, 2000 was
$3.7 million.
Leasing and equipment finance increased $163.3 million from year-end 1999 to
$655.9 million at June 30, 2000, reflecting increases of $80.4 million in direct
financing leases and $82.1 million in equipment finance loans. Total loan and
lease originations for TCF's leasing business were $296.5 million for the first
six months of 2000, compared with $123.2 million during the same 1999 period. At
June 30, 2000, the backlog of approved transactions related to TCF's leasing
business totaled $192.9 million, compared with $125.2 million at December 31,
1999. The significant increase in leasing and equipment finance activity is due
to TCF Leasing, Inc., TCF's newly formed subsidiary which commenced operations
during the third quarter of 1999. TCF's investment in leveraged leases of $16.4
million at June 30, 2000 includes residual values of $18.1 million, and is net
of unearned income of $12.7 million and principal and interest payments on
non-recourse debt.
18
Loan and lease originations, including loans held for sale, for the first six
months of 2000 and 1999 were as follows:
Six Months Ended June 30,
--------------------------------
(In thousands) 2000 1999
------------ ------------
Consumer $ 524,848 $ 741,035
Commercial 364,551 344,710
Leasing and equipment finance 296,493 123,151
Residential real estate 427,612 726,433
------------ ------------
Total $ 1,613,504 $ 1,935,329
============ ============
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 Six Months
Ended June 30, Ended June 30,
-------------------------------- ---------------------------------
(Dollars in thousands) 2000 1999 2000 1999
------------ ------------ ------------ ------------
Balance at beginning of period $ 56,775 $ 75,396 $ 55,755 $ 80,013
Provision for credit losses 5,383 2,947 6,373 10,707
Charge-offs (2,959) (9,428) (4,902) (20,242)
Recoveries 1,798 2,661 3,771 4,218
------------ ------------ ------------ ------------
Net charge-offs (1,161) (6,767) (1,131) (16,024)
Transfer to loans held for sale -- (230) -- (3,350)
============ ============ ============ ============
Balance at end of period $ 60,997 $ 71,346 $ 60,997 $ 71,346
============ ============ ============ ============
Ratio of annualized net loan and lease
charge-offs to average loans and
leases outstanding .06 % .37 % .03 % .44 %
Allowance for loan and lease losses
as a percentage of total loans and
leases at period end .74 % .96 % .74 % .96 %
19
Additional information on the allowance for loan and lease losses follows:
At or For the Six Months Ended June 30, 2000 At or For the Year Ended December 31, 1999
---------------------------------------------------------- ----------------------------------------------------
Net Net
Allowance for Allowance Charge Allowance for Allowance Charge
Loan and Total Loans as a of % Offs Loan and Total Loans as a of % Offs
(Dollars in thousands) Lease Losses and Leases Portfolio (Recoveries)(1) Lease Losses and Leases Portfolio (Recoveries)
------------ ------------- ---------- ---------------- ------------- ----------- ---------- -----------
Commercial real
estate $ 17,431 $ 1,191,999 1.46 % (.03) % $ 12,708 $ 1,073,472 1.18 % (.08)%
Commercial business 8,778 365,807 2.40 (.24) 8,256 351,353 2.35 (.08)
Consumer 10,200 2,150,763 .47 .04 10,701 2,058,584 .52 1.30
Leasing and
equipment
finance 5,095 655,922 .78 .49 4,237 492,656 .86 .39
Unallocated 16,639 -- .20 N.A. 16,839 - .21 N.A.
------------ ----------- ------------ -------------
Subtotal 58,143 4,364,491 1.33 .05 52,741 3,976,065 1.33 .72
Residential real
estate 2,854 3,866,659 .07 -- 3,014 3,919,678 .08 --
------------ ------------- ------------ -------------
Total $ 60,997 $ 8,231,150 .74 .03 $ 55,755 $ 7,895,743 .71 .35
============ ============= ============ =============
- ---------------------
(1) Annualized.
N.A. Not applicable.
TCF has experienced a significant decrease in the level of net loan charge-offs
related to its consumer finance automobile portfolio, a large portion of which
was sold or liquidated during 1999. As a result, the ratio of annualized net
loan charge-offs (recoveries) to average loans outstanding for TCF's consumer
portfolio were (.01)% and .04% for the three and six months ended June 30, 2000,
respectively, compared with 1.47% and 1.65% for the same periods of 1999.
Included in the net loan and lease charge-offs for the second quarter and first
six months of 2000 were $875,000 and $1.1 million of net recoveries related to
the consumer finance automobile loans, respectively, compared with net
charge-offs of $6.1 million and $13.9 million for the same periods of 1999.
As previously noted, TCF provided $5.4 million for credit losses in the second
quarter of 2000, compared with $2.9 million for the second quarter of 1999 and
$990,000 for the first quarter of 2000. At June 30, 2000, the allowance for loan
and lease losses totaled $61 million, compared with $55.8 million at December
31, 1999 and $56.8 million at March 31, 2000. The increase in the provision for
credit losses and the allowance for loan and lease losses during the second
quarter of 2000 reflects the growth in TCF's portfolio of commercial loans and
leases, and an increase in the average size of individual loans and leases
within these portfolios. Commercial loan and lease portfolios have a greater
inherent risk of loss than loans secured by residential real estate.
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 adequate by
management to provide for probable loan and lease losses inherent in the
portfolio. Management's judgment as to the adequacy 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 adequacy 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.
Management believes the allowance for loan and lease losses is adequate.
20
NON-PERFORMING ASSETS
Non-performing assets (principally non-accrual loans and leases and other real
estate owned) totaled $34.1 million at June 30, 2000, compared with $35.4
million at December 31, 1999. Included in non-accrual loans and leases at June
30, 2000 are $2.9 million of leases that have been funded on a non-recourse
basis by third-party financial institutions. Approximately 78% of non-performing
assets at June 30, 2000 consist of, or are secured by, residential real estate.
The accrual of interest income is generally discontinued when loans and leases
become 90 days or more past due with respect to either principal or interest
(150 days for loans secured by residential real estate, including residential
real estate secured consumer loans) unless such loans and leases are adequately
secured and in the process of collection. Non-performing assets are summarized
in the following table:
At At
June 30, December 31,
(Dollars in thousands) 2000 1999
------------ ------------
Non-accrual loans and leases:
Consumer $ 12,259 $ 12,178
Residential real estate 5,917 5,431
Commercial real estate 1,913 1,576
Commercial business 736 2,960
Leasing and equipment finance 3,652 1,929
------------ ------------
24,477 24,074
Other real estate owned and other assets 9,636 11,348
------------ ------------
Total non-performing assets $ 34,113 $ 35,422
============ ============
Non-performing assets as a percentage
of net loans and leases .42 % .45 %
Non-performing assets as a percentage
of total assets .31 % .33 %
TCF had $5.8 million of accruing loans and leases 90 days or more past due at
June 30, 2000, unchanged from December 31, 1999. The over 30-day delinquency
rate on TCF's loans and leases (excluding loans held for sale and non-accrual
loans and leases) was .42% of loans and leases outstanding at June 30, 2000,
unchanged from year-end 1999. 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 June 30, 2000 At December 31, 1999
---------------------------------- ----------------------------------
Principal Percentage of Principal Percentage of
(Dollars in thousands) Balances Portfolio Balances Portfolio
--------------- -------------- --------------- --------------
Consumer $20,053 .94 % $19,076 .93 %
Residential real estate 10,848 .28 11,552 .30
Commercial real estate 538 .05 493 .05
Commercial business 633 .17 1,595 .41
Leasing and equipment finance 2,389 .37 386 .09
--------------- ---------------
Total $34,461 .42 $33,102 .42
=============== ===============
21
In addition to the non-accrual loans and leases, there were commercial loans and
leases with an aggregate principal balance of $17.7 million outstanding at June
30, 2000 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, doubtful or loss, or
were to borrowers that currently are experiencing financial difficulties or that
management believes may experience financial difficulties in the future. This
compares with $33 million of such loans at December 31, 1999. 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.
Management monitors the performance and classification of such loans and the
financial condition of these borrowers.
OTHER ASSETS
Other assets consist of the following:
At At
(In thousands) June 30, 2000 December 31, 1999
------------- --------------
Premises and equipment $ 176,166 $176,108
Accrued interest receivable 60,266 54,550
Mortgage servicing rights 28,087 22,614
Other real estate owned 9,399 10,912
Other 82,842 87,809
------------- --------------
$ 356,760 $351,993
============= ==============
DEPOSITS
Deposits totaled $6.7 billion at June 30, 2000, up $135.1 million from December
31, 1999. The increase in deposits includes the impact of the previously noted
sales of three underperforming branches during the first six months of 2000 with
$31 million in deposits. Lower interest-cost checking, savings and money market
deposits totaled $3.9 billion, up $229.7 million from December 31, 1999, and
comprised 58.7% of total deposits at June 30, 2000. Checking, savings and money
market deposits are an important source of lower cost funds and fee income for
TCF. The average annual fee revenue per retail checking account for the first
six months of 2000 was $175, compared with $168 for 1999. Higher interest-cost
certificates of deposit decreased $94.6 million from December 31, 1999. The
Company's weighted-average rate for deposits, including non-interest bearing
deposits, was 2.88% at June 30, 2000, compared with 2.71% at December 31, 1999.
22
As previously noted, TCF continued to expand its supermarket banking franchise
by opening five new branches during the 2000 second quarter. TCF now has 207
supermarket branches, up from 174 such branches a year ago. During the past
year, the number of deposit accounts in TCF's supermarket branches increased
25.2% to 614,983 accounts and the balances increased 35.5% to $971.1 million.
The average rate on these deposits increased from 1.99% at June 30, 1999 to
2.35% at June 30, 2000. Additional information regarding TCF's supermarket
branches is as follows:
Supermarket Banking Summary: At or For the Six Months
Ended June 30,
------------------------------ Increase
(Dollars in thousands) 2000 1999 (Decrease) % Change
------------ ------------- ------------ ------------
Number of branches 207 174 33 19.0 %
Number of deposit accounts 614,983 491,251 123,732 25.2
Deposits:
Checking $436,220 $309,076 $127,144 41.1
Passbook and statement 142,878 118,050 24,828 21.0
Money market 86,837 60,390 26,447 43.8
Certificates 305,214 229,281 75,933 33.1
------------ ------------- ------------
Total deposits $971,149 $716,797 $254,352 35.5
============ ============= ============
Average rate on deposits 2.35 % 1.99 % .36 % 18.1
============ ============= ============
Total fees and other revenues (quarter ended) $ 28,497 $ 21,553 $ 6,944 32.2
============ ============= ============
Total fees and other revenues (year-to-date) $ 51,811 $ 39,010 $ 12,801 32.8
============ ============= ============
Consumer loans outstanding $213,498 $155,210 $ 58,288 37.6
============ ============= ============
BORROWINGS
Borrowings totaled $3.2 billion as of June 30, 2000, up $121.8 million from
year-end 1999. The increase was primarily due to increases of $189.2 million in
FHLB advances and $83.6 million in treasury, tax and loan notes, partially
offset by decreases of $95.7 million in securities sold under repurchase
agreements, $33 million in TCF's bank line of credit and $22.4 million in
commercial paper. The outstanding balance of TCF's bank line of credit was $9
million at June 30, 2000. At June 30, 2000, TCF had no commercial paper
outstanding. Included in FHLB advances at June 30, 2000 are $1.2 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. Due to recent increases in interest rates, the market rates exceeded
the contract rates for TCF's entire portfolio of callable FHLB advances at June
30, 2000. The weighted-average rate on borrowings increased to 6.28% at June 30,
2000, from 5.91% at December 31, 1999. At June 30, 2000, borrowings with a
maturity of one year or less totaled $1.6 billion. In addition, included in FHLB
advances at June 30, 2000 are $238 million of long-term FHLB advances that have
call dates within one year.
STOCKHOLDERS' EQUITY
Stockholders' equity at June 30, 2000 was $807.4 million, or 7.4% of total
assets, down from $809 million, or 7.6% of total assets, at December 31, 1999.
The decrease in stockholders' equity is primarily due to the repurchase of
2,861,300 shares of TCF's common stock at a cost of $60 million and the payment
of $32.3 million in dividends on common stock, partially offset by net income of
$87.4 million for the first six months of 2000. On July 17, 2000, TCF declared a
quarterly dividend of 21.25 cents per common share, payable on August 31, 2000
to shareholders of record as of August 4, 2000.
23
Treasury stock and other consists of the following:
At At
June 30, December 31,
(In thousands) 2000 1999
------------ ------------
Treasury stock, at cost $ (321,972) $ (295,148)
Shares held in trust for deferred
compensation plans, at cost (60,137) (46,066)
Unamortized deferred compensation (33,889) (14,887)
Loan to Executive Deferred Compensation Plan (5,989) (4,721)
Unearned ESOP shares (685) --
------------ ------------
$ (422,672) $ (360,822)
============ ============
On June 22, 2000, TCF announced that the Company had entered into an agreement
with a third party that provides TCF with an option to purchase up to $50
million of TCF's common stock under a forward share repurchase contract. The
forward transactions can be settled from time to time, at the Company's
election, on a physical, net cash or net share basis. The final maturity date of
the agreement is June 24, 2002.
At June 30, 2000, 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.
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.tcfbank.com or contact
TCF's Corporate Communications Department at (952) 745-2760.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities (an amendment of FASB Statement No. 133),"
requires recognition of all derivative instruments as either assets or
liabilities in the statement of financial condition and measurement of those
instruments at fair value. A derivative may be designated as a hedge of an
exposure to changes in the fair value of a recognized asset or liability, an
exposure to variable cash flows of a forecasted transaction, or a foreign
currency exposure. The accounting for gains and losses associated with changes
in the fair value of a derivative and the impact on TCF's consolidated financial
statements will depend on its hedge designation and whether the hedge is highly
effective in offsetting changes in the fair value or cash flows of the
underlying hedged item. The statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. TCF has not used derivatives to
hedge exposures other than the use of forward contracts in its mortgage banking
secondary marketing operations. The impact of SFAS No. 133 on the Company's
financial position and results of operations is not expected to be material.
LEGISLATIVE, LEGAL AND REGULATORY DEVELOPMENTS
During the fourth quarter of 1999, TCF received the approval of the Office of
the Comptroller of the Currency to merge four of its existing bank charters into
one national bank charter based in Minnesota. The merger of the bank charters
located in Minnesota, Illinois, Wisconsin and Michigan was completed in April
2000. The merger of the bank charters is not expected to significantly change
the management approach or operations within these geographic states.
24
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.
25
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
At At At At At At
(DOLLARS IN THOUSANDS, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
EXCEPT PER-SHARE DATA) 2000 2000 1999 1999 1999 1999
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA:
Total assets $10,905,705 $10,761,821 $10,661,716 $10,342,248 $10,338,341 $10,200,744
Investments 131,635 155,265 148,154 127,701 194,781 158,222
Securities available for sale 1,436,836 1,470,532 1,521,661 1,599,438 1,701,063 1,569,406
Loans and leases 8,231,150 8,091,793 7,895,743 7,602,130 7,431,171 7,293,329
Deposits 6,719,962 6,823,248 6,584,835 6,633,738 6,648,283 6,632,481
Borrowings 3,205,732 2,975,080 3,083,888 2,721,200 2,734,652 2,579,789
Stockholders' equity 807,382 780,311 808,982 815,304 810,448 824,442
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- --------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2000 2000 1999 1999 1999 1999
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income $ 204,407 $197,157 $193,043 $188,656 $ 186,359 $ 184,043
Interest expense 94,209 90,317 86,931 82,116 79,637 79,204
------------- ------------- ------------- ------------- -------------- --------------
Net interest income 110,198 106,840 106,112 106,540 106,722 104,839
Provision for credit losses 5,383 990 3,371 2,845 2,947 7,760
------------- ------------- ------------- ------------- -------------- --------------
Net interest income after
provision for credit losses 104,815 105,850 102,741 103,695 103,775 97,079
------------- ------------- ------------- ------------- -------------- --------------
Non-interest income:
Gain (loss) on sales of securities
available for sale -- -- -- -- (5) 3,199
Gain on sales of loan servicing -- -- -- -- 743 2,333
Gain on sales of branches 3,866 -- 3,349 6,429 2,382 --
Gain on sale of subsidiaries -- -- 5,522 -- -- --
Title insurance revenues -- -- 2,490 3,953 4,512 4,466
Other non-interest income 82,438 72,953 74,785 72,137 68,385 63,919
------------- ------------- ------------- ------------- -------------- --------------
Total non-interest income 86,304 72,953 86,146 82,519 76,017 73,917
------------- ------------- ------------- ------------- -------------- --------------
Non-interest expense:
Amortization of goodwill and
other intangibles 2,484 2,483 2,665 2,676 2,673 2,675
Other non-interest expense 112,761 110,107 112,292 114,061 110,106 105,650
------------- ------------- ------------- ------------- -------------- --------------
Total non-interest expense 115,245 112,590 114,957 116,737 112,779 108,325
------------- ------------- ------------- ------------- -------------- --------------
Income before income tax expense 75,874 66,213 73,930 69,477 67,013 62,671
Income tax expense 29,212 25,492 28,980 26,717 26,024 25,331
------------- ------------- ------------- ------------- -------------- --------------
Net income $46,662 $ 40,721 $44,950 $42,760 $40,989 $37,340
============= ============= ============= ============= ============== ==============
Per common share:
Basic earnings $.60 $.51 $.55 $.52 $.50 $.45
============= ============= ============= ============= ============== ==============
Diluted earnings $.59 $.51 $.55 $.52 $.49 $.44
============= ============= ============= ============= ============== ==============
Diluted cash earnings (1) $.61 $.53 $.58 $.54 $.52 $.47
============= ============= ============= ============= ============== ==============
Dividends declared $.2125 $.1875 $.1875 $.1875 $.1875 $.1625
============= ============= ============= ============= ============== ==============
FINANCIAL RATIOS (2):
Return on average assets 1.73 % 1.53 % 1.72 % 1.66 % 1.60 % 1.48
Cash return on average assets (1) 1.80 1.60 1.80 1.73 1.67 1.55
Return on average realized common
equity 22.19 19.24 21.04 20.37 19.81 18.06
Return on average common equity 23.72 20.55 22.03 21.29 20.11 17.99
Cash return on average realized
common equity (1) 23.09 20.12 22.14 21.27 20.73 18.97
Average total equity to average
assets 7.28 7.44 7.78 7.79 7.95 8.22
Average realized tangible equity to
average assets 6.23 6.35 6.50 6.44 6.33 6.39
Average tangible equity to average
assets 5.72 5.84 6.13 6.08 6.21 6.42
Net interest margin (3) 4.38 4.32 4.38 4.46 4.52 4.52
- -------------------------------------------------------------------------------
(1) Excludes amortization and reduction of goodwill, net of income tax benefit.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
26
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION (CONTINUED)
CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST AND DIVIDENDS
EARNED OR PAID, AND RELATED INTEREST YIELDS AND RATES
Six Months Ended June 30,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- -------------------------------------
Interest Interest
Yields Yields
Average and Average and
(Dollars in thousands) Balance Interest (1) Rates (2) Balance Interest (1) Rates (2)
-------------- ------------- --------- ----------- -------------- ---------
ASSETS:
Investments $137,401 $ 4,761 6.93 % $137,375 $ 4,421 6.44 %
-------------- ------------- ----------------------------
Securities available for sale (3) 1,546,089 51,020 6.60 1,727,589 56,771 6.57
-------------- ------------- ----------------------------
Loans held for sale 211,481 8,095 7.66 207,173 6,792 6.56
-------------- ------------- ----------------------------
Loans and leases:
Residential real estate 3,926,183 138,979 7.08 3,782,537 132,254 6.99
Commercial real estate 1,138,888 48,371 8.49 868,987 36,375 8.37
Commercial business 360,438 15,972 8.86 321,077 12,491 7.78
Consumer 2,094,362 104,945 10.02 1,926,219 98,611 10.24
Leasing and equipment finance 558,437 29,421 10.54 399,272 22,687 11.36
-------------- ------------- ----------------------------
Total loans and leases (4) 8,078,308 337,688 8.36 7,298,092 302,418 8.29
-------------- ------------- ----------------------------
Total interest-earning
assets 9,973,279 401,564 8.05 9,370,229 370,402 7.91
------------- --------- -----------------------
Other assets (5) 752,913 813,057
-------------- --------------
Total assets $10,726,192 $10,183,286
============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Non-interest bearing deposits $1,279,164 $1,152,945
-------------- --------------
Interest-bearing deposits:
Checking 741,052 2,188 .59 706,153 2,021 .57
Passbook and statement 1,061,404 5,885 1.11 1,122,707 6,223 1.11
Money market 716,545 10,345 2.89 726,760 9,386 2.58
Certificates 2,846,714 73,986 5.20 2,891,212 69,225 4.79
-------------- ------------- ----------------------------
Total interest-bearing
deposits 5,365,715 92,404 3.44 5,446,832 86,855 3.19
-------------- ------------- ----------------------------
Total deposits 6,644,879 92,404 2.78 6,599,777 86,855 2.63
-------------- ------------- ----------------------------
Borrowings:
Securities sold under
repurchase agreements
and federal funds
purchased 842,737 25,421 6.03 420,886 10,476 4.98
FHLB advances 1,882,260 53,839 5.72 1,812,283 49,205 5.43
Discounted lease rentals 167,218 6,952 8.31 176,570 7,105 8.05
Other borrowings 167,833 5,910 7.04 174,112 5,200 5.97
-------------- ------------- ----------------------------
Total borrowings 3,060,048 92,122 6.02 2,583,851 71,986 5.57
-------------- ------------- ----------------------------
Total interest-bearing
liabilities 8,425,763 184,526 4.38 8,030,683 158,841 3.96
------------- --------- -----------------------
Other liabilities (5) 230,174 176,918
-------------- --------------
Total liabilities 9,935,101 9,360,546
Stockholders' equity (5) 791,091 822,740
-------------- --------------
Total liabilities
and stockholders' equity $10,726,192 $10,183,286
============== ==============
Net interest income $217,038 $211,561
============= ==============
Net interest-rate spread 3.67 % 3.95 %
========= =========
Net interest margin 4.35 % 4.52 %
========= =========
- ------------------------------------
(1) Tax-exempt income was not significant and thus has not been presented on a
tax equivalent basis. Tax-exempt income of $93,000 and $92,000 was
recognized during the six months ended June 30, 2000 and 1999,
respectively.
(2) Annualized.
(3) Average balance and yield of securities available for sale is 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.
27
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 services companies and TCF is
subject to the risk of such actions.
On November 2, 1993, TCF Minnesota 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 Michigan 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 GLENDALE damages decision
has been appealed to the United States Court of Appeals for the Federal Circuit.
The other case which went to trial was settled in June 1998.
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
28
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). On May 6, 1999, the Court
denied plaintiff's motion for reconsideration of its damages decision in the
CALIFORNIA FEDERAL case. The CALIFORNIA FEDERAL decision has been appealed to
the United States Court of Appeals for the Federal Circuit.
The Court of Federal Claims has also issued damages decisions in several other
"supervisory goodwill" cases. While the Court awarded the plaintiffs in 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 the Court of Federal Claims' recent 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.
29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 10, 2000, the Annual Meeting of the shareholders of TCF was held to
obtain the approval of shareholders of record as of March 17, 2000 in connection
with the three matters indicated below. Following is a brief description of each
matter voted on at the meeting, and the number of votes cast for, against or
withheld, as well as the number of abstentions and broker nonvotes, as to each
such matter:
Vote
------------------------------------------------------------------
Against or Broker
For Withheld Abstain Nonvote
--------------- ---------------- -------------- --------------
1. Election of Directors
William F. Bieber 68,521,861 4,710,925 N/A N/A
John M. Eggemeyer III 68,564,604 4,668,182 N/A N/A
Robert E. Evans 68,467,461 4,765,324 N/A N/A
Richard McNamara 68,439,022 4,793,764 N/A N/A
Gerald A. Schwalbach 68,520,731 4,712,055 N/A N/A
2. Approval of an increase in the number of shares
of TCF common stock authorized for awards
under the TCF Financial 1995 Incentive Stock
Program by 2,500,000 shares and allow performance
stock awards to be made under the Program 59,792,415 13,133,355 307,016 0
3. Approval of an amendment to the TCF Financial
Performance-Based Compensation Policy
and reapproval of the Policy, as amended 68,038,291 4,733,837 460,658 0
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits on page 32 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated June 22, 2000, was filed in
connection with TCF's announcement that the Company has entered
into an agreement with a third party that provides TCF with an option
to purchase up to $50 million of TCF's common stock under a forward
share repurchase contract.
30
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 and Controller
(Principal Accounting Officer)
Dated: August 10, 2000
31
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
Exhibit Sequentially
Number Description Numbered Page
------- ----------- -------------
3(b) Restated Bylaws of TCF Financial Corporation, as
amended and restated through October 25, 1999; as
amended by amendment adopted April 28, 2000
4(a) Copies of instruments with respect to long-term debt N/A
will be N/A furnished to the Securities and Exchange
Commission upon request.
11 Computation of Earnings Per Common Share
27 Financial Data Schedules (filed electronically)
32