TCF FINANCIAL CORPORATION
2003 Annual Report
INVESTING IN THE FUTURE
CORPORATE PROFILE
TCF Financial Corporation is a Wayzata, Minnesota-based national financial holding company with $11.3 billion in assets.
TCF has more than 400 banking offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana. Other TCF affiliates
provide leasing and equipment finance, mortgage banking, brokerage, and investments and insurance sales.
TABLE OF CONTENTS
page 1
page 2
page 10
page 15
page 18
page 48
Financial Highlights
Letter to Our Shareholders
Business Highlights
Corporate Philosophy
Management’s Discussion and Analysis
Consolidated Financial Statements
page 53
page 77
page 78
page 79
page 81
Notes to Consolidated Financial Statements
Independent Auditors’ Report
Other Financial Data
Corporate Information
Shareholder Information
INVESTING IN THE FUTURE
ABOUT THE COVER A frame has been placed around the artwork that appeared on last year’s annual report cover.
We chose to repeat this symbolic picture to emphasize TCF’s long-term strategy of “Investing in the Future.” We continue
to plant the seeds of growth by investing in new banking facilities and convenient products and services. These investments
may reduce our profits in the short term, but they are proven providers of long-term growth and profitability. Like an
orchard, TCF is subject to changes in the environment – this year’s unprecedented 40-year low interest rates, a slow
economy and changing laws and regulations had an adverse impact on the banking industry. TCF was no exception;
however, we have confidence in our proven strategies and the patience to continue investing for the future. Like apple
trees in an orchard, we expect our long-term growth strategy to bear fruit for many, many years.
FINANCIAL HIGHLIGHTS
TCF Financial Corporation and Subsidiaries – 2003 Annual Report
(Dollars in thousands, except per-share data)
Operating Results:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . . . .
Non-interest income:
Fees and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on termination of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Common Share Information:
Basic earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock price:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Price to book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Ratios:
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity to total assets at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in thousands)
Selected Balance Sheet Data:
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases excluding residential real estate loans . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Checking, savings and money market deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At or For the Year Ended December 31,
2003
2002
% Change
$
$
$
641,519
160,374
481,145
12,532
468,613
430,792
32,832
(44,345)
–
419,279
560,109
327,783
111,905
215,878
3.06
3.05
1.30
54.25
36.50
51.35
13.07
393%
1.85%
23.05
4.54
8.14
$
$
$
733,363
234,138
499,225
22,006
477,219
406,264
11,536
–
1,962
419,762
539,289
357,692
124,761
232,931
3.17
3.15
1.15
54.60
35.10
43.69
13.23
330%
2.01 %
25.38
4.71
8.01
(12.5)%
(31.5)
(3.6)
(43.1)
(1.8)
6.0
184.6
(100.0)
(100.0)
(.1)
3.9
(8.4)
(10.3)
(7.3)
(3.5)
(3.2)
13.0
17.5
(1.2)
19.1
(8.0)
(9.2)
(3.6)
1.6
At December 31,
2003
2002
% Change
$ 1,533,288
1,212,643
2,745,931
7,135,135
145,462
52,036
11,319,015
5,999,626
1,612,123
7,611,749
878,412
1,536,413
920,858
70,476,330
$ 2,426,794
1,800,344
4,227,138
6,320,784
145,462
62,644
12,202,069
5,791,233
1,918,755
7,709,988
842,051
2,268,244
977,020
73,855,886
(36.8)%
(32.6)
(35.0)
12.9
–
(16.9)
(7.2)
3.6
(16.0)
(1.3)
4.3
(32.3)
(5.7)
(4.6)
2003 Annual Report
1
“Our new branches are like seeds
planted in an orchard. We plant them
strategically, tend to them carefully and
patiently as they grow, and harvest the
rewards of our investment as they mature.”
Wi l l i a m A . C o o p e r ,
C h a i r m a n o f t h e B o a r d a n d C E O
DEAR SHAREHOLDERS:
2003 was a very challenging year for TCF and a time of great change for the banking industry. While TCF responded to
each of these challenges and remained a high performing financial institution; quite frankly, we did not meet our 2003
earnings per share growth expectations.
Summarizing the year:
• TCF earned $215.9 million in 2003 compared to $232.9 million in 2002. A decline of 7.3 percent.
• Diluted earnings per share (EPS) were $3.05 for 2003 compared to $3.15 for 2002. A decline of 3.2 percent.
• During 2003, TCF prepaid $954 million of high cost fixed rate borrowings at an after-tax cost of $29.2 million
or $.41 EPS.
• TCF’s 2003 return on average assets (ROA) and return on average equity (ROE) remained at very high industry
levels of 1.85 percent and 23.05 percent, respectively.
• Despite these disappointing results and perhaps due to the investment community’s recognition of the growth of
TCF core businesses, TCF’s stock price closed at $51.35 per share at December 31, 2003, up 17.5 percent from $43.69
per share at year-end 2002. Our annualized total return to investors over the past ten years was over 22 percent. Our
dividend increased from $1.15 per share in 2002 to $1.30 per share in 2003. In 2004, our dividend increased again
and will be $1.50 per share. We are proud that TCF has a ten-year compounded dividend growth rate of 22.4 percent,
the highest ten-year growth rate of the 50 largest banks in the country.
2
TCF Financial Corporation and Subsidiaries
There are several significant factors which inhibited TCF’s EPS growth in 2003. While some of these factors were not
our fault, all of them are our responsibility.
1. A major negative impact on TCF in 2003 was the unanticipated 40-year lows experienced in interest rates. Due to
these historically low rates, TCF experienced extraordinary and unprecedented levels of prepayments. Residential
loans, home equity loans, commercial real estate loans and mortgage-backed securities prepaid or refinanced at unfore-
seen record levels. Residential loans and mortgage-backed securities shrank $1.5 billion in total during the year. We
chose not to replace this runoff with low-yielding, long-term fixed rate assets. Although this decision had a negative
impact on our net interest income, we believe this decision was in the best long-term interest of TCF.
2. As a result of the refinancing boom experienced in 2003, loan yields fell faster and further than we could reduce our
cost of funds, lowering our net interest margin to 4.54 percent, compared to 4.71 percent in 2002.
Because of TCF’s high percentage of low cost core deposits and the fixed rate longer maturity nature of our borrow-
ings, TCF was unable to lower the cost of funds to the same degree as the reduction of the yield on earning assets.
TCF’s cost of borrowings was 4.08 percent in 2003, as compared to 4.87 percent in 2002. In hindsight, more of
our borrowings should have been variable rate.
The weighted average rate of TCF’s deposits was .53 percent at December 31, 2003. This rate is one of the lowest in
the country and results from TCF’s large base of checking and savings deposits. Most of TCF’s checking accounts do
not pay any interest so the rate cannot be changed.
Diluted EPS
(dollars)
Net Income
(millions of dollars)
Fees and Other Revenue
(millions of dollars)
$3.15
$3.05
$233
$216
$207
$431
$406
$186
$166
$367
$323
$274
$2.70
$2.35
$2.00
99
00
01
02
03
99
00
01
02
03
99
00
01
02
03
2003 Annual Report
3
3. Recognizing that the assets financed by our borrowings had run-off, we prepaid $954 million of high cost fixed-rate
borrowings at a cost of $44.3 million ($.41 EPS). This action hurt 2003 earnings but allowed us to reduce our cost
of funds in future periods.
4. Over 50 percent of TCF’s $5 billion mortgage servicing portfolio prepaid in 2003, resulting in amortization and
provision for impairment expense of $44.8 million in 2003. Increased gains on sales of mortgage loans and
mortgage-backed securities offset this expense.
5. The unplanned VISA® debit card litigation settlement reduced TCF’s interchange revenues by approximately $6 million
in 2003. Although TCF was not a party to this litigation, the settlement adversely impacted our results.
POWER ASSETS® and POWER LIABILITIES® On a more positive note, TCF experienced strong growth in its core businesses
in 2003. Power Assets grew $814.4 million, or 13 percent, despite the economic uncertainties present in 2003. TCF’s
consumer loans increased $624.5 million, or 21 percent. Commercial loans increased $68.5 million, or three percent.
Leasing and Equipment Finance increased $121.4 million, or 12 percent. All of these areas are well poised for future
growth in 2004.
Net Interest Income
(millions of dollars)
$481
$499
$481
$439
$424
Retail Distribution Growth
(number of branches)
Traditional Supermarket
395
401
375
352
338
TCF Check Card
Interchange Revenue
(millions of dollars)
$53.0
$47.2
$37.6
$28.8
$19.5
99
00
01
02
03
99
00
01
02
03
99
00
01
02
03
4
TCF Financial Corporation and Subsidiaries
Average balances for TCF’s core deposits increased $742.7 million in 2003, or 14 percent. Certificates of Deposits
continued to decline in 2003, as other lower-cost funding sources were available to TCF.
The number of checking accounts grew by 106,000 accounts (eight percent) and totaled 1,443,821 accounts at year end.
Credit Quality Credit Quality improved in 2003 and continues to remain strong. The provision for losses was
$12.5 million in 2003, a $9.5 million reduction from 2002. Net charge-offs in 2003 were $12.9 million, or only
.16 percent of loans, a very low rate.
Our emphasis on secured lending proved itself once again as TCF weathered the economic recession. Since we earn
a large portion of our profits from deposits, we don’t need to take big credit risks.
New Branch Expansion A good portion of TCF’s growth comes from our new branch expansion. According to the American
Banker, TCF ranked fourth largest in new branch growth between 1999 and 2003. Our new branches are like seeds planted
in an orchard. We plant them strategically, tend to them carefully and patiently as they grow, and harvest the rewards of
our investment as they mature. While de novo expansion has been unusual until recently in the banking industry, most
successful retailers such as Wal-Mart®, Target®, and our supermarket partners, Cub® Foods and Jewel-Osco®, grow through
de novo expansion. This strategy has provided TCF an ever-growing customer base with a very low cost of funds.
New branch expansion continued in 2003 with 14 new traditional branches and five new supermarket branches. New
branches we have opened since 1998 now have $1.2 billion in deposits and 480,000 checking accounts. New checking
account net growth in new branches is about 21 percent. We continue to work to improve these results.
While supermarket branches have superior returns, they are also becoming more risky. The supermarket industry is
being challenged by Wal-Mart and others. Union problems and labor strikes are appearing. A supermarket industry
shakeout appears to be in progress. We closed some 12 supermarket branches in Michigan, Colorado and Wisconsin in
2003 as a result of our supermarket partners’ store closings. For these reasons, and due to the slower growth of new
supermarket stores by our supermarket partners, more of our expansion in the future will be in traditional branches.
We believe TCF has the ability to grow in every market it serves.
The cost of this new branch expansion flows through the income statement faster than the dilution created through
an acquisition, but is ultimately more profitable. We believe we can bring these new branches to profitability quickly
enough that expansion is a better use of our capital than paying the high premiums of an acquisition. The internal rate
of return on expansion is one of the “hurdle rates” we use to measure acquisitions. Although we would not rule out an
acquisition in the future, we believe the de novo strategy is best for us right now. Our new branch expansion strategy has
been focused and clear. We plan to stick to this approach in 2004.
2003 Annual Report
5
Innovative Products and Services In addition to our new branch expansion strategy, innovative products and services
continue to contribute to our success. “Totally Free Checking,” “Free Small Business Checking,” home equity loans,
debit cards, investment sales and supermarket branch banking have been our most successful innovations. Over the last
few years we have introduced TCF Express.com® (our online banking service), TCF Express Trade (our securities broker-
age service), TCF Leasing (one of our equipment leasing subsidiaries), TCF Express CoinSM Service (offering free self
service coin counting to TCF customers), and TCF is now open seven days-a-week in almost all of our branches. In
2003, TCF’s debit card revenues were $53 million, TCF leasing operations earned $29.3 million and TCF’s supermarket
banking division earned $25.8 million. All, or a significant part of these operations, were at one time de novo activities.
TCF has successfully used innovation to increase profits and grow our customer base.
A Time of Great Change This is also a time of great change in the banking industry.
First, several colossal bank mega-mergers have recently been announced. TCF continues to compete in an industry
that is in a large-scale consolidation cost take-out mode. In the short run, these types of mergers creating trillion dollar
banks are good for TCF when they happen in our marketplace. The employee and customer disruptions caused by the
mergers highlight TCF’s local presence and result in growth of new customers. We think too much emphasis in these
mergers is placed on scale when the real determining factor should be skill. Being smaller allows TCF to be more focused
and make quicker decisions.
However, for the first time the recently announced mergers lay the foundation for nationwide banking. The ever
increasing control over the banking system by a few very large nationwide players, including payment systems like Visa
and automated clearing house (ACH), remains a real source of concern to us. When you walk with elephants, sometimes
you get stepped on.
Second, for the first time in history, the actual number of checks written by our average customer at TCF declined in
2003 by approximately 10%. We have been hearing this prediction for years – and it finally happened.
Our customers have increased their use of the debit card to replace checks and cash transactions. This is a good thing for
TCF since it brings us interchange revenue and reduces our costs. The debit card is now an integral part of a checking account.
Customers are also continuing to increase their use of automated clearing house (ACH) transactions, which also
reduces check volumes. Customers like the convenience of making their payments on a regular basis in this fashion.
Customer behavior will continue to evolve and change as these payment systems become more widely used. The longer-
term impact of these changes on deposits and related deposit service charge revenues is not entirely clear. We are spending
a lot more time and resources studying our customer’s behavior in order to get ahead of this curve.
6
TCF Financial Corporation and Subsidiaries
Finally, the management of interest rate risk in this record low interest rate environment remains a major challenge.
This is not something we have previously experienced to this extent. Over time, we intend to reduce TCF’s risk of
prepayments. Much of this will be accomplished by the reduction of residential loans and mortgage-backed securities as
well as replacing borrowings with core deposits. However, we will also explore other strategies to reduce this risk in our
mortgage-banking operations.
Risks We think it is appropriate to also mention here what we consider to be the other major risks to our continued
success. First is the success of our new branch expansion. We are relying on the continued, long-term success of branch
banking. Second, TCF, like all banks, is subject to the effects of any economic downturn. In particular, a significant decline
in home values in our markets could have a negative effect on our results. A bad economy can create increased loan and
lease losses. The third risk is our ability to attract and retain new customers. Our overall growth is dependent on our
ability to grow our checking accounts. Deposit losses (fraudulent checks, etc.) remain high and combating them is a con-
tinuing challenge. Technological change is a risk. Additionally, as became very clear in 2003, rising and falling interest
rates affect our results. Legal, regulatory and tax issues are always a risk (the Visa debit card lawsuit is a good example
of this legal risk).
New Branch1 Banking Fees
& Other Revenue2
(millions of dollars)
New Branch1 Total Deposits
(millions of dollars)
New Branch Expansion
(number of new branches opened)
Supermarket Traditional
$1,225
106
$1,088
$126
$108
$85
$61
$39
$14
$744
$594
$344
$190
35
27
27
25
28
22
19
6
98
99
00
01
02
03
98
99
00
01
02
03
98
99
00
01
02
03
04 Plan
1
Branches opened since January 1, 1998
2
Consisting of fees and service charges, debit card revenue,
ATM revenue, and investments and insurance commissions
1
Branches opened since January 1, 1998
2003 Annual Report
7
Over the long term, the success and viability of our supermarket partners are important to TCF. If our partners sell
or contract their stores, we are at risk; though over time, as we build out our traditional branch system, this risk is mit-
igated somewhat. We continue to work closely with our partners to optimize our businesses and to be aware of and address
any potential risks.
None of these risks are new. Our consistent results have proven that we have managed these risks in the past and we
believe we are adequately prepared to manage them in the future. Our philosophy at TCF is to run a highly profitable
bank and to minimize risk. TCF does not utilize unconsolidated subsidiaries and has no exotic derivatives, foreign loans,
bank owned life insurance, etc. In our opinion, TCF’s accounting is conservative.
A careful reading of this Annual Report will tell you generally everything about our company. We try to keep our
financial reporting simple, but as complete as possible. We have a lot to be proud of and nothing to hide.
Checking Accounts
(thousands)
Fee Revenue
Per Checking Account
(dollars)
1,444
1,338
1,249
1,131
1,032
$223
$218
$209
$190
$168
12/99
12/00
12/01
12/02
12/03
99
00
01
02
03
8
TCF Financial Corporation and Subsidiaries
We continue to have a mutuality of interest with our shareholders. Our senior management and board of directors
own approximately 6.1 million shares, or 8.6 percent, of TCF stock. Seventy-eight percent of our eligible employees
participate in TCF’s Employees Stock Purchase Plan, which at year-end held over 4.1 million shares. Our stock plans
for senior management continue to be restricted stock grants based on long-term growth in earnings per share. These
stock grants are expensed in the income statement just like the rest of TCF’s expenses. We are true owners as we face the
downside risk of our decisions as well as the upside potential. As a result of not meeting TCF’s earnings goals, no incen-
tive compensation bonuses were paid to executive management for 2003.
TCF repurchased 3.5 million shares (five percent) of its stock in 2003 and a total of 25.1 million shares (29 percent)
since the beginning of 1998. While the number of shares we buy remains subject to the availability of capital, we plan to
continue repurchasing shares as long as TCF stock remains our most attractive investment opportunity. We consider the
return from repurchasing TCF stock as another hurdle rate for acquisitions.
Again this year, we give special thanks to our hardworking, responsive and dedicated Board of Directors. Our Board
consists largely of entrepreneurial business people who also own TCF stock. We appreciate their continued guidance and
support. We would like to especially recognize Pinky McNamara, who retired from our board of directors in 2003, for
his years of service to TCF. His wisdom and counsel were invaluable.
We also thank our outstanding team of employees who truly do put the customer first every day. Everything that
happens at TCF is the direct result of the exceptional ability, commitment and energy of TCF’s employees. We are proud
of the TCF team and their accomplishments.
Thank you for your continued support and investment in TCF. We are looking forward to a better year in 2004 and
remain optimistic about TCF’s future.
William A. Cooper
Chairman of the Board and Chief Executive Officer
Lynn A. Nagorske
President and Chief Operating Officer
2003 Annual Report
9
P l a n n i n g f o r G r o w t h Simple, straightforward,
and enduring strategies, which are based on a well-
grounded philosophy coupled with successful execution
and solid management, have made TCF one of the top
performing banks in the country.
S T R AT E G I E S
In 1989, TCF Chairman and CEO Bill Cooper sat down with a group of TCF
convenient options – meeting customers needs. Adding new branches
where they can best support and increase our customer base, and
executives to commit to writing the underlying banking philosophies
introducing new and enhancing existing products or services, are
that has guided TCF’s business strategies. These strategies have
strategies that have worked well for TCF over the last decade.
become the principles by which TCF conducts its business. TCF’s long-
term strategies for growth are somewhat unique among our competi-
tors, however they have served and continue to serve our customers
and shareholders well.
Since 1989, TCF has placed equal emphasis on what it defines as Power
Assets (higher-yielding consumer loans, commercial loans and leas-
ing assets) and Power Liabilities (lower-cost checking, savings, money
market and certificate of deposit accounts). A principle strategy of
TCF’s strategies begin with the premise that every customer is valu-
TCF’s Power Assets is that TCF lends on a secured basis. Our strong
able, and we must listen to them. We are “The Leader in Convenience
credit quality is evidence that this important strategy is working. TCF
Banking,” and we use our premier convenience services to attract
has one of the lowest charge-off ratios in the banking industry. Power
a large and economically diverse customer base. Each of our many
Liabilities are proven profit drivers at TCF. By focusing on both Power
customers contributes incrementally to our revenue. TCF does not
Assets and Power Liabilities, we recognize the important contributions
believe in focusing only on one “profitable” customer segment. Every
to overall profitability by both the liability and asset side of the bal-
customer is potentially profitable and may become more so over time.
ance sheet. Earning at least one percent on each side of the balance
sheet, we can provide synergistic earnings greater than two percent
TCF provides convenience to our large and growing customer base by
being open longer hours seven days a week and open on most holidays.
in total.
TCF offers a large supermarket branch network, complemented by
TCF’s superior earnings performance allows us to regularly buy back
traditional branches, providing customers with alternative locations
our own stock. In evaluating potential acquisitions, we look at the
to conduct their banking. TCF’s free on-line banking services, exten-
stock buy back opportunity as an acquisition alternative that can
sive ATM network and automated telephone service provide even more
provide superior results. Investing in our own stock has been good for
TCF and its shareholders.
10
TCF Financial Corporation and Subsidiaries
Simple, straightforward, and enduring strategies, which are based on
growing commercial and small business customers. In 2004, TCF plans
a well-grounded philosophy coupled with successful execution and
to open 22 new traditional offices.
solid management, have made TCF one of the top performing banks in
the United States.
D E NOVO E X PA N S I O N
TCF’s future growth is contingent on a continuing investment in de novo
Supermarket banking continues to play a key role in TCF’s ability to
provide the most convenient banking services in the markets we serve,
especially in Minnesota and the Chicagoland area. Our customers enjoy
the convenience of one-stop shopping and banking, causing these
lower-cost, high-volume branches to become profitable more quickly
expansion, both in our branch network and in our development of new
than traditional branches. Our supermarket branches in Cub Foods
products and services. Each of these components play a fundamental
and Jewel-Osco play an important role in our expansion strategy. In
and complementary role – adding new branches supports our growing
2004, TCF plans to open six new supermarket branches.
customer base and provides new products and services, allowing us to
attract new customers and deepen our customer relationships.
The other key element of TCF’s de novo expansion strategy is the evo-
lution of our convenient products and services. New products attract
Since January of 1998, TCF has added 228 new branches to our rapidly
new customers, allowing us to develop additional relationships with
growing branch network – nearly 57 percent of our existing branches.
our existing customers. TCF’s innovative culture fuels the strategic
In 2003, we opened more traditional branches than supermarket
initiatives that have led to the introduction of many of our products
branches. With the opportunity to add new supermarket branches
and services.
slowing in some markets, TCF has a greater opportunity to support and
complement these branches with more new traditional branches.
Traditional branches require a higher initial investment. They
act as a visible anchor in our communities, providing convenient,
full-service banking not only to our retail customers but also to our
Totally Free Checking remains the best example of a successful inno-
vative product brought to market by TCF. We listened to our customers,
and what they wanted was a very low-cost checking account. We gave
them a free account, which remains our most popular checking
account. Most of our competitors are attempting to copy this product.
B u i l d i n g f o r t h e Fu t u r e TCF’s de novo
strategy of branch expansion and product line
improvements continues to complement each
other. New products and services with convenient
locations attract new customers and deepen our
customer relationships.
2003 Annual Report
11
We had similar success with our home equity loan products. We have
based on knowing what our customers want – and we continue to
been able to add several enhancements to the product over the years
expand and enhance our offerings based on their needs.
including tiered pricing, Visa credit line access, payment protection
products, and this year, a fast-close service.
Our extensive branch network is at the core of our convenience
products and services. Spanning six states, TCF’s 401 branches are
In 2003, TCF launched “TCF Check Cashing” a convenient, economical
conveniently located where our customers live, shop and do business.
and full-service check cashing service to non-TCF banking customers.
We’re open seven days a week, with extended hours in both our super-
This new service is bringing a whole new group of customers into our
market and most traditional branches, to ensure that our customers
branches and provides us an opportunity to introduce them to our
can stop in and do business when it’s convenient for them. Even on
many checking and deposit account products and services.
most holidays, TCF customers know that personal service is available
TCF’s Leasing operations are another example of successful de novo
expansion. In 1999, TCF started TCF Leasing, Inc., a de novo general
leasing and equipment finance business. The success of this endeavor
has resulted in the addition of $931 million in leasing and equipment
finance outstandings at December 31, 2003. TCF Express Leasing,
to open new accounts, make deposits and withdrawals, obtain loans,
make investments, and have access to other banking products and
services. TCF customers enjoy free on-site coin counting through TCF
Express Coin Service. Customers looking for home equity loans can get
their money quickly through TCF’s fast-close loan program, where
home equity application processing is expedited so that funds are
a division of TCF Leasing Inc., has quickly developed a core business
in small ticket marketing segment. This was accomplished in part
available quickly.
through the use of a front-end origination and documentation sys-
TCF’s supermarket branches continue to play an important role in this
tem which provides quick and convenient origination and approval of
convenience strategy. These full-service branches allow customers to
lease transactions.
simplify their schedules by handling their banking needs while shopping.
TCF’s de novo strategy of branch expansion and product line improve-
ments continues to complement each other. New products and services
with convenient locations attract new customers to our branch net-
work, which support and grow these relationships by providing the
Busy customers can also take advantage of easy one-stop banking by
using one of TCF’s many convenient traditional branch drive-through
locations. As we continue to expand our traditional branch network,
these drive-throughs will become even more readily available.
most convenient banking services in our markets. TCF plans to continue
For customers who prefer the convenience of electronic banking, TCF
our investment in this long-time, successful core strategy.
provides a host of products and services. These include an automated
C O N V E N I E NC E
Providing premier convenience products and services is a key compo-
phone system, which provides balance information, transfers and other
services, and our extensive network of Express Teller ATMs for cash
withdrawals, deposits and easy access to account information.
nent of TCF’s banking strategy, proving why we have long been known
Many TCF customers enjoy banking through the Internet using one of
as a leader in convenience banking. Our definition of convenience is
TCF’s online banking products. During 2003, TCF Totally Free Online
12
TCF Financial Corporation and Subsidiaries
C u l t i v a t i n g O u r B u s i n e s s Power Assets
and Power Liabilities remain the cornerstone of
TCF’s growth, profitability and success.
Banking was enhanced to provide customer ability to access multiple
to download transaction detail into financial software applications,
TCF accounts via one screen and view an extensive account history
helping small business owners manage their businesses.
with robust transaction history detail. Customers can also easily
search for specific transactions by various attributes and set up auto-
matic recurring transfers. Through “My TCF,” customers can track
a personal list of stock quotes and stock indices, receive weather
information by zip code and access national, local and feature head-
lines with links to full articles. TCF Preferred Online Banking also allows
TCF Express Business provides commercial customers the ability to access
complete balance reporting, initiate transfers, stop payments, and
make ACH transactions from any personal computer worldwide, 24 hours
a day, 365 days a year. TCF Express Business has become an important
and popular product in TCF’s growing commercial banking operation.
customers to request automatic account balance alerts sent by email
The definition of convenience changes as a customer’s life and business
accessible by a computer terminal or by an email-enabled cell phone
needs evolve. At TCF we are committed to being the most convenient
or pager. In 2004, TCF will introduce enhancements to its bill paying
bank in the markets we serve by continuing to develop and enhance
service and redesign the TCFExpress website to make it even more
new and innovative convenience products and services.
customer friendly.
Online at TCF Express Trade, customers can buy and sell stocks, mutual
funds and other securities. Access to investment holdings, account
history, stock research, and order placement is available 24 hours a
P OW E R A S S E T S A ND
P OW E R L I A B I L I T I E S
In 2003, TCF continued its focus on building Power Assets and Power
day, seven days a week. Customers preferring personal service can
Liabilities. TCF defines Power Assets as higher-yielding commercial
contact a personal trading representative.
loans, commercial real estate loans, leases, and consumer home
Small business customers may also take advantage of TCF’s Internet
banking services. Totally Free Online Banking for Business provides
basic Internet banking services with no access fee. TCF Preferred Online
Business Banking provides expanded account history and the ability
equity loans. Power Liabilities include checking, savings, money mar-
ket accounts, and certificates of deposits. Power Assets and Power
Liabilities now comprise over 66 percent of TCF’s balance sheet and in
2003 contributed over 83 percent of net income.
2003 Annual Report
13
In 1986, TCF became one of the first banks to offer “Totally Free
prolonged period of low rates and increased refinancing activity. Also
Checking” – which continues to be our most popular and most prof-
experiencing high refinance activity for most of the year, TCF Mortgage
itable product. In 2003, we added over 105,000 checking accounts
Corporation funded over $3 billion in first mortgage residential loans.
from our 401-branch network, increasing our total to 1,443,821 check-
ing accounts. TCF uses the checking account as the starting point with
our customers, then builds that relationship by offering the most
convenient banking environment featuring innovative products and
exceptional services. By year-end 2003, this resulted in $3.2 billion in
TCF’s leasing operations delivered double-digit growth in 2003,
gaining $121.4 million in outstandings, or 12 percent. This increase
was accomplished despite a slow economy. Additionally, TCF’s leasing
operations continued to improve credit quality by reducing net charge-
offs, non-performing loans and leases, and delinquencies from
checking deposits, $1.9 billion in savings deposits and $845 million
in money market accounts. Due to the banking industry’s extremely
year-end 2002.
low interest rates, TCF’s disciplined pricing strategies caused a sec-
The low interest rate environment and slow economy had the biggest
ond consecutive year of declining balances in certificates of deposits.
impact on Commercial Lending and Commercial Real Estate Lending.
Our Power Asset and Power Liability business strategies are interrelated.
Because Power Liabilities are such a significant contributor to net
income, we can afford to be very conservative in underwriting our
Power Assets and still generate relatively high earnings performance
results, such as Return on Assets and Return on Equity. In 2003, TCF
once again had one of the lowest net charge-off ratios in the bank-
ing industry at just .16%.
The slow economy prompted many companies to move more cautiously
with new or additional borrowings and capital expenditures. In this
environment, TCF identified opportunities to exit several potentially
troubled assets and added new lenders to strengthen staff, position-
ing us for future growth. With interest rates at a 40-year low in 2003,
lenders focused efforts on rewriting or refinancing our existing port-
folio, as well as pursuing new lending opportunities. As a result of their
efforts, TCF’s commercial real estate portfolio increased $81 million,
Consumer Lending had another exceptional year, comprising over
in spite of vigorous price competition in this industry segment.
50 percent of Power Assets at year end. Consumer loans, which are
99 percent home equity loans, increased by $624.5 million, or 21 per-
cent, during 2003, and ended the year with $3.6 billion in outstandings.
In another year of consumer refinancing, TCF had $2.3 billion in consumer
loan originations. This was accomplished by adding new lenders, plus
developing and maintaining our staff of the best lenders in the market-
place. We also improved our ability to identify and control customer
attrition risk. By proactively contacting these attrition-risk customers,
Power Assets and Power Liabilities remain the cornerstone of TCF’s
growth, profitability and success.
C O M M U N I T Y G I V I NG
At TCF, we believe that we have a special obligation to local commu-
nities that goes beyond simply providing financial services. Through
generous gifts of time, talent and resources, TCF and its employees
support many local organizations, making a difference in the neigh-
we have been able to retain them by refinancing their loans with one
of TCF’s many loan products. This strategy worked well during this
borhoods we serve.
14
TCF Financial Corporation and Subsidiaries
S u p p o r t i n g t h e C o m m u n i t y At TCF,
we believe that we have a special obligation to local
communities. Through generous gifts of time, talent
and resources, TCF and its employees make a difference
in the neighborhoods we serve.
TCF reflects its commitment to the community by supporting a vari-
During the past ten years, TCF has contributed more than $20 million
ety of nonprofit organizations through volunteer time, management
in grants to charitable organizations. In addition to numerous grants
counsel and grants. This support is concentrated into four categories:
awarded, we also benefited the community by supporting affordable
human services, community development, education, and arts/culture.
housing efforts and assisting with the capitalization of several afford-
Additionally, we provide assistance to local organizations supported
able housing loan funds.
by many TCF employees through active volunteerism or service on
boards and committees.
TCF is proud of its employees who are striving to make a difference to
those in need and supporting numerous programs vital to the well-
There are a variety of ways local nonprofit organizations receive finan-
being of our communities.
cial support from the TCF Foundation, TCF Bank and its employees:
• Branch Funds – Contributions or grants awarded to organizations
located near TCF branches.
• Employee Matching Gifts – Donations contributed by employees,
matched dollar-for-dollar by TCF, to a nonprofit organization of
their choice.
C O R P O R AT E
P H I L O S O P H Y
• TCF banks a large and diverse customer base. TCF emphasizes
convenience in banking; we’re open 12 hours a day, seven days a
week, 364 days per year. We provide customers innovative products
through multiple banking channels, including traditional and super-
• Employee’s Fund – Funds contributed by employees through payroll
market branches, TCF EXPRESS TELLER® ATMs, TCF Express Cards,
deduction; the Foundation matched these contributions 100 percent.
phone banking and Internet banking.
• TCF Foundation and Corporate Giving – Larger grants and multi-year
• TCF operates like a partnership. We’re organized geographically and
commitments awarded to many local and some national organizations.
by function, with profit center goals and objectives. TCF emphasizes
return on average assets, return on average equity, and earnings per
2003 Annual Report
15
share growth. We know which products are profitable and contribute
• TCF believes interest-rate risk should be minimized. Interest-rate
to these goals. Local geographic managers are responsible for local
speculation does not generate consistent profits and is high risk.
business decisions, business development initiatives, customer
relations, and community involvement. Managers are incented to
achieve these goals.
• TCF focuses on growing its large number of low-interest cost checking
accounts by offering convenient products, such as “Totally Free
Checking”. TCF uses the checking account as its core deposit account
to build additional customer relationships.
• TCF earns most of its profits from the deposit side of the bank. We
accumulate a large number of low cost accounts through convenient
services and products targeted to a broad range of customers. As a
result of the profits we earn from the deposit business, we can min-
• TCF is primarily a secured lender and emphasizes credit quality over
asset growth. The costs of poor credit far outweigh the benefits of
unwise asset growth.
• TCF places a high priority on the development of technology to enhance
productivity, customer service and new products. Properly applied
technology increases revenue, reduces costs and enhances service.
We centralize paper processing and decentralize the banking process.
• TCF encourages open employee communication and promotes from
within whenever possible. TCF places the highest priority on honesty,
integrity and ethical behavior.
imize credit risk on the asset side.
• TCF believes in community participation, both financially and through
• TCF strives to place The Customer First. We believe providing great
volunteerism. We feel a responsibility to help those less fortunate.
service to our many customers creates value for the shareholders.
• TCF does not discriminate against anyone in employment or the
extension of credit. As a result of TCF’s community banking philos-
ophy, we market to everyone in the communities we service.
• TCF utilizes conservative accounting and reporting principles that
accurately and honestly report our financial condition and results
of operations.
• TCF encourages stock ownership by our officers, directors and
employees. We have a mutuality of interest with our shareholders,
and our goal is to earn above-average returns for our shareholders.
• TCF is currently growing primarily through de novo expansion rather
than acquisition. We are growing by starting new businesses, opening
new branches and offering new products and services.
16
TCF Financial Corporation and Subsidiaries
The Financials
INVESTING IN THE FUTURE
page
Management’s Discussion and Analysis
18
20
20
20
21
21
21
25
26
30
31
32
32
32
32
32
36
38
39
40
40
41
41
42
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43
45
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47
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78
Overview
Results of Operations
Five Year Financial Summary
Performance Summary
Operating Segment Results
Consolidated Income Statement Analysis
Net Interest Income
Provision for Credit Losses
Non-Interest Income
Non-Interest Expense
Income Taxes
Consolidated Financial Condition Analysis
Investments
Securities Available for Sale
Loans Held for Sale
Loans and Leases
Allowance for Loan and Lease Losses
Non-Performing Assets
Past Due Loans and Leases
Potential Problem Loans and Leases
Liquidity Management
Deposits
New Branch Expansion
Borrowings
Contractual Obligations and Commitments
Stockholders’ Equity
Interest-Rate Risk
Summary of Critical Accounting Estimates
Recent Accounting Developments
Fourth Quarter Summary
Earnings Teleconference and Website Information
Legislative, Legal and Regulatory Developments
Forward-Looking Information
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditors’ Report
Other Financial Data – Selected Quarterly Financial Data
2003 Annual Report
17
MANAGEMENT ’S DISCUSSION AND ANALYSIS
Management’s discussion and analysis of the consolidated financial
condition and results of operations of TCF Financial Corporation
(“TCF” or the “Company”) should be read in conjunction with the
consolidated financial statements and other financial data begin-
ning on page 48.
OVERVIEW
TCF is a national financial holding company located in Wayzata,
Minnesota. Its principal subsidiary, TCF National Bank, is
headquartered in Minnesota and had 401 banking offices in
Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana
at December 31, 2003.
TCF provides convenient financial services through multiple chan-
nels to customers located primarily in the Midwest. TCF has developed
products and services designed to meet the needs of all consumers.
The Company focuses on attracting and retaining customers through
service and convenience, including branches that are open seven
days a week and on most holidays, extensive full-service supermarket
branch and automated teller machine (“ATM”) networks, and tele-
phone and Internet banking. TCF’s philosophy is to generate net
interest income and fees and other revenue growth through business
lines that emphasize higher yielding assets and lower or no interest-
cost deposits. The Company’s growth strategies include new branch
expansion and the development of new products and services. New
products and services are designed to build on existing businesses
and expand into complementary products and services through
strategic initiatives.
TCF’s core businesses are comprised of traditional and supermar-
ket bank branches, campus banking, EXPRESS TELLER® ATMs, VISA®
debit cards, commercial lending, small business banking, consumer
lending, mortgage banking, leasing and equipment finance and
investment, brokerage and insurance services. TCF emphasizes the
“Totally Free” checking account as its anchor account, which
provides opportunities to cross sell other convenience products and
services and generate additional fee income.
TCF has opened 239 new branches since January 1, 1998; 196
supermarket branches and 43 traditional branches. Opening new
branches is an integral part of TCF’s growth strategy for generating
new deposit accounts and the related revenue that is associated
with the accounts and other products. New branches typically pro-
duce net losses during the first 24 - 30 months of operations before
they become profitable, and therefore the level and timing of new
branch expansion can have a significant impact on TCF’s reported
profitability. TCF’s growth in checking accounts is primarily occurring
in new branches with growth in older, mature branches being slower
and more difficult to generate. During 2003, TCF closed twelve
supermarket branches and one traditional branch. Closure of the
twelve supermarket branches was the result of the supermarket
owner closing the stores and discontinuing TCF’s license agreements
for these locations. The deposits in all these branches were transferred
to other nearby branches. The success of TCF’s branch expansion is
dependent on the continued long-term success and viability of
branch banking. Success in the supermarket branches is also depen-
dent on the success and viability of the supermarket branch locations.
Economic slowdowns, financial or labor difficulties and competitive
pressures from new grocery retailers may have an adverse impact on
the supermarket industry and therefore reduce customer activity in
TCF’s supermarket branches. TCF is subject to the risk, among others,
that its license for its supermarket branches will terminate in con-
nection with the sale or closure of a store by a supermarket chain.
TCF’s lending strategy is to originate high credit quality, primarily
secured, loans and leases. Commercial loans are generally made on
local properties or to local customers, and are virtually all secured.
TCF’s largest core lending business is its consumer home equity loan
operation, which offers fixed- and variable-rate loans and lines of
credit secured by residential real estate properties. The leasing
and equipment finance businesses consist of Winthrop Resources
Corporation (“Winthrop”), a leasing company that leases technology
and data processing equipment to companies nationwide and
TCF Leasing, Inc. (“TCF Leasing”), a general leasing and equipment
finance leasing business. TCF’s leasing and equipment finance
businesses operate in all 50 states.
As a primarily secured lender, TCF emphasizes credit quality over
asset growth. As a result, TCF’s credit losses are generally lower than
those experienced by other banks. The allowance for loan and lease
losses, while generally lower as a percent of loans and leases than the
average in the banking industry, reflects the lower historical charge-
offs and management’s expectation of the risk of loss inherent in
the loan and lease portfolio. See “Consolidated Financial Condition
Analysis – Allowance for Loan and Lease Losses.”
18
TCF Financial Corporation and Subsidiaries
Net interest income, the difference between interest income,
earned on loans and leases and on investments, and interest
expense, paid on deposits and short-term and long-term borrowings,
represents 53.4% of TCF’s total revenue. Net interest income can
change significantly from period to period based on general levels
of interest rates, customer prepayment patterns, the mix of interest
earning assets and the mix of interest bearing and non-interest
bearing deposits and borrowings. TCF manages the risk of changes
in interest rates on its net interest income through an Asset/Liability
Committee and through related interest rate risk monitoring and
management policies.
The historically low interest rates in 2003 were a significant chal-
lenge to the management of asset/liability risk and TCF made several
key decisions that impacted the year’s results. These very low interest
rates caused a high level of prepayment in the residential loan and
mortgage-backed securities portfolio, which declined a combined
$1.5 billion in total during the year. Early in 2003, TCF decided to
stop reinvesting cash flows created by the high level of prepayments
into new mortgage-backed securities as the available yields on new
investments were deemed unacceptable. Additionally during the
year, TCF prepaid $954 million of high cost fixed-rate Federal Home
Loan Bank (“FHLB”) borrowings, at a cost of $44.3 million, and
replaced some of these borrowings with lower cost borrowings that
will reduce interest expense over the remaining term of the prepaid
borrowings into 2004. TCF does not utilize any unconsolidated sub-
sidiaries or special purpose entities to provide off-balance sheet
borrowings. If interest rates continue at similar low levels through-
out 2004, TCF will continue to experience prepayments of higher
yielding assets that might not be replaced. Therefore, net interest
margin and net interest income would continue to decline.
The Company’s VISA® debit card program has grown significantly
since its inception in 1996. According to a September 30, 2003
statistical report issued by VISA®, TCF, with approximately 1.5 million
cards outstanding, was the 12th largest VISA® Classic debit card
issuer in the United States, based on the number of cards outstand-
ing, and 11th largest based on sales volume of $998.7 million for the
2003 third quarter. TCF earns interchange revenue from customer
debit card transactions. During 2003, 90.9% of TCF’s debit card sales
volume was generated from off-line (signature-based) transactions.
The average interchange rate on these off-line transactions declined
from 1.55% in 2002 to 1.43% in 2003. The decline in the average off-
line interchange rate was the result of VISA® USA lowering interchange
rates for many merchants effective August 1, 2003, as part of the
settlement of class action lawsuits brought by these merchants
against VISA challenging rules imposed by VISA governing the accep-
tance of debit and credit cards by merchants. Additionally, as part
of the settlement, VISA established new interchange rates which
took effect in February 2004, and these rates increased slightly from
the rates established August 1, 2003. In 2003, TCF renegotiated its
contract with VISA and agreed to an extension through 2013. The
effect of this new contract is to lower various costs that TCF pays
for processing and marketing of the VISA debit cards. The continued
success of TCF’s debit card program is dependent on the success and
viability of VISA and the continued use by customers and acceptance
by merchants of debit cards.
TCF’s mortgage banking business originates residential mortgage
loans and sells them to investors, primarily retaining the servicing
rights and related servicing revenue. Generally accepted accounting
principles require TCF to record the value of the servicing rights on
the balance sheet at the time the loans are sold. Capitalized servic-
ing rights are amortized based on the expected pattern and life of
related servicing revenues and are also evaluated quarterly for
impairment. As interest rates fall, there is a higher probability of
prepayment as the customer can generally refinance the loan with
relative ease. In addition, as property values increase, customers’
home equity increases, enabling customers to engage in “cash-out”
refinance transactions where the customer refinances an existing
mortgage into a higher balance loan in order to draw out the
increased home equity. The historically low mortgage interest rate
environment in 2003 and continued increases in property values in
our markets led to historically high prepayments and refinancing
resulting in unusually high levels of servicing rights amortization
and a $21.2 million provision for impairment. At December 31, 2003,
60% of TCF’s servicing portfolio consisted of loans with interest rates
below 6%. If interest rates remain at current levels or increase in
2004, there should be significantly reduced refinance activity and
reduced related amortization and provision for impairment. TCF
does not utilize derivatives to manage the impairment risk in its
capitalized mortgage servicing rights.
The following portions of the Management’s Discussion and
Analysis focus in more detail on the results of operations for 2003,
2002 and 2001 and on information about TCF’s balance sheet, credit
quality, liquidity and funding resources, capital, critical accounting
estimates and other matters.
2003 Annual Report
19
RESULTS OF OPERATIONS
Five Year Financial Summary
Consolidated Income:
(Dollars in thousands, except per-share data)
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . .
Fees and other revenue . . . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Per common share:
Basic earnings . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . .
N.M. Not meaningful.
Consolidated Financial Condition:
Year Ended December 31,
2003
900,424
481,145
12,532
430,792
(11,513)
560,109
327,783
111,905
215,878
3.06
3.05
1.30
$
$
$
$
$
$
2002
918,987
499,225
22,006
406,264
13,498
539,289
357,692
124,761
232,931
3.17
3.15
1.15
$
$
$
$
$
$
2001
852,708
481,222
20,878
367,307
4,179
501,996
329,834
122,512
207,322
2.73
2.70
1.00
$
$
$
$
$
$
2000
774,812
438,536
14,772
323,463
12,813
457,202
302,838
116,593
186,245
2.37
2.35
.825
$
$
$
$
$
$
1999
737,906
424,213
16,923
274,320
39,373
447,892
273,091
107,052
166,039
2.01
2.00
.725
$
$
$
$
$
$
(Dollars in thousands, except per-share data)
2003
2002
2001
2000
1999
Securities available for sale . . . . . . . . . . . . . . .
$ 1,533,288
$ 2,426,794
$ 1,584,661
$ 1,403,888
$ 1,521,661
Residential real estate loans . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
1,212,643
2,745,931
1,800,344
4,227,138
2,733,290
4,317,951
3,673,831
5,077,719
3,919,678
5,441,339
At December 31,
Loans and leases excluding residential
real estate loans . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Checking, savings and money
market deposits . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . .
Book value per common share . . . . . . . . . . . . .
Key Ratios and Other Data:
7,135,135
11,319,015
6,320,784
5,510,912
12,202,069
11,358,715
4,872,868
11,197,462
3,976,065
10,661,716
5,999,626
1,612,123
2,414,825
920,858
13.07
5,791,233
1,918,755
3,110,295
977,020
13.23
4,778,714
2,320,244
3,023,025
917,033
11.92
4,086,219
2,805,605
3,184,245
910,220
11.34
3,712,988
2,871,847
3,083,888
808,982
9.87
Compound Annual Growth Rate
1-Year
2003/2002
5-Year
2003/1998
(2.0)%
(3.6)
(43.1)
6.0
N.M.
3.9
(8.4)
(10.3)
(7.3)
(3.5)
(3.2)
13.0
4.9%
2.5
(11.6)
12.8
N.M.
5.8
4.3
.5
6.7
11.6
11.6
16.2
Compound Annual Growth Rate
1-Year
2003/2002
5-Year
2003/1998
(36.8)%
(32.6)
(35.0)
12.9
(7.2)
3.6
(16.0)
(22.4)
(5.7)
(1.2)
(1.8)%
(20.3)
(12.8)
16.1
2.2
9.8
(11.4)
(.4)
1.7
5.8
1999
1.61%
20.34
7.93
4.47
36.25%
338
1,032
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average total equity to average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common dividend payout ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of banking locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of checking accounts (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Net interest income divided by average interest-earning assets.
2003
1.85%
23.05
8.03
4.54
42.62%
401
1,444
At or For the Year Ended December 31,
2002
2.01%
25.38
7.91
4.71
36.51%
395
1,338
2001
1.79%
23.06
7.78
4.51
37.04%
375
1,249
2000
1.72%
22.64
7.58
4.35
35.11%
352
1,131
Performance Summary TCF reported diluted earnings per com-
mon share of $3.05 for 2003, compared with $3.15 for 2002 and
$2.70 for 2001. Net income was $215.9 million for 2003, down from
$232.9 million for 2002 and up from $207.3 million for 2001. Return
on average assets was 1.85% in 2003, compared with 2.01% in 2002
and 1.79% in 2001. Return on average equity was 23.05% in 2003,
compared with 25.38% in 2002 and 23.06% in 2001.During 2003, TCF
prepaid $954 million of high cost FHLB borrowings, at a cost of $44.3
million ($29.2 million after-tax) which reduced diluted earnings per
share by 41 cents. This was done to restructure the balance sheet
and reduce interest expense in future periods. The 2002 results
included a $1.3 million after-tax gain on sale of a branch, or 2 cents
20
TCF Financial Corporation and Subsidiaries
per common share, compared with a $2.1 million after-tax gain on
sale of a branch, or 3 cents per common share in 2001. There were no
branch sales in 2003. In 2002, new accounting rules under generally
accepted accounting principles (“GAAP”) eliminated the amortiza-
tion of goodwill. Goodwill amortization reduced net income by $7.6
million, or 10 cents per diluted common share in 2001.
Operating Segment Results BANKING, comprised of deposits
and investment products, commercial banking, small business
banking, consumer lending, residential lending and treasury services,
reported net income of $181 million for 2003, down 10% from $201.1
million in 2002. Banking net interest income for 2003 was $414.3 mil-
lion, compared with $435.9 million for 2002. The provision for credit
losses totaled $4.4 million in 2003, down from $12.8 million in 2002,
driven by decreases in net charge-offs in the commercial business,
commercial real estate, and consumer loan portfolios. Non-interest
income totaled $355.4 million, down 1.3% from $359.9 million in
2002. During 2003, TCF prepaid $954 million of FHLB advances and
recorded losses on terminations of debt totaling $44.3 million. There
were no similar debt terminations during 2002. During 2003, TCF sold
mortgage-backed securities and realized gains of $32.8 million, com-
pared with similar gains of $11.5 million for 2002. See “Consolidated
Income Statement Analysis – Consolidated Net Interest Income” for
further discussion on debt terminations and on the sales of mortgage-
backed securities during 2003. In addition to the gains and losses
discussed above, fees, service charges, debit card and other
revenues were $366.9 million for 2003, up $20.5 million, or 5.9%,
from 2002. These increases resulted from TCF’s expanding branch
network and customer base, and increased utilization of debit cards
by customers. Non-interest expense totaled $487.8 million, up 3.4%
from $471.7 million in 2002. The increase was primarily due to addi-
tional advertising and promotion expense focused on the production
and retention of TCF’s deposit customer base, costs associated with
new branch expansion and the write-off of $1.2 million of leasehold
improvements related to 12 closed supermarket branches.
TCF had 401 branches, including 237 full service branches in
supermarkets at December 31, 2003. During 2003, TCF opened 19
new branches, of which five were supermarket branches. TCF remains
focused on a long-term strategy of expanding its franchise with the
planned opening of 28 new branches in 2004, consisting of 22 new
traditional branches and six new supermarket branches.
LEASING AND EQUIPMENT FINANCE, an operating segment
comprised of TCF’s wholly-owned subsidiaries Winthrop and TCF
Leasing, provides a broad range of comprehensive lease and equip-
ment finance products. This operating segment reported net income
of $29.3 million for 2003, up 6.5% from $27.5 million in 2002. Net
interest income for 2003 was $45.4 million, up 9.6% from $41.4 mil-
lion in 2002. The provision for credit losses for this operating segment
totaled $8.2 million in 2003, down from $9.2 million in 2002, primarily
as a result of a decrease in non-accrual loans and leases. Non-
interest income totaled $51.1 million in 2003, down $718 thousand
from $51.8 million in 2002. Leasing and Equipment Finance revenues
may fluctuate from period to period based on customer driven factors
not entirely within the control of TCF. Non-interest expense totaled
$42 million in 2003, up $994 thousand from $41 million in 2002.
MORTGAGE BANKING activities include the origination of residen-
tial mortgage loans, generally for sale to third parties with servicing
retained. This operating segment reported net income of $2.9 million
for 2003, compared with $2.7 million for 2002. TCF’s mortgage bank-
ing operations funded $3 billion in loans during 2003, up from $2.9
billion in 2002, primarily reflecting continued high levels of refinance
activity. In 2003, 74% of total mortgage banking loan originations
were refinancings, up from 67% in 2002. Non-interest income totaled
$13.1 million, up 57.6% from $8.3 million in 2002. The increase in
non-interest income was primarily due to increased gains on sales
of loans over 2002, which was partially offset by increased amorti-
zation and provision for impairment of mortgage servicing rights
related to the sustained high level of prepayments. The increase
in gains on sales of loans was primarily due to the increase in retail
loan originations as a percentage of total loan originations from
37% in 2002 to 45% in 2003 and the improved pricing on retail and
wholesale loan originations during the refinance boom. Mortgage
applications in process (mortgage pipeline) declined to $241.1 mil-
lion at December 31, 2003 from $532 million at December 31, 2002
as refinance activity slowed during the latter part of 2003.The annu-
alized prepayment rate on the third party servicing portfolio was
22% for the fourth quarter of 2003, down from 67% for the fourth
quarter of 2002, and 71% for the third quarter of 2003. Mortgage
Banking’s non-interest expense totaled $30 million for 2003, up
20.8% from $24.8 million for 2002. Contributing to the increase in
non-interest expense during 2003 were increased expenses resulting
from higher levels of production and prepayment activity.
CONSOLIDATED INCOME STATEMENT ANALYSIS
Net Interest Income Net interest income, which is the
difference between interest earned on loans and leases, securities
available for sale, investments and other interest-earning assets
(interest income), and interest paid on deposits and borrowings
(interest expense), represented 53.4% of TCF’s revenue in 2003.
Net interest income divided by average interest-earning assets is
referred to as the net interest margin, expressed as a percentage.
Net interest income and net interest margin are affected by changes
in interest rates, and by loan and deposit pricing strategies and
competitive conditions, the volume and the mix of interest-earning
assets and interest-bearing liabilities, and the level of non-
performing assets.
2003 Annual Report
21
The following tables present TCF’s average balance sheets, interest and dividends earned or paid, and the related yields and rates on major
categories of TCF’s interest-earning assets and interest-bearing liabilities:
Year Ended
December 31, 2003
Average
Yields
and
Interest(1) Rates
Average
Balance
Year Ended
December 31, 2002
Average
Yields
and
Interest(1) Rates
Average
Balance
Change
Average
Yields
and
Interest (1) Rates (bps)
Average
Balance
(Dollars in thousands)
Assets:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale (2) . . . . . . . . . . . . . . . .
1,891,062
103,821
$
101,455
$
4,511
4.45% $
5.49
154,862 $ 6,934
1,879,674
118,272
4.48% $
6.29
(53,407) $
(2,423)
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . .
488,634
20,016
4.10
437,702
22,464
5.13
Loans and leases:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . .
Total loans and leases (3) . . . . . . . . . . . . . .
3,288,040
1,854,452
445,634
1,094,532
6,682,658
1,440,688
8,123,346
Total interest-earning assets . . . . . . .
10,604,497
Other assets (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,053,073
Total assets . . . . . . . . . . . . . . . . . . . . . . .
$11,657,570
214,971
108,867
19,020
81,912
424,770
88,401
513,171
641,519
6.54
5.87
4.27
7.48
6.36
6.14
6.32
6.05
2,712,812
1,746,207
435,488
995,672
5,890,179
2,227,537
8,117,716
10,589,954
1,020,550
$11,610,504
207,492
118,355
22,699
85,447
433,993
151,700
585,693
733,363
7.65
6.78
5.21
8.58
7.37
6.81
7.21
6.92
11,388
50,932
575,228
108,245
10,146
98,860
792,479
(786,849)
5,630
14,543
32,523
$ 47,066
$ 2,232,883
$ 1,893,916
$ 338,967
Liabilities and Stockholders’ Equity:
Non-interest bearing deposits . . . . . . . . . . . . . . . . .
Interest-bearing deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . .
Borrowings:
Short-term borrowings . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . .
Total borrowings . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . .
1,064,380
1,847,775
887,273
3,799,428
1,743,533
5,542,961
7,775,844
757,128
1,778,671
2,535,799
8,078,760
Total deposits and borrowings . . . . . . . . .
10,311,643
Other liabilities (4) . . . . . . . . . . . . . . . . . . . . . . . . . .
409,539
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . .
10,721,182
Stockholders’ equity (4) . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . .
Net interest income and margin . . . . . . . . . . . . . . .
936,388
$11,657,570
bps = basis points
948
9,298
4,447
14,693
42,102
56,795
56,795
9,451
94,128
103,579
160,374
160,374
.09
.50
.50
.39
2.41
1.02
.73
1.25
5.29
4.08
1.99
1.56
915,720
1,560,539
919,393
3,395,652
2,108,708
5,504,360
7,398,276
573,935
2,277,974
2,851,909
8,356,269
10,250,185
442,404
10,692,589
917,915
$11,610,504
1,479
15,924
9,737
27,140
68,246
95,386
95,386
9,874
128,878
138,752
234,138
234,138
.16
1.02
1.06
.80
3.24
1.73
1.29
1.72
5.66
4.87
2.80
2.28
148,660
287,236
(32,120)
403,776
(365,175)
38,601
377,568
183,193
(499,303)
(316,110)
(277,509)
61,458
(32,865)
28,593
18,473
$ 47,066
(3)
(80)
(14,451)
(2,448)
(103)
7,479
(111)
(9,488)
(3,679)
(3,535)
(9,223)
(63,299)
(72,522)
(91,844)
(91)
(94)
(110)
(101)
(67)
(89)
(87)
(531)
(6,626)
(5,290)
(12,447)
(26,144)
(38,591)
(38,591)
(423)
(34,750)
(35,173)
(73,764)
(73,764)
(7)
(52)
(56)
(41)
(83)
(71)
(56)
(47)
(37)
(79)
(81)
(72)
$
481,145
4.54%
$
499,225
4.71%
$
(18,080)
(17)
(1) Tax-exempt income was not significant and thus interest income and related yields have not been presented on a tax equivalent basis. Tax-exempt income of $523,000, $354,000 and $156,000
was recognized during the years ended December 31, 2003, 2002 and 2001, respectively.
(2) Average balance and yield of securities available for sale are based upon the historical amortized cost.
(3) Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income.
(4) Average balance is based upon month-end balances.
22
TCF Financial Corporation and Subsidiaries
(Dollars in thousands)
Assets:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31, 2002
Year Ended
December 31, 2001
Average
Balance
Interest (1)
Average
Yields
and
Rates
Average
Balance
Interest(1)
Average
Yields
and
Rates
Change
Average
Balance
Interest(1)
$
154,862 $
6,934
4.48% $
164,362 $
8,966
5.46% $
(9,500) $
(2,032)
Securities available for sale (2) . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,879,674
437,702
118,272
22,464
6.29
5.13
1,705,983
379,045
112,267
24,266
6.58
6.40
Loans and leases:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . .
Total loans and leases (3) . . . . . . . . . . . . . . . . .
Total interest-earning assets . . . . . . . . .
Other assets (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,712,812
1,746,207
435,488
995,672
5,890,179
2,227,537
8,117,716
10,589,954
1,020,550
207,492
118,355
22,699
85,447
433,993
151,700
585,693
733,363
7.65
6.78
5.21
8.58
7.37
6.81
7.21
6.92
Total assets . . . . . . . . . . . . . . . . . . . . . . .
$11,610,504
215,438
116,128
29,893
89,131
450,590
230,520
681,110
826,609
9.18
7.79
7.30
9.70
8.72
7.09
8.09
7.75
2,346,349
1,490,616
409,685
918,915
5,165,565
3,251,328
8,416,893
10,666,283
886,823
$11,553,106
Liabilities and Stockholders’ Equity:
Non-interest bearing deposits . . . . . . . . . . . . . . . .
Interest-bearing deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . .
Borrowings:
Short-term borrowings . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . .
Total borrowings . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . .
Total deposits and borrowings . . . . . . . . .
10,250,185
Other liabilities (4) . . . . . . . . . . . . . . . . . . . . . . . . .
442,404
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . .
10,692,589
Stockholders’ equity (4) . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . .
Net interest income and margin . . . . . . . . . . . . . . . .
917,915
$11,610,504
bps = basis points
$ 1,893,916
$ 1,580,907
915,720
1,560,539
919,393
3,395,652
2,108,708
5,504,360
7,398,276
573,935
2,277,974
2,851,909
8,356,269
3,549
7,472
21,144
32,165
130,562
162,727
162,727
44,800
137,860
182,660
345,387
345,387
.45
.73
2.34
1.19
5.01
3.06
2.36
4.08
5.88
5.30
3.94
3.34
1,479
15,924
9,737
27,140
68,246
95,386
95,386
9,874
128,878
138,752
234,138
234,138
.16
1.02
1.06
.80
3.24
1.73
1.29
1.72
5.66
4.87
2.80
2.28
790,023
1,018,730
902,091
2,710,844
2,607,009
5,317,853
6,898,760
1,097,688
2,345,742
3,443,430
8,761,283
10,342,190
311,871
10,654,061
899,045
$11,553,106
Average
Yields
and
Rates (bps)
(98)
(29)
6,005
(1,802)
(127)
(7,946)
2,227
(7,194)
(3,684)
(16,597)
(78,820)
(95,417)
(93,246)
(153)
(101)
(209)
(112)
(135)
(28)
(88)
(83)
(2,070)
8,452
(11,407)
(5,025)
(62,316)
(67,341)
(67,341)
(29)
29
(128)
(39)
(177)
(133)
(107)
173,691
58,657
366,463
255,591
25,803
76,757
724,614
(1,023,791)
(299,177)
(76,329)
133,727
$
57,398
313,009
125,697
541,809
17,302
684,808
(498,301)
186,507
499,516
(523,753)
(34,926)
(236)
(67,768)
(591,521)
(8,982)
(43,908)
(405,014)
(111,249)
(92,005)
(111,249)
(22)
(43)
(114)
(106)
130,533
38,528
18,870
57,398
$
$
499,225
4.71%
$
481,222
4.51%
$
18,003
20
(1) Tax-exempt income was not significant and thus interest income and related yields have not been presented on a tax equivalent basis. Tax-exempt income of $523,000, $354,000 and $156,000
was recognized during the years ended December 31, 2003, 2002 and 2001, respectively.
(2) Average balance and yield of securities available for sale are based upon the historical amortized cost.
(3) Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income.
(4) Average balance is based upon month-end balances.
2003 Annual Report
23
The following table presents the components of the changes in net interest income by volume and rate:
(In thousands)
Interest income:
Year Ended
December 31, 2003
Versus Same Period in 2002
Increase (Decrease) Due to
Year Ended
December 31, 2002
Versus Same Period in 2001
Increase (Decrease) Due to
Volume (1)
Rate(1)
Total
Volume (1)
Rate (1)
Total
Investments . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,375)
Securities available for sale . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . .
Loans and leases:
Consumer . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . .
Leasing and equipment finance . . . . .
Residential real estate . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . .
Interest expense:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . .
713
2,421
40,204
7,026
518
8,009
(49,442)
1,006
211
2,535
(329)
(10,602)
2,685
(26,843)
(7,544)
685
$
(48)
(15,164)
(4,869)
$ (2,423)
(14,451)
(2,448)
(32,725)
(16,514)
(4,197)
(11,544)
(13,857)
(92,850)
(742)
(9,161)
(4,961)
(15,542)
(3,137)
(7,878)
(66,220)
(18,765)
7,479
(9,488)
(3,679)
(3,535)
(63,299)
(91,844)
(531)
(6,626)
(5,290)
(26,144)
(452)
(34,721)
(73,764)
(18,080)
$
(495)
$ (1,537)
$ (2,032)
11,099
3,429
30,889
18,414
1,791
7,094
(70,036)
(5,876)
498
4,838
396
(21,878)
(15,787)
(3,914)
(15,329)
(3,465)
(5,094)
(5,231)
(38,835)
(16,187)
(8,985)
(10,778)
(8,784)
(87,370)
(2,568)
3,614
(11,803)
(40,438)
(19,139)
(5,068)
(95,920)
21,468
6,005
(1,802)
(7,946)
2,227
(7,194)
(3,684)
(78,820)
(93,246)
(2,070)
8,452
(11,407)
(62,316)
(34,926)
(8,982)
(111,249)
18,003
(1) Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.
During 2003, TCF prepaid $954 million of fixed-rate borrowings.
These borrowings had an average interest rate of 5.66% and an aver-
age remaining maturity of 13 months. Certain of these borrowings
were replaced with $787 million of fixed-rate borrowings with an
average maturity of 12 months and an average interest rate of 1.42%.
2003 net interest income and net interest margin were positively
impacted by $12.2 million, and 12 basis points, respectively, as a
result of the reduction in interest expense related to the debt
prepayment and replacement funding. TCF may, from time to time,
sell mortgage-backed securities. During 2003, TCF sold $816.5 mil-
lion of fixed-rate mortgage-backed securities with a weighted-
average coupon of 6.49% and recognized $32.8 million in gains on
securities available for sale. At December 31, 2003, the unrealized
gain on TCF’s securities available for sale portfolio was $8.9 million.
Changes in net interest income are dependent upon the movement
of interest rates, the volume and mix of interest-earning assets and
deposits and borrowings and the level of non-performing assets.
Achieving net interest margin growth over time is dependent on TCF’s
ability to generate higher-yielding assets and lower-cost retail
deposits. The net impact of the changes in interest-bearing assets
and deposits and borrowings has positioned TCF to be more asset
sensitive (i.e. more assets than liabilities will be maturing, repricing,
or prepaying during the next twelve months). Although this positive
gap position will benefit TCF in a rising rate environment, if interest
rates remain at current levels or fall further, the net interest margin
may continue to compress and net interest income may decline. An
increase in interest rates would affect TCF’s fixed-rate/variable-rate
product origination mix and would extend the estimated life of its
24
TCF Financial Corporation and Subsidiaries
residential real estate loan and mortgage-backed securities port-
folios. A change in origination mix and/or the extending of the esti-
mated life of mortgage-related assets may have an adverse impact
on future net interest income or net interest margin. Competition for
checking, savings and money market deposits, important sources
of lower-cost funds for TCF, is intense. A decline in these low-cost
deposits may have an adverse impact on future net interest income
or net interest margin as TCF would need to replace these funds with
short- or long-term borrowings which may have a higher interest
cost. See “Consolidated Financial Condition Analysis – Interest-Rate
Risk” and “Consolidated Financial Condition Analysis – Deposits” for
further discussion on TCF’s interest rate risk position.
The decrease, in 2003, in both net interest income and net interest
margin was primarily the result of a decline in the overall yield on
interest-earning assets during 2003, partially offset by a decline in
the overall cost of funds on interest-bearing liabilities. The yield on
interest-earning assets declined 87 basis points from 6.92% for 2002
to 6.05% for 2003, while the overall cost of funds on interest-bearing
liabilities declined 72 basis points to 1.56% for 2003. Interest income
decreased $91.8 million in 2003, reflecting decreases of $92.9 million
due to the decline in rates partially offset by a $1 million increase
due to volume. Interest expense decreased $73.8 million in 2003,
reflecting decreases of $66.2 million due to lower cost of funds and
$7.5 million due to volume changes.
The improvement, in 2002, in net interest income and net interest
margin was primarily due to growth in average low-cost deposits
(checking, savings and money market), up $997.8 million, or 23.2%,
coupled with growth in higher-yielding loans and leases (commer-
cial, consumer and lease equipment finance) of $724.6 million, or
14% and lower borrowing costs. These increases were partially offset
by a decrease of $850 million, or 17.1%, for 2002 in lower-yielding
residential mortgages and mortgage-backed securities. Interest
income decreased by $93.2 million in 2002, reflecting decreases
of $87.4 million due to rate changes and $5.9 million due to volume
changes. Interest expense decreased $111.2 million in 2002,
reflecting decreases of $95.9 million due to lower cost of funds and
$15.3 million due to volume changes. The increase in net interest
income due to rate changes reflects the impact of declining rates
on interest-bearing liabilities greater than the impact of declining
rates on interest-earning assets. The decrease in net interest income
due to volume reflects the overall decline in interest-earning assets.
In 2001, TCF’s net interest income increased $42.7 million, or
9.7%, and total average interest-earning assets increased by
$592.9 million, or 5.9%, compared with 2000 levels. TCF’s net interest
income improved by $46 million due to volume changes and decreased
$3.3 million due to rate changes. The increases in 2001, in net inter-
est income and net interest margin were primarily due to the growth
in higher yielding commercial and consumer loans and leasing and
equipment finance along with the strong growth in low-cost check-
ing, savings and money market deposits, as well as the decrease in
interest rates resulting in lower interest paid on certificates of
deposit and borrowings. These favorable trends were partially offset
by the managed reduction in residential real estate loans. Interest
income decreased by $72 thousand in 2001 reflecting a decrease of
$56.7 million due to rate changes, offset by an increase of $56.6 mil-
lion due to volume changes. Interest expense decreased $42.8 million
in 2001, reflecting a decrease of $53.4 million due to a lower cost
of funds, partially offset by a $10.6 million increase due to volume
changes. The increase in net interest income due to volume changes
reflects the increase in total average interest-earning assets and
an increase in the balance of non-interest-bearing deposits. The
decrease in net interest income due to rate changes in 2001 reflects
the impact of declining rates on interest-earning assets greater than
the impact of declining rates on interest-bearing liabilities.
Provision for Credit Losses TCF provided $12.5 million for
credit losses in 2003, compared with $22 million in 2002 and $20.9
million in 2001. The decrease in the provision from 2002 primarily
reflect declines in net charge-offs and non-accrual loans and
leases. Net loan and lease charge-offs were $12.9 million, or
.16% of average loans and leases in 2003, down from $20 million,
or .25% of average loans and leases in 2002 and up slightly from
$12.5 million, or .15% of average loans and leases in 2001.
Commercial lending net charge-offs were $782 thousand in 2003,
down from $5.9 million in 2002. Leasing and equipment finance net
charge-offs were $7.5 million, or .69% of related average loans and
leases during 2003, down from $8 million, or .80% of related average
loans and leases in 2002. The provision for credit losses is calculated
as part of the determination of the allowance for loan and lease
losses. The determination of the allowance for loan and lease losses
and the related provision for credit losses is a critical accounting
estimate which involves a number of factors such as net charge-
offs, delinquencies in the loan and lease portfolio, value of collat-
eral, general economic conditions and management’s assessment
of credit risk in the current loan and lease portfolio. Also see
“Consolidated Financial Condition Analysis – Allowance for Loan
and Lease Losses.”
2003 Annual Report
25
Non-Interest Income Non-interest income is a significant source
of revenue for TCF, representing 46.6% of total revenues in 2003, and
is an important factor in TCF’s results of operations. Providing a
wide range of retail banking services is an integral component of
TCF’s business philosophy and a major strategy for generating addi-
tional non-interest income. Total non-interest income was $419.3
million for 2003, down $483 thousand from $419.8 million in 2002.
Significantly impacting non-interest income during 2003 were gains
on securities available for sale and losses on terminations of debt,
which were part of the strategy to restructure the balance sheet
and reduce funding costs in future periods. Fees and other revenue
increased $24.5 million, or 6%, during 2003. This increase in 2003
was driven by increased fees, service charges, debit card revenue,
and mortgage banking revenue generated by TCF’s expanding branch
network and customer base and increased gains on sales of loans
which drove the increase in mortgage banking revenue. The increases
in fees and service charges and debit card revenue primarily reflect
an increase in the number of checking accounts, which totaled
1,443,821 accounts at December 31, 2003, up from 1,338,313
accounts at December 31, 2002. The average annual fee revenue
per retail checking account was $223 for 2003, compared with
$218 for 2002.
The following table presents the components of non-interest income:
Year Ended December 31,
(Dollars in thousands)
2003
2002
2001
2000
1999
Fees and service charges . . . . . . . . . . . . . . . . . .
$247,456
$226,051
$195,162
$166,394
$138,198
Debit card revenue . . . . . . . . . . . . . . . . . . . . . .
ATM revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments and insurance commissions . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . .
Mortgage banking . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees and other revenue . . . . . . . . . . . . .
Gains on sales of:
52,991
43,623
13,901
357,971
51,088
12,719
9,014
430,792
Securities available for sale . . . . . . . . . . . .
32,832
Branches . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan servicing . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries and joint venture interest . . . .
–
–
–
Gains (losses) on termination of debt . . . . . . . .
(44,345)
Title insurance revenues (1) . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . .
Total non-interest income . . . . . . .
Fee revenue per retail checking account
–
(11,513)
$419,279
47,190
45,296
15,848
334,385
51,628
6,979
13,272
406,264
11,536
1,962
–
–
–
–
40,525
45,768
11,554
293,009
45,730
12,042
16,526
367,307
863
3,316
–
–
–
–
30,613
47,334
12,266
256,607
38,442
10,519
17,895
323,463
–
12,813
–
–
–
–
13,498
$419,762
4,179
$371,486
12,813
$336,276
20,747
46,397
14,849
220,191
28,505
12,770
12,854
274,320
3,194
12,160
3,076
5,522
–
15,421
39,373
$313,693
(in dollars) . . . . . . . . . . . . . . . . . . . . . . . . .
$
223
$
218
$
209
$
190
$
168
Fees and other revenue as a:
percentage of total revenue . . . . . . . . . . . .
percentage of average assets . . . . . . . . . . .
47.84%
3.70
44.21%
3.50
43.08%
3.18
41.75%
2.98
37.18%
2.67
(1) Title insurance business was sold in 1999.
Compound Annual Growth Rate
1-Year
2003/2002
5-Year
2003/1998
9.5%
12.3
(3.7)
(12.3)
7.1
(1.0)
82.2
(32.1)
6.0
17.6%
35.4
2.3
–
15.5
10.3
(5.5)
(7.1)
12.8
(.1)
2.3
8.1
9.3
26
TCF Financial Corporation and Subsidiaries
Fees and Service Charges Fees and service charges increased
$21.4 million, or 9.5%, in 2003 and $30.9 million, or 15.8%, in 2002.
These increases primarily reflect the impact of the investment in new
branch expansion and the increase in the number of checking accounts.
Debit Card Revenue Debit card revenue includes interchange
fees on the TCF Check Card. Class action lawsuits were brought by
various retail merchants against VISA® USA challenging rules
imposed by VISA governing the acceptance of debit and credit cards
by merchants. In the second quarter of 2003, VISA reached a settle-
ment of the litigation with various retail merchants, which resulted
in lower interchange rates effective August 1, 2003 for many retail
merchants. Additionally, as part of the settlement, VISA established
new interchange rates which took effect in February 2004, and these
rates increased slightly from the rates established August 1, 2003.
As a result of the lowering of interchange rates on August 1, 2003,
TCF’s average off-line interchange rate declined approximately 7.7%
to 1.43% for 2003, down from 1.55% in 2002. In 2003, TCF re-negoti-
ated its contract with VISA and agreed to an extension through 2013.
The effect of this new contract is to lower various processing and
promotional costs incurred relating to the VISA debit cards.
ATM Revenue The declines in ATM revenue were attributable to
a decline in utilization of non-owned ATM machines by TCF customers
and declines in utilization of TCF’s ATM machines by non-customers.
These declines resulted from increased use of debit cards as well as
the increased competition from other ATM machines. Additionally,
as ATM site contracts are renewed, merchants have generally required
a larger percentage of the fee charged to non-customers for use of
TCF’s ATM’s.
The following table sets forth information about TCF’s Check Card and ATM network:
(Dollars in thousands)
TCF Check Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other ATM Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total EXPRESS TELLER® ATM cards outstanding . . . . . . . . . . . . . . . . . . .
Number of EXPRESS TELLER® ATM’s(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
TCF Check Card:
Average number of checking accounts with debit cards . . . . . . . . . . .
Percentage of customers with TCF Check Cards
who were active users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average number of transactions per month on
active TCF Check Cards for the year ended . . . . . . . . . . . . . . . . .
Sales volume for the year ended:
Off-line (Signature) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
On-line (PIN) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage off-line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average off-line interchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
At or For the Year Ended December 31,
2003
1,534,383
124,277
1,658,660
1,166
2002
1,380,893
144,592
1,525,485
1,143
2001
1,195,522
158,254
1,353,776
1,341
1,193,936
1,087,592
974,734
54.3%
12.5
$3,543,657
355,045
$3,898,702
90.89%
1.43%
53.2%
11.8
$2,958,633
257,560
$3,216,193
91.99%
1.55%
51.3%
10.9
$2,404,299
155,462
$2,559,761
93.93%
1.55%
Percentage Increase (Decrease)
2002/2001
2003/2002
11.1%
(14.0)
8.7
2.0
9.8
2.1
5.9
19.8
37.8
21.2
(1.2)
(7.7)
15.5%
(8.6)
12.7
(14.8)
11.6
3.7
8.3
23.1
65.7
25.6
(2.1)
–
(1) In 2002, the contracts covering 256 EXPRESS TELLER® ATM’s expired and were not renewed.
2003 Annual Report
27
Investments and Insurance Revenue Investments and insur-
ance commissions revenue, consisting principally of commissions on
sales of annuities and mutual funds, decreased $1.9 million in 2003,
compared with an increase of $4.3 million in 2002. Annuity and
mutual fund sales volumes totaled $239.5 million for the year ended
December 31, 2003, compared with $242.7 million during 2002. The
decreased sales volumes during 2003 were the result of the lower
interest rate environment which reduced the rate of return on annu-
ity products offered by insurance companies. Sales of insurance
and investment products may fluctuate from period to period, and
future sales levels will depend upon general economic conditions
and investor preferences. Sales of annuities will also depend upon
their continued tax advantage and may be negatively impacted
by the level of interest rates and alternative investment products.
Leasing and Equipment Finance Revenue Leasing and
equipment finance revenues decreased $540 thousand, or 1%, in
2003, following an increase of $5.9 million or 12.9%, in 2002. The
decrease in leasing revenues for 2003 was primarily driven by a
decline in sales-type lease revenues of $3 million for 2003, partially
offset by a $2 million increase in operating lease revenues during
2003. The increase in total leasing and equipment finance revenues
for 2002 was driven by an increase of $5.3 million in sales-type lease
revenues. Leasing and equipment finance revenues may fluctuate
from period to period based on customer-driven factors not entirely
within the control of TCF.
Mortgage Banking Revenue The following table sets forth information about mortgage banking revenues:
(In thousands)
Servicing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less mortgage servicing:
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net servicing income (loss) . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total mortgage banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
$ 20,533
23,679
21,154
44,833
(24,300)
33,505
3,514
$ 12,719
2002
$ 20,443
22,874
12,500
35,374
$(14,931)
18,110
3,800
$ 6,979
Year Ended December 31,
2001
$ 16,932
2000
$ 12,642
1999
$ 12,981
16,564
4,400
20,964
(4,032)
11,795
4,279
5,326
–
5,326
7,316
1,347
1,856
4,737
169
4,906
8,075
3,194
1,501
$ 12,042
$ 10,519
$ 12,770
Mortgage banking revenue increased $5.7 million, or 82.2%,
in 2003, following a decrease of $5.1 million, or 42%, in 2002. The
increase in mortgage banking revenues during 2003 was primarily due
to increased gains on sales of loans, up $15.4 million over 2002, par-
tially offset by a $9.5 million increase in amortization and provision
for impairment of mortgage servicing rights related to the sustained
high level of prepayments in 2003. The decrease in mortgage banking
revenues during 2002 was primarily due to increased amortization
and provision for impairment on mortgage servicing rights resulting
from increased refinance activity and sharply higher actual and
assumed prepayments in TCF’s servicing portfolio. TCF’s mortgage
banking operations funded $3 billion in loans during 2003, up from
$2.9 billion and $2.6 billion during 2002 and 2001, respectively. The
percentage of these loans that were refinances was 74% for 2003,
compared with 67% and 60% for 2002 and 2001, respectively.
The following table sets forth further information about mortgage banking:
(Dollars in thousands)
At December 31,
Percentage Increase (Decrease)
2003
2002
2001
2003/2002
2002/2001
Third party servicing portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,122,741
$5,576,066
$4,679,355
(8.1)%
Weighted average note rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.97%
6.64%
7.13%
Mortgage applications in process . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized mortgage servicing rights, net . . . . . . . . . . . . . . . . . . . .
$ 241,126
$
52,036
$ 532,012
$
62,644
$ 606,676
$
58,261
Mortgage servicing rights as a percentage of servicing portfolio . . . .
Average servicing fee (basis points) . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights as a multiple of average servicing fee . . .
1.02%
31.7 bps
3.2 X
1.12%
32.9 bps
3.4 X
1.25%
32.6 bps
3.8 X
(10.1)
(54.7)
(16.9)
(8.9)
(3.6)
(5.9)
19.2%
(6.9)
(12.3)
7.5
(10.4)
.9
(10.5)
bps = basis points
28
TCF Financial Corporation and Subsidiaries
Mortgage banking revenues can be significantly impacted by the
amount of amortization and provision for impairment of mortgage
servicing rights. The valuation of mortgage servicing rights is a critical
accounting estimate for TCF. This estimate is based upon loan types,
note rates and prepayment assumptions. Changes in the mix of
loans, interest rates, defaults or prepayment speeds may have a
material effect on the amortization amount and possible impairment
in valuation. In a declining interest rate environment, prepayment
speed assumptions will increase and result in an acceleration in
the amortization of the mortgage servicing rights as the assumed
underlying portfolio declines and also may result in impairment as
the value of the mortgage servicing rights decline. TCF periodically
evaluates its capitalized mortgage servicing rights for impairment.
During 2003, TCF recorded $21.2 million in provision for impairment
on its capitalized mortgage servicing rights as a result of strong
refinance activity and high prepayments in the servicing portfolio.
In addition, in 2003, TCF recorded $28.5 million of permanent
impairment write-downs on its capitalized mortgage servicing rights.
These permanent impairment write-downs were offset with the
valuation allowance on the capitalized mortgage servicing rights.
A key component in determining the fair value of mortgage servicing
rights is the projected cash flows of the underlying loan portfolio.
TCF uses projected cash flows and related prepayment assumptions
based on management’s best estimates. The range in prepayment
assumptions at December 31, 2003 and 2002 reflects management’s
assumption of higher initial prepayments in early periods that decline
over time and level off to a constant prepayment speed. In light of
the continued decline in interest rates since December 31, 2002, TCF
lowered the weighted-average discount rate used in the determina-
tion of the fair value of mortgage servicing rights at December 31,
2003. See Notes 1 and 10 of Notes to Consolidated Financial
Statements for additional information concerning TCF’s mortgage
servicing rights.
The following tables summarize the servicing portfolio by interest rate tranche, the range of prepayment speed assumptions and the
weighted average remaining life of the loans by interest rate tranche used in the determination of the valuation and amortization of mortgage
servicing rights as of December 31, 2003 and 2002:
(Dollars in thousands)
Interest Rate Tranche
0 to 5.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.51 to 6.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.01 to 6.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.51 to 7.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.01% and higher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid Balance
$1,648,918
1,407,315
830,161
740,675
495,672
$5,122,741
(Dollars in thousands)
Interest Rate Tranche
Unpaid Balance
0 to 5.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 387,417
5.51 to 6.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.01 to 6.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.51 to 7.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.01% and higher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
734,377
1,183,572
1,944,477
1,326,223
$5,576,066
December 31, 2003
Prepayment Speed Assumption
Low
13.0%
17.7
24.9
31.0
34.4
18.6
Weighted
Average
13.3%
17.9
25.4
31.8
35.5
19.0
December 31, 2002
Prepayment Speed Assumption
Low
9.9%
13.2
16.2
20.9
22.1
17.7
Weighted
Average
12.7%
16.9
20.8
26.8
28.4
22.7
High
15.1%
20.5
28.8
35.9
39.8
21.6
High
27.4%
36.4
44.8
57.8
61.3
48.9
Weighted
Average Life
(in Years)
7.2
5.6
3.8
2.7
2.3
5.1
Weighted
Average Life
(in Years)
7.4
6.0
4.8
3.5
3.1
4.3
2003 Annual Report
29
At December 31, 2003 and 2002, the sensitivity of the current fair value of mortgage servicing rights to a hypothetical immediate 10% and
25% adverse change in prepayment speed assumptions and discount rate are as follows:
(Dollars in millions)
Fair value of mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average prepayment speed assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact on fair value of 10% adverse change in prepayment speed assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact on fair value of 25% adverse change in prepayment speed assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact on fair value of 10% adverse change in discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact on fair value of 25% adverse change in discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
$58.0
5.1
19.0%
7.5%
$(3.2)
$(7.4)
$(1.3)
$(3.3)
2002
$62.6
$ 4.3
22.7%
8.0%
$(3.8)
$(8.4)
$(1.5)
$(3.5)
These sensitivities are theoretical and should be used with caution.
As the figures indicate, changes in fair value based on a given varia-
tion in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair value
may not be linear. Also, in the above table, the effect of a variation
in a particular assumption on the fair value of the mortgage servicing
rights is calculated independently without changing any other
assumptions. In reality, changes in one factor may result in changes
in another (for example, changes in prepayment speed estimates
could result in changes in discount rates or market interest rates),
which might either magnify or counteract the sensitivities. As
reflected above, a significant increase in future prepayment speeds
can have a significant impact on the impairment of the mortgage
servicing rights. TCF does not use derivatives to hedge its mortgage
servicing rights asset.
Other Non-interest Income Other non-interest income consists
of gains on sales of securities available for sale, losses on termination
of debt and gains on sales of branches.
Gains on securities available for sale of $32.8 million, $11.5 million
and $863 thousand were recognized on the sales of $816.5 million,
$473.9 million and $33.6 million in mortgage-backed securities in
2003, 2002 and 2001, respectively. Also, as previously discussed,
TCF prepaid $954 million of fixed-rate FHLB advances during 2003,
and recorded losses on terminations of debt of $44.3 million in 2003.
There were no similar prepayments of debt during 2002 or 2001.
There were no branch sales during 2003. During 2002, TCF recog-
nized a gain of $2 million on the sale of a branch with $17.1 million in
deposits, compared with a gain of $3.3 million on the sale of a branch
with $30 million in deposits during 2001. TCF periodically sells branches
that it considers underperforming or have limited growth potential.
Non-Interest Expense Non-interest expense increased $20.8 million, or 3.9%, in 2003, and $37.3 million, or 7.4%, in 2002, compared with
the respective prior years. The following table presents the components of non-interest expense:
Year Ended December 31,
(Dollars in thousands)
2003
Compensation and employee benefits . . . . . . . .
$302,804
Occupancy and equipment . . . . . . . . . . . . . . . . .
Advertising and promotions . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill . . . . . . . . . . . . . . . . . . .
88,423
25,536
143,346
560,109
–
2002
$294,295
83,131
21,894
139,969
539,289
–
2001
2000
1999
$266,818
$238,934
$238,464
78,774
20,909
127,718
494,219
7,777
74,938
19,181
116,443
449,496
7,706
73,613
16,981
111,121
440,179
7,713
Total non-interest expense . . . . . .
$560,109
$539,289
$501,996
$457,202
$447,892
Compound Annual Growth Rate
1-Year
2003/2002
5-Year
2003/1998
2.9%
6.4
16.6
2.4
3.9
–
3.9
6.9%
4.4
5.5
6.1
6.2
–
5.8
30
TCF Financial Corporation and Subsidiaries
Compensation and employee benefits, representing 54.1%,
54.6% and 53.2% of total non-interest expense in 2003, 2002 and
2001, respectively, increased $8.5 million, or 2.9%, in 2003, $27.5
million, or 10.3%, in 2002 and $27.9 million, or 11.8%, in 2001. The
2003 increase of 2.9% was primarily due to higher levels of mortgage
banking production and costs associated with branches opened
during 2002 and 2003, and a net increase in pension plan and
postretirement plan expenses of $3.1 million, partially offset by
a $6.6 million reduction in executive incentive compensation as
a result of TCF not achieving specific earnings goals for 2003. The
2002 increase of 10.3% was primarily due to costs associated with
new branch expansion and the addition of lenders and sales repre-
sentatives. The 2001 increase of 11.8% was primarily due to costs
associated with expanded retail banking and leasing activities,
along with a significant increase in mortgage banking activities.
Occupancy and equipment expenses increased $5.3 million in
2003, $4.4 million in 2002 and $3.8 million in 2001. The increases were
primarily due to TCF’s new branch expansion and retail banking and
leasing activities, partially offset by branch sales in 2002 and 2001.
Advertising and promotion expenses increased $3.6 million in
2003 following increases of $985 thousand in 2002 and $1.7 million
in 2001. The increase in 2003 is directly attributable to additional
advertising and promotions expenses focused on the acquisition
and retention of TCF’s deposit customer base. The increase in 2002
was primarily due to increases in retail banking media advertising.
The increase in 2001 was primarily due to increases in retail banking
activities and promotional expenses associated with the TCF Express
Phone Card rewards program.
Other non-interest expense increased $3.4 million, or 2.4%,
in 2003, primarily the result of higher levels of mortgage banking
production and prepayment activity. In 2002, other non-interest
expense increased $12.3 million, or 9.6%, primarily the result of
increased expenses associated with expanded retail banking and
leasing operations, debit card processing expense resulting from
increased utilization and the higher levels of production and prepay-
ment activity in the mortgage banking business. In 2001, other non-
interest expense increased $11.3 million primarily the result of
increased expenses associated with higher levels of activity in mort-
gage banking and expanded retail banking and leasing operations.
A summary of other expense is presented in Note 25 of Notes to
Consolidated Financial Statements.
On January 1, 2002, TCF adopted SFAS No. 142, “Goodwill and
Other Intangible Assets,” which requires that goodwill and other
intangible assets with indefinite useful lives no longer be amortized,
but instead tested for impairment at least annually. Further detail
on goodwill amortization is provided in Note 22 of Notes to
Consolidated Financial Statements.
Income Taxes Income tax expense represented 34.14% of income
before income tax expense during 2003, compared with 34.88% and
37.14% in 2002 and 2001, respectively. The lower effective tax rate in
2003 primarily reflects increases in investments in tax-advantaged
affordable housing limited partnerships and lower state and local
income taxes. The lower effective rate in 2002 primarily reflects the
effects of the change in accounting for goodwill, lower state income
taxes, a favorable resolution of uncertainties during tax examinations
and the reduced effect of non-deductible expenses as a percentage
of pre-tax net income.
TCF has a Real Estate Investment Trust (“REIT”) and related com-
panies, that acquire, hold and manage mortgage assets and other
authorized investments to generate income. These companies are
consolidated with TCF National Bank and are therefore included in
the consolidated financial statements of TCF Financial Corporation.
The REIT must meet specific provisions of the Internal Revenue Code
(“IRC”) to continue to qualify as a REIT. Two specific provisions
applicable to the REIT are an income test and an asset test. At least
75% of the REIT’s gross income, excluding gross income from prohib-
ited transactions, for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on
real property. Additionally, at least 75% of the REIT’s assets must be
represented by real estate assets. At December 31, 2003, TCF’s REIT
met the applicable provisions of the IRC to qualify as a REIT. State
laws may also impose limitations or restrictions on operations of the
REIT and the related companies. These laws are subject to change.
If these companies fail to meet any of the required provisions of
Federal and state tax laws or if the state tax laws change, TCF’s
effective tax rate would increase.
The determination of current and deferred income taxes is a
critical accounting estimate which is based on complex analyses of
many factors including interpretation of Federal and state income
tax laws, the differences between the tax and financial reporting
basis of assets and liabilities (temporary differences), estimates
of amounts due or owed such as the timing of reversal of temporary
differences and current financial accounting standards. Additionally,
there can be no assurances that estimates and interpretations used
in determining income tax liabilities may not be challenged by Federal
and state taxing authorities. Actual results could differ significantly
from the estimates and interpretations used in determining the cur-
rent and deferred income tax liabilities. In addition, under generally
accepted accounting principles, deferred income tax assets and
liabilities are recorded at the current prevailing Federal and state
income tax rates. If such rates change, deferred income tax assets
and liabilities must be adjusted in the period of change through a
charge or credit through the Consolidated Statement of Income.
Further detail on income taxes is provided in Note 14 of Notes to
Consolidated Financial Statements.
2003 Annual Report
31
CONSOLIDATED FINANCIAL CONDITION ANALYSIS
Investments Total investments, which includes interest-bearing
deposits with banks, FHLB stock, Federal Reserve Bank stock and
other investments, were $75.2 million at December 31, 2003, down
$78.5 million from December 31, 2002. The decrease primarily
reflects a decrease of $78.4 million in FHLB stock resulting from
the implementation of new capital plans at two FHLB banks which
resulted in a decrease in FHLB stock, and also lower stock ownership
requirements resulting from the previously mentioned prepayment
of $954 million in fixed-rate borrowings which resulted in FHLB stock
redemptions. TCF is required to invest in FHLB stock in proportion
to its level of mortgage assets and the level of borrowings from the
FHLB. TCF had no non-investment grade debt securities (junk bonds)
and there were no open trading account or investment option
positions as of December 31, 2003 or 2002.
Securities Available for Sale Securities available for sale
decreased $893.5 million during 2003 to $1.5 billion at December 31,
2003. This decrease reflects sales of $816.5 million of mortgage-
backed securities, in which the Company recognized $32.8 million in
gains on sales of securities available for sale, and normal payment
and prepayment activity. Partially offsetting these sales were 2003
purchases of $871.6 million of mortgage-backed securities, with the
majority, $812.2 million, purchased during the first quarter of 2003.
TCF’s securities available for sale portfolio included $1.5 billion and
$13.8 million of fixed-rate and adjustable-rate mortgage-backed
securities, respectively. Net unrealized gains on securities available
for sale totaled $8.9 million at December 31, 2003, compared with
$72.3 million at December 31, 2002. TCF may, from time to time,
sell additional mortgage-backed securities and utilize the proceeds
to either reduce borrowings or to fund growth in loans and leases.
Loans Held for Sale Loans held for sale included residential
mortgage and education loans. Residential mortgage loans held for
sale were $101 million and $277.4 million at December 31, 2003 and
2002, respectively. Residential mortgage loans held for sale are part
of TCF’s mortgage banking business and are generally committed to
be sold at the time a customer locks in the interest rate on the loan.
Education loans held for sale were $234.3 million and $199.1 million
at December 31, 2003 and 2002, respectively. Education loans are
sold when the student graduates or drops below half-time status.
Loans and Leases The following tables set forth information about loans and leases held in TCF’s portfolio, excluding loans held for sale:
(Dollars in thousands)
At December 31,
Portfolio Distribution:
2003
2002
2001
2000
1999
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,630,341
$3,005,882
$2,509,333
$2,234,134
$2,058,584
Commercial real estate . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . .
1,916,701
427,696
1,160,397
7,135,135
1,212,643
1,835,788
440,074
1,039,040
6,320,784
1,800,344
1,622,461
1,371,841
1,073,472
422,381
956,737
5,510,912
2,733,290
410,422
856,471
4,872,868
3,673,831
351,353
492,656
3,976,065
3,919,678
Total loans and leases . . . . . . . . . . . . . . . . .
$8,347,778
$8,121,128
$8,244,202
$8,546,699
$7,895,743
Compound Annual Growth Rate
1-Year
2003/2002
5-Year
2003/1998
20.8%
4.4
(2.8)
11.7
12.9
(32.6)
2.8
14.1%
18.8
8.1
23.8
16.1
(20.3)
3.2
(In thousands)
At December 31, 2003
Geographic Distribution:
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
$1,431,566
Commercial
$ 684,105
643,455
945,140
376,928
180,234
653
11,960
6,298
735
33,372
689,523
377,574
321,335
5,259
36,385
20,796
21,650
1,370
186,400
$2,344,397
Leasing and
Equipment
Finance
$
60,772
86,963
41,171
31,855
24,795
135,428
64,207
43,966
71,614
599,626
Residential
Real Estate
$ 585,924
322,017
233,558
34,964
1,298
–
756
8,220
1,584
24,322
$1,160,397
$1,212,643
Total
$2,762,367
1,741,958
1,597,443
765,082
211,586
172,466
97,719
80,134
75,303
843,720
$8,347,778
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,630,341
32
TCF Financial Corporation and Subsidiaries
Loans and leases increased $226.7 million from year-end
2002 to $8.3 billion at December 31, 2003, reflecting increases of
$624.5 million in consumer loans, $121.4 million in leasing and
equipment finance and $80.9 million in commercial real estate
loans, partially offset by decreases of $587.7 million in residential
real estate loans and $12.4 million in commercial business loans.
The decline in residential real estate loans during 2003 was due
to accelerating prepayments brought on by the decline in interest
rates. Management expects that the residential loan portfolio will
continue to decline, which will provide funding for anticipated growth
in other loan categories. At December 31, 2003, TCF’s residential real
estate loan portfolio was comprised of $894.3 million of fixed-rate
loans and $312.4 million of adjustable-rate loans.
Consumer loans increased $624.5 million from year-end 2002
to $3.6 billion at December 31, 2003, driven by an increase of
$632.4 million in home equity loans. Approximately 70% of the
home equity portfolio at December 31, 2003 consisted of closed-
end loans, compared with 69% at December 31, 2002. In addition,
60% of this portfolio carries a variable interest rate tied to the prime
rate, at December 31, 2003, compared with 62% at December 31,
2002. Outstanding balances on home equity lines of credit were
45.4% of total lines of credit balances at December 31, 2003, com-
pared with 45.7% at December 31, 2002. As of December 31, 2003,
$1.7 billion of the variable rate consumer loans were at their interest
rate floors. These loans will remain at their interest rate floor until
interest rates rise above the floor rates. An increase in the TCF base
rate of 50 basis points would result in the repricing of $1.2 billion
of variable rate consumer loans currently at their floor rates. A 100
basis point increase in the TCF base rate would result in a total of
$1.4 billion of these loans repricing at interest rates above their cur-
rent floor rates.
At December 31, 2003, the weighted average loan-to-value
ratio for the home equity portfolio was 74%, compared with 72%
at December 31, 2002. TCF’s credit standards limit higher loan-to-
value ratio loans to more creditworthy customers, generally based
on credit scoring models.
The following table sets forth additional information about the loan-to-value ratios for TCF’s home equity loan portfolio:
(Dollars in thousands)
Loan-to-Value Ratios (1)
Over 100%(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 90% to 100% . . . . . . . . . . . . . . . . . . . . . . .
Over 80% to 90% . . . . . . . . . . . . . . . . . . . . . . . .
80% or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance
$
39,452
361,374
1,370,523
1,816,678
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,588,027
2003
Percent
of Total
1.1%
10.1
38.2
50.6
100.0%
At December 31,
Over 30-Day
Delinquency as
a Percentage
of Balance
Balance
4.81%
$
53,916
.78
.40
.39
384,988
1,028,207
1,488,533
.48%
$2,955,644
2002
Percent
of Total
1.8%
13.0
34.8
50.4
100.0%
Over 30-Day
Delinquency as
a Percentage
of Balance
2.17%
.80
.62
.52
.62
(1) Loan-to-value is based on the loan amount (current outstanding balance on closed-end loans and the total commitment on lines of credit) plus deferred loan origination costs net of fees
and refundable insurance premiums, if any, plus the amount of senior liens, if any. Property values represent the most recent market value or property tax assessment value known to TCF.
(2) Amount reflects the total outstanding loan balance. The portion of the loan balance in excess of 100% of the property value is substantially less than the amount included above.
The following tables summarize TCF’s commercial real estate loan portfolio by property type:
(Dollars in thousands)
Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office buildings . . . . . . . . . . . . . . . . . . . . . . . .
Retail services . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warehouse/industrial buildings . . . . . . . . . . . .
Hotels and motels . . . . . . . . . . . . . . . . . . . . . . . . .
Health care facilities . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent
$ 519,622
399,112
304,295
189,635
131,367
32,157
169,247
At December 31, 2003
Construction
and
Development
$
28,983
Total
$ 548,605
Permanent
$ 479,703
33,262
10,139
1,253
19,270
17,664
60,695
432,374
314,434
190,888
150,637
49,821
229,942
356,814
279,587
184,073
107,905
36,250
195,528
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,745,435
$ 171,266
$1,916,701
$1,639,860
At December 31, 2002
Construction
and
Development
Total
$
5,052
$ 484,755
11,588
23,149
1,456
41,118
11,220
102,345
$ 195,928
368,402
302,736
185,529
149,023
47,470
297,873
$1,835,788
2003 Annual Report
33
(Dollars in thousands)
Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office buildings . . . . . . . . . . . . . . . . . . . . . . . .
Retail services . . . . . . . . . . . . . . . . . . . . . . . . . .
Warehouse/industrial buildings . . . . . . . . . . . .
Hotels and motels . . . . . . . . . . . . . . . . . . . . . .
Health care facilities . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance
$ 548,605
432,374
314,434
190,888
150,637
49,821
229,942
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,916,701
2003
Number
of Loans
730
304
282
172
35
17
200
1,740
At December 31,
Over 30-Day
Delinquency as a
Percentage
of Balance
Balance
–%
$ 484,755
–
–
–
–
–
.03
–%
368,402
302,736
185,529
149,023
47,470
297,873
$1,835,788
2002
Number
of Loans
562
289
285
173
32
19
369
1,729
Over 30-Day
Delinquency as a
Percentage
of Balance
.07%
.44
.02
2.61
–
–
–
.37%
Commercial real estate loans increased $80.9 million from year-end 2002 to $1.9 billion at December 31, 2003. Commercial business loans
decreased $12.4 million in 2003 to $427.7 million at December 31, 2003. TCF continues to expand its commercial business and commercial real estate
lending activity generally to borrowers located in its primary markets. With a focus on secured lending, at December 31, 2003, approximately
99% of TCF’s commercial real estate and commercial business loans were secured either by properties or underlying business assets. At December
31, 2003 and 2002, the construction and development portfolio had no loans over 30-days delinquent. At December 31, 2003, approximately 90%
of TCF’s commercial real estate loans outstanding were secured by properties located in its primary markets. At December 31, 2003, $379 million
of variable rate commercial loans were at their interest rate floors. These loans will remain at their interest rate floor until interest rates rise
above the floor rates. An increase in the associated base rates of 50 basis points would result in the repricing of $303.9 million of variable rate
commercial loans currently at their floor rates. A 100 point increase in interest rates would result in a total of $350 million of these loans repric-
ing at interest rates above their current floor rates.
The following tables summarize TCF’s leasing and equipment finance portfolio by marketing segment and by equipment type:
(Dollars in thousands)
2003
Marketing Segment
Balance
Middle Market (1) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 595,812
Winthrop (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small ticket (4) . . . . . . . . . . . . . . . . . . . . . . . . . .
Leveraged leases . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . .
Truck and trailer (5) . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
229,441
137,062
124,178
22,728
1,109,221
51,176
$1,160,397
Percent
of Total
51.3%
19.8
11.8
10.7
2.0
95.6
4.4
100.0 %
At December 31,
Over 30-Day
Delinquency as a
Percentage
of Balance
.88%
1.14
.29
.56
–
.81
3.66
.93
2002
Percent
of Total
35.0%
25.7
17.4
10.1
2.1
90.3
9.7
Balance
$ 363,568
266,709
181,038
105,489
21,519
938,323
100,717
$1,039,040
100.0%
Over 30-Day
Delinquency as a
Percentage
of Balance
1.26%
–
.42
.41
–
.61
4.72
1.00
(1) Middle market consists primarily of loan and lease financing of construction and manufacturing equipment and speciality vehicles.
(2) Winthrop’s portfolio consists primarily of technology and data processing equipment.
(3) Wholesale includes the discounting and purchasing of lease receivables sourced by third party lessors.
(4) Small ticket includes loan and lease financings to small- and mid-size companies through programs with vendors, manufacturers, distributors, and franchise organizations. Individual contracts
generally range from $25 thousand to $250 thousand.
(5) TCF discontinued originations in the truck and trailer marketing segment during 2001. TCF will continue to provide financing on trucks and trailers to customers in the middle market segment for
use in their businesses which are unrelated to the over-the-road trucking industry. See the portfolio summary by equipment type below for TCF’s total financing of truck and trailers.
34
TCF Financial Corporation and Subsidiaries
(Dollars in thousands)
Equipment Type
Technology and data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trucks and trailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Material handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
2002
Percent of
Total
Balance
Percent of
Total
21.5%
$ 291,091
19.4
17.1
11.5
7.7
4.7
3.3
2.9
2.3
2.1
7.5
149,997
140,014
87,857
113,587
62,153
31,181
23,378
24,749
23,420
91,613
28.0%
14.4
13.5
8.5
10.9
6.0
3.0
2.2
2.4
2.3
8.8
Balance
$ 249,515
225,073
198,321
133,104
89,262
54,052
38,977
33,462
27,111
23,965
87,555
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,160,397
100.0%
$1,039,040
100.0%
The leasing and equipment finance portfolio increased $121.4
million from December 31, 2002 to $1.2 billion at December 31, 2003
and included the purchase of a specialty vehicles lease portfolio
totaling $58.4 million. This increase was net of a $37.3 million
decline in the Winthrop lease portfolio. Winthrop leases technology
and data processing equipment to companies. Technology spending
by companies has been slow over the past few years. In addition, the
low interest rate environment has led many companies to decide to
purchase instead of lease technology. These factors have contributed
to the reduced levels of new leases at Winthrop. TCF continues to
focus attention on increasing sales efforts at Winthrop to increase
overall balances and maintain its high level of profitability in the busi-
ness. At December 31, 2003, $66.4 million, or 7.4% of TCF’s lease
portfolio, was discounted on a non-recourse basis with other third-
party financial institutions and consequently TCF retains no credit
risk on such amounts. This compares with non-recourse fundings
of $108.7 million, or 13.9%, at December 31, 2002. The leasing and
equipment finance portfolio tables above include lease residuals.
Lease residuals represent the estimated fair value of the leased
equipment at the expiration of the initial term of the transaction. At
December 31, 2003, lease residuals, excluding leveraged lease resid-
uals, totaled $34.2 million, down from $35.4 million at December 31,
2002. The lease residuals on leveraged leases are included in invest-
ments in leveraged leases and totaled $18.7 million at December 31,
2003, unchanged from December 31, 2002. Lease residual values are
initially determined at the inception of the lease and are reviewed
on an ongoing basis. Any downward revisions are recorded in the
periods in which they become known.
Included in the investment in leveraged leases, at December 31,
2003, is $19.8 million for a 100% equity interest in a Boeing 767-300
aircraft on lease to Delta Airlines in the United States. An economic
slowdown has adversely impacted the airline industry and could
have an adverse impact on the lessee’s ability to meet its lease obli-
gations and the residual value of the aircraft. The lessee is current
on the lease payments and the lease expires in 2010. This lease rep-
resents TCF’s only material direct exposure to the commercial airline
industry. Total loan and lease originations and purchases for TCF’s
leasing businesses were $618.3 million at December 31, 2003, com-
pared with $518.1 million during 2002 and $492.3 million in 2001. The
backlog of approved transactions increased to $155.2 million at
December 31, 2003, from $140.8 million at December 31, 2002. TCF’s
expanded leasing activity is subject to risk of cyclical downturns and
other adverse economic developments. TCF’s ability to increase its
lease portfolio is dependent upon its ability to place new equipment
in service. In an adverse economic environment, there may be a decline
in the demand for some types of equipment which TCF leases, resulting
in a decline in the amount of new equipment being placed into service
as well as a decline in equipment values for equipment previously
placed in service. TCF Leasing has originated most of its portfolio
during recent periods, and consequently the performance of this
portfolio may not be reflective of future results and credit quality.
2003 Annual Report
35
Loan and leases outstanding at December 31, 2003 are shown in the following table by maturity:
(In thousands)
Amounts due:
At December 31, 2003 (1)
Consumer
Commercial
Real Estate
Commercial
Business
Leasing and
Equipment
Finance
Residential
Real Estate
Total Loans
and Leases
Within 1 year . . . . . . . . . . . . . . . . . . . . . . .
$ 110,042
$ 295,481
$ 213,615
$ 399,224
$
52,585
$1,070,947
After 1 year:
1 to 2 years . . . . . . . . . . . . . . . . . . . . .
2 to 3 years . . . . . . . . . . . . . . . . . . . . .
3 to 5 years . . . . . . . . . . . . . . . . . . . . .
5 to 10 years . . . . . . . . . . . . . . . . . . . .
10 to 15 years . . . . . . . . . . . . . . . . . . .
Over 15 years . . . . . . . . . . . . . . . . . . .
Total after 1 year . . . . . . . . . . . . .
93,903
192,580
124,752
689,949
1,398,267
1,023,605
3,523,056
Total . . . . . . . . . . . . . . . . . . .
$3,633,098
Amounts due after 1 year on:
Fixed-rate loans and leases . . . . . . . . . . .
Variable and adjustable-rate loans (2) . . . .
Total after 1 year . . . . . . . . . . . . . . . . .
$1,416,392
2,106,664
$3,523,056
129,837
319,498
190,267
837,905
114,053
33,149
1,624,709
$1,920,190
$ 278,796
1,345,913
$1,624,709
107,229
70,466
8,843
20,252
1,999
4,837
213,626
$ 427,241
$
56,042
157,584
$ 213,626
318,314
365,922
88,622
59,838
26,708
–
54,914
111,445
53,108
241,217
199,084
494,394
859,404
$1,258,628
1,154,162
$1,206,747
$ 859,404
–
$ 859,404
$ 849,274
304,888
$1,154,162
704,197
1,059,911
465,592
1,849,161
1,740,111
1,555,985
7,374,957
$8,445,904
$3,459,908
3,915,049
$7,374,957
(1) Gross of unearned discounts and deferred fees. This table does not include the effect of prepayments, which is an important consideration in management's interest rate risk analysis.
Company experience indicates that the loans remain outstanding for significantly shorter periods than their contractual terms.
(2) Includes $1.7 billion of consumer loans and $379 million of variable-rate commercial real estate and commercial business loans at their interest rate floor.
Allowance for Loan and Lease Losses Credit risk is the risk
of loss from a customer default on a loan or lease. TCF has in place a
process to identify and manage its credit risk. The process includes
initial credit review and approval, periodic monitoring to measure
compliance with credit agreements and internal credit policies,
monitoring changes in the risk ratings of loans and leases, identifi-
cation of problem loans and leases and procedures for the collection
of problem loans and leases. The risk of loss is difficult to quantify
and is subject to fluctuations in values, general economic conditions
and other factors. The determination of the allowance for loan
and lease losses is a critical accounting estimate which involves
management’s judgment on a number of factors such as net charge-
offs, delinquencies in the loan and lease portfolio, general economic
conditions and management’s assessment of credit risk in the cur-
rent loan and lease portfolio. The Company considers the allowance
for loan and lease losses of $76.6 million appropriate to cover losses
inherent in the loan and lease portfolios as of December 31, 2003.
However, no assurance can be given that TCF will not, in any particu-
lar period, sustain loan and lease losses that are sizable in relation
to the amount reserved, or that subsequent evaluations of the loan
and lease portfolio, in light of factors then prevailing, including
economic conditions and TCF’s on-going credit review process, will
not require significant changes in the allowance for loan and lease
losses. Among other factors, a protracted economic slowdown and/
or a decline in commercial or residential real estate values in TCF’s
markets may have an adverse impact on the adequacy of the allowance
for loan and lease losses by increasing credit risk and the risk of
potential loss. See “Forward-Looking Information” and Notes 1
and 7 of Notes to Consolidated Financial Statements for additional
information concerning TCF’s allowance for loan and lease losses.
The next several pages include detail information regarding TCF’s
allowance for loan and lease losses, net charge-offs, non-performing
assets, past due loans and leases and potential problem loans and
leases. Included in this data are numerous portfolio ratios that must
be carefully reviewed and related to the nature of the underlying
loan and lease portfolios before appropriate conclusions can be
reached regarding TCF or for purposes of making comparisons to
other companies. Most of TCF’s non-performing assets and past
due loans and leases are secured by residential real estate. Given
the nature of these assets and the related mortgage foreclosure,
property sale and, if applicable, mortgage insurance claims
processes, it can take 18 months or longer for a loan to migrate
from initial delinquency to final disposition. This resolution process
generally takes much longer for loans secured by real estate than
for unsecured loans or loans secured by other property primarily
due to state foreclosure laws.
The key indicators of TCF’s credit quality and reserve coverage
for 2003 include net charge-offs to average loans and leases of
.16%, the year-end allowance as a multiple of net charge-offs of
5.9X and an earnings coverage ratio of 26.3X.
36
TCF Financial Corporation and Subsidiaries
The following table sets forth information detailing the allowance for loan and lease losses and selected key indicators:
Year Ended December 31,
(Dollars in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers to loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision charged to operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Key Indicators:
Ratio of net loan and lease charge-offs to average loans
2003
$ 77,008
–
(5,362)
(1,381)
(920)
(8,620)
(86)
2002
$ 75,028
–
(6,939)
(2,181)
(5,952)
(9,230)
(59)
(16,369)
(24,361)
2,173
45
138
1,083
9
3,448
(12,921)
12,532
$ 76,619
2,965
43
54
1,264
9
4,335
(20,026)
22,006
$ 77,008
2001
$ 66,669
–
(6,605)
(122)
(429)
(9,794)
(1)
(16,951)
3,487
103
193
649
–
4,432
(12,519)
20,878
$ 75,028
2000
$ 55,755
–
(7,041)
(76)
(143)
(2,426)
(15)
(9,701)
4,576
295
690
254
28
5,843
(3,858)
14,772
$ 66,669
1999
$ 80,013
(14,793)
(31,509)
(674)
(52)
(2,008)
(155)
(34,398)
5,831
1,381
329
398
71
8,010
(26,388)
16,923
$ 55,755
and leases outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year-end allowance as a multiple of net charge-offs . . . . . . . . . . . .
.16%
5.9 X
.25%
3.8X
.15%
6.0X
Income before income taxes and provision for loan losses
as a multiple of net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . .
26.3 X
19.0X
28.0X
.05%
17.3X
82.3X
.35%
2.1X
11.0X
The allocation of TCF’s allowance for loan and lease losses, including general and specific loss allocations, is as follows:
At December 31,
Allocations as a Percentage of Total
Loans and Leases Outstanding by Type
At December 31,
(Dollars in thousands)
2003
2002
2001
2000
1999
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,084
$ 8,532
$ 8,355
$ 9,764
$10,701
2003
.25%
2002
.28%
2001
.33%
2000
.44%
1999
.52%
Commercial real estate . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . .
25,142
11,797
13,515
16,139
75,677
942
22,176
15,910
12,881
16,139
75,638
1,370
24,459
12,117
11,774
16,139
72,844
2,184
20,753
12,708
9,668
7,583
16,139
63,907
2,762
8,256
4,237
16,839
52,741
3,014
Total allowance balance . . . . . . . . . . . . . . . .
$76,619
$77,008
$75,028
$66,669
$55,755
1.31
2.76
1.16
N.A.
1.06
.08
.92
1.21
3.62
1.24
N.A.
1.20
.08
.95
1.51
2.87
1.23
N.A.
1.32
.08
.91
1.51
2.36
.89
N.A.
1.31
.08
.78
1.18
2.35
.86
N.A.
1.33
.08
.71
N.A. Not applicable.
2003 Annual Report
37
The allocated allowance balances for TCF’s residential and
consumer loan portfolios, at December 31, 2003, reflect the
Company’s credit quality and related low level of net loan charge-
offs for these portfolios. The increase in the allocated allowance for
commercial real estate losses reflects the growth in the portfolio.
The decline in the allocated allowance for commercial business
reflects the decline in the portfolio coupled with declines in net
charge-offs, non-performing loans and potential problem loans
in the commercial business portfolio during 2003. The allocated
allowance for the loan and lease portfolios do not reflect any
significant changes in estimation methods or assumptions.
The decrease in TCF’s allowance for loan and lease losses as a
percentage of total loans and leases, at December 31, 2003, reflects
the impact of the reduction in commercial and commercial real
estate, consumer and leasing and equipment finance charge-offs
and the reduction in non-accrual loans and leases, partially offset
by growth in loans and leases.
The following table sets forth additional information regarding net charge-offs:
(Dollars in thousands)
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance:
Middle market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Winthrop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small ticket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Truck and trailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Performing Assets Non-performing assets consist
of non-accrual loans and leases and other real estate owned.
The decrease in total non-performing assets reflects decreases of
$4.7 million, $3.9 million and $3.1 million, respectively, in leasing
and equipment finance, residential real estate and commercial
business non-performing assets, partially offset by increases of
$7 million and $3.4 million, respectively, in consumer and com-
mercial real estate non-performing assets.
Year Ended December 31,
2003
2002
Net
Charge-offs
$ 3,189
1,336
782
1,883
(32)
1,774
1,422
–
5,047
2,490
7,537
12,844
77
$12,921
% of Average
Loans and
Leases
.10%
.07
.18
.40
–
1.13
1.28
–
.31
3.03
.69
.19
.01
.16
Net
Charge-offs
$ 3,974
2,138
5,898
1,017
113
2,998
759
–
4,887
3,079
7,966
19,976
50
$20,026
% of Average
Loans and
Leases
.15%
.12
1.35
.39
.04
1.57
.83
–
.56
2.50
.80
.34
–
.25
Approximately 53% of non-performing assets at December 31, 2003
consisted of, or were secured by, residential real estate. Non-accrual
loans and leases in the truck and trailer marketing segment of the
leasing and equipment finance portfolio totaled $3.5 million at
December 31, 2003, compared with $7.5 million at December 31,
2002. 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 or six payments past due for
loans secured by residential real estate) unless such loans and
leases are adequately secured and in the process of collection.
38
TCF Financial Corporation and Subsidiaries
Non-performing assets are summarized in the following table:
(Dollars in thousands)
Non-accrual loans and leases:
2003
2002
2001
2000
1999
At December 31,
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,052
$11,163
$16,473
$13,027
$12,178
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance, net . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-accrual loans and leases, net . . . . . . . . . . . . . . . .
Non-recourse discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . .
Total non-accrual loans and leases, gross . . . . . . . . . . . . . .
Other real estate owned:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other real estate owned . . . . . . . . . . . . . . . . . . . . . . . .
Total non-performing assets, gross . . . . . . . . . . . . . . . . . . .
Total non-performing assets, net . . . . . . . . . . . . . . . . . . . . .
Gross non-performing assets as a percentage
of net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross non-performing assets as a percentage of total assets . . . . . .
2,490
2,931
13,241
3,993
34,707
699
35,406
20,462
12,992
33,454
$68,860
$68,161
3,213
4,777
17,127
5,798
42,078
1,562
43,640
16,479
10,093
26,572
$70,212
$68,650
11,135
3,550
11,723
6,959
49,840
2,134
51,974
12,830
1,825
14,655
$66,629
$64,495
5,820
236
7,376
4,829
31,288
3,910
35,198
10,422
447
10,869
$46,067
$42,157
1,576
2,960
1,310
5,431
23,455
619
24,074
9,454
1,458
10,912
$34,986
$34,367
.83%
.61
.87%
.58
.82%
.59
.54%
.41
.45%
.33
Included in non-performing assets are loans that are considered impaired. The recorded investment in impaired loans was $9.1 million and
$12.1 million at December 31, 2003 and December 31, 2002, respectively. The related allowance for credit losses was $4.5 million at December 31,
2003, compared with $5.5 million at December 31, 2002. All of the impaired loans were on non-accrual status. There were no impaired loans at
December 31, 2003 and 2002 which did not have a related allowance for loan losses. The average recorded investment in impaired loans was
$10.8 million for 2003, compared with $14.7 million for 2002.
Past Due Loans and Leases The following table sets forth information regarding TCF’s delinquent loan and lease portfolio, excluding loans
held for sale and non-accrual loans and leases. TCF’s delinquency rates are determined using the contractual method.
(Dollars in thousands)
Accruing loans and leases delinquent for:
30-59 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
2002
Principal
Balances
$24,187
8,953
5,604
$38,744
Percentage of
Loans and
Leases
.29%
.11
.07
.47%
Principal
Balances
$24,683
16,557
5,084
$46,324
Percentage of
Loans and
Leases
.31%
.20
.06
.57%
The following table summarizes TCF’s over 30-day delinquent loan and lease portfolio, by loan type:
(Dollars in thousands)
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
Percentage of
Portfolio
.49%
–
.07
.93
.84
.47
Principal
Balances
$17,673
58
282
10,619
10,112
$38,744
2002
Percentage of
Portfolio
.64%
.37
.13
1.00
.54
.57
Principal
Balances
$19,067
6,835
555
10,159
9,708
$46,324
2003 Annual Report
39
TCF’s over 30-day delinquency on total commercial real estate
decreased to less than .01% at December 31, 2003 from .37% at
December 31, 2002. The decline in delinquencies in the commercial
real estate portfolio during 2003 was primarily due to one customer
who brought their loans current in the first quarter of 2003. TCF’s
over 30-day delinquency on total leasing and equipment finance
decreased to .93% at December 31, 2003 from 1% at December 31,
2002. Included in delinquent leasing and equipment finance at
December 31, 2003 are $654 thousand of leases that have been funded
on a non-recourse basis by third-party financial institutions. At
December 31, 2002, there were no delinquent leases that have been
funded on a non-recourse basis by third-party financial institutions.
Potential Problem Loans and Leases In addition to non-
performing assets, there were $48.1 million of loans and leases at
December 31, 2003, for which management has concerns regarding
the ability of the borrowers to meet existing repayment terms,
compared with $83.4 million at December 31, 2002. These loans and
leases are primarily classified for regulatory purposes as substandard
Potential problem loans and leases are summarized as follows:
and reflect the distinct possibility, but not probability, that the
Company will not be able to collect all amounts due according to the
contractual terms of the loan or lease agreement. Although these
loans and leases have been identified as potential problem loans
and leases, they may never become non-performing. Additionally,
these loans and leases are generally secured by commercial real
estate or assets, thus reducing the potential for loss should they
become non-performing. Potential problem loans and leases are
considered in the determination of the adequacy of the allowance
for loan and lease losses. At December 31, 2003, commercial business
potential problem loans were down $20.7 million from December 31,
2002 primarily due to paydowns received. Commercial real estate
potential problem loans totaled $20.3 million at December 31, 2003,
and were down $9.9 million from December 31, 2002, primarily due to
paydowns received and improvement in the regulatory classification
on certain loans. Leasing and equipment finance potential problem
loans include $1.1 million and $1.8 million funded on a non-recourse
basis at December 31, 2003 and 2002, respectively.
(Dollars in thousands)
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
$
–
20,279
12,721
15,094
$ 48,094
2002
$ 4,500
30,132
33,408
15,314
$ 83,354
Change
$
$ (4,500)
(9,853)
(20,687)
(220)
$(35,260)
%
(100.0)%
(32.7)
(61.9)
(1.4)
(42.3)
Liquidity Management TCF manages its liquidity position to
ensure that the funding needs of depositors and borrowers are met
promptly and in a cost-effective manner. Asset liquidity arises from
the ability to convert assets to cash as well as from the maturity of
assets. Liability liquidity results from the ability of TCF to attract a
diversity of funding sources to promptly meet funding requirements.
Deposits are the primary source of TCF’s funds for use in lending
and for other general business purposes. In addition to deposits, TCF
derives funds primarily from loan and lease repayments and proceeds
from the discounting of leases and borrowings. Deposit inflows and
outflows are significantly influenced by general interest rates, money
market conditions, competition for funds, customer service and
other factors. TCF’s deposit inflows and outflows have been and will
continue to be affected by these factors. Borrowings may be used
to compensate for reductions in normal sources of funds, such as
deposit inflows at less than projected levels, net deposit outflows
or to support expanded activities. Historically, TCF has borrowed
primarily from the FHLB, from institutional sources under repurchase
agreements and, to a lesser extent, from other sources. At
December 31, 2003, TCF had over $2.4 billion in unused capacity
under these funding sources, which could be used to meet future
liquidity needs. See “Borrowings.”
Potential sources of liquidity for TCF Financial Corporation
(parent company only) include cash dividends from TCF’s wholly
owned bank subsidiary, issuance of equity securities and borrowings
under a $105 million line of credit. TCF’s National Bank’s ability to
pay dividends or make other capital distributions to TCF is restricted
by regulation and may require regulatory approval. Undistributed
earnings and profits at December 31, 2003 includes approximately
$134.4 million for which no provision for federal income tax has
been made. This amount represents earnings appropriated to bad
debt reserves and deducted for federal income tax purposes, and is
generally not available for payment of cash dividends or other dis-
tributions to shareholders without incurring an income tax liability
based on the amount of earnings removed and current tax rates.
40
TCF Financial Corporation and Subsidiaries
Deposits Checking, savings and money market deposits are an
important source of low cost funds and fee income for TCF. Deposits
totaled $7.6 billion at December 31, 2003, down $98.2 million from
December 31, 2002. Lower interest-cost checking, savings and
money market deposits totaled $6 billion, up $208.4 million from
December 31, 2002, and comprised 78.8% of total deposits at
December 31, 2003, compared with 75.1% of total deposits at
December 31, 2002. The average balance of these deposits for 2003
was $6 billion, an increase of $742.7 million over the $5.3 billion
average balance for 2002. Higher interest-cost certificates of deposit
decreased $306.6 million from December 31, 2002 as other lower-
cost funding sources were available to TCF. TCF’s weighted-average
rate for deposits, including non-interest-bearing deposits, was .58%
at December 31, 2003, down from 1.02% at December 31, 2002.
New Branch Expansion Key to TCF’s growth is its continued
investment in new branch expansion. New branches are an important
source of new customers in both deposit products and consumer
lending products. While supermarket branches continue to play an
important role in TCF’s expansion strategy, the opportunity to add
new supermarket branches within TCF’s markets has slowed from
prior years. Therefore, TCF has continued new branch expansion by
opening more traditional branches. Although traditional branches
require a higher initial investment than supermarket branches, they
ultimately attract more customers and become more profitable.
During 2003, TCF opened 19 new branches. The focus on opening
new branches will continue in 2004, with the planned opening of
28 branches, including 22 new traditional branches and six new
supermarket branches.
Of TCF’s 401 branches, 228, or 57%, were newly opened since January 1, 1998. Additional information regarding TCF’s branches opened since
January 1, 1998 is displayed in the table below:
(Dollars in thousands)
2003
2002
2001
2000
1999
At or For the Year Ended December 31,
Compound Annual Growth Rate
1-Year
2003/2002
5-Year
2003/1998
Number of new branches opened during the year
Traditional . . . . . . . . . . . . . . . . . . . . . . . . . .
Supermarket . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of new branches* at year-end
Traditional . . . . . . . . . . . . . . . . . . . . . . . . .
Supermarket . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of total branches . . . . . . .
14
5
19
42
186
228
56.9%
12
15
27
28
184
212
53.7%
6
21
27
16
174
190
50.7%
3
22
25
10
153
163
1
34
35
7
133
140
46.3%
41.4%
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.
Number of checking accounts . . . . . . . . . . . . . .
480,371
396,266
327,792
239,052
180,230
21.2%
39.5%
Deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 616,539
$ 447,914
$ 335,198
$ 236,633
$ 140,880
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . .
Total fees and other revenue for the year . . . . . .
390,253
66,604
1,073,396
152,050
$1,225,446
$ 126,123
407,088
70,476
925,478
162,655
133,987
91,092
560,277
184,020
63,764
68,504
368,901
225,401
49,863
13,729
204,472
139,116
$1,088,133
$ 107,769
$ 744,297
$
85,333
$ 594,302
$
60,750
$ 343,588
$
39,164
37.6
(4.1)
(5.5)
16.0
(6.5)
12.6
17.0
50.7
65.7
46.8
54.9
16.9
45.2
54.4
N.M. Not meaningful.
* New branches opened since January 1, 1998.
2003 Annual Report
41
Borrowings Borrowings totaled $2.4 billion at December 31, 2003,
down $695.5 million from year-end 2002. The decrease was primarily
due to decreases in residential real estate loans and mortgage-
backed securities which reduces TCF’s reliance on borrowings. See
Notes 12 and 13 of Notes to Consolidated Financial Statements for
detailed information on TCF’s borrowings. Included in long-term
borrowings at December 31, 2003 are $767.5 million of fixed-rate
FHLB advances and repurchase agreements with other financial
institutions which are callable by the counterparty at par on certain
anniversary dates and, for most, quarterly thereafter until maturity.
If called, replacement funding will be provided by the counterparties
at the then-prevailing short-term market rate of interest for the
remaining term-to-maturity of the advances and repurchase agree-
ments, subject to standard terms and conditions. The weighted-
average rate on borrowings decreased to 3.24% at December 31,
2003, from 4.43% at December 31, 2002 as a result of the previously
discussed prepayments of FHLB advances and generally lower inter-
est rates on short-term borrowings.
TCF does not utilize unconsolidated subsidiaries or special purpose
entities to provide off-balance-sheet borrowings. See Note 20 of
Notes to Consolidated Financial Statements for information relating
to off-balance-sheet instruments.
Contractual Obligations and Commitments As disclosed in the Notes to Consolidated Financial Statements, TCF has certain obligations
and commitments to make future payments under contracts. At December 31, 2003, the aggregate contractual obligations (excluding bank
deposits) and commitments are as follows:
(In thousands)
Contractual Obligations
Payments Due by Period
Total
Less than
1 Year
1-3
Years
4-5
Years
After 5
Years
Total borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,414,825
$ 925,019
$1,067,253
$ 122,553
$ 300,000
Annual rental commitments under non-cancelable
operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,784
Purchase obligations (construction contracts and
land purchase commitments for future branch sites) . . . . . . . . . .
13,807
22,310
13,807
42,601
31,517
68,356
–
–
–
$2,593,416
$ 961,136
$1,109,854
$ 154,070
$ 368,356
(In thousands)
Other Commitments
Commitments to lend:
Amount of Commitment – Expiration by Period
Total
Less than
1 Year
1-3
Years
4-5
Years
After 5
Years
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,382,348
$
25,083
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commitments to lend . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans serviced with recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit and guarantees on industrial
624,664
57,485
56,007
2,120,504
130,765
443,012
57,485
56,007
581,587
3,096
$
15,050
164,507
–
–
179,557
6,828
$
19,470
$1,322,745
4,598
–
–
24,068
6,529
12,547
–
–
1,335,292
114,312
revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,796
18,369
21,196
160
1,071
$2,292,065
$ 603,052
$ 207,581
$
30,757
$1,450,675
42
TCF Financial Corporation and Subsidiaries
Commitments to lend are agreements to lend to a customer pro-
vided there is no violation of any condition in the contract. These
commitments generally have fixed expiration dates or other termi-
nation clauses and may require payment of a fee. Since certain of
the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future
cash requirements. Collateral predominantly consists of residential
and commercial real estate.
Loans serviced with recourse represent a contingent guarantee
based upon the failure to perform by another party. These loans con-
sist of $126 million of Veterans Administration (“VA”) loans and $4.8
million of loans sold with recourse to the Federal National Mortgage
Association (“FNMA”). As is typical of a servicer of VA loans, TCF
must cover any principal loss in excess of the VA’s guarantee if the
VA elects its “no-bid” option upon the foreclosure of a loan. TCF has
established a liability of $100 thousand relating to the VA “no-bid”
exposure on VA loans serviced with partial recourse at December 31,
2003 which was recorded in other liabilities. No claims have been
made under the “no-bid” option during 2003 or 2002. Loans sold
with recourse to FNMA represent residential real estate loans sold
to FNMA prior to 1982. TCF no longer sells loans on a recourse basis,
and thus has limited the amount of loans subject to this contingent
guarantee. The contingent guarantee related to both types of
recourse remains in effect for the duration of the loans and thus
expires in various years through the year 2033. All loans sold with
recourse are collateralized by residential real estate. Since condi-
tions under which TCF would be required either to cover any principal
loss in excess of the VA’s guarantee or repurchase the loan sold to
FNMA may not materialize, the actual cash requirements are expected
to be significantly less than the amount provided in the table above.
Standby letters of credit and guarantees on industrial revenue
bonds are conditional commitments issued by TCF guaranteeing the
performance of a customer to a third party. These conditional com-
mitments expire in various years through the year 2011. Since the
conditions under which TCF is required to fund these commitments
may not materialize, the cash requirements are expected to be less
than the total outstanding commitments. Collateral held on these
commitments primarily consists of commercial real estate mortgages.
Stockholders’ Equity Stockholders’ equity at December 31, 2003
was $920.9 million, or 8.1% of total assets, down from $977 million,
or 8% of total assets, at December 31, 2002. The decrease in stock-
holders’ equity was primarily due to the repurchase of 3.5 million
shares of TCF’s common stock at a cost of $150.4 million, the payment
of $93 million in dividends on common stock and a $40.5 million
decrease in accumulated comprehensive income, partially offset by
net income of $215.9 million for the year ended December 31, 2003.
On July 21, 2003, TCF’s Board of Directors authorized the repurchase
of up to an additional 5% of TCF’s common stock, or 3.6 million
shares. At December 31, 2003, 3.7 million shares remain available
under remaining authorizations from the Board of Directors. Since
January 1, 1998, the Company has repurchased 25.1 million shares of
its common stock at an average cost of $33.33 per share. For the year
ended December 31, 2003, average total equity to average assets was
8.03% compared with 7.91% for the year ended December 31, 2002.
Dividends paid to common shareholders on a per share basis totaled
$1.30 in 2003, an increase of 13% from $1.15 in 2002. TCF’s dividend
payout ratio was 42.62% in 2003 and 36.51% in 2002. The Company’s
primary funding sources for common dividends are dividends received
from its subsidiary bank. At December 31, 2003, TCF and TCF National
Bank exceeded their regulatory capital requirements and are consid-
ered “well-capitalized” under guidelines established by the Federal
Reserve Board and the Office of the Comptroller of the Currency. See
Notes 15 and 16 of Notes to Consolidated Financial Statements.
TCF has used stock options as a form of employee compensation
only to a limited extent. At December 31, 2003, the number of incen-
tive stock options outstanding was 240,848 or .34% of total shares
outstanding.
Interest-Rate Risk TCF’s results of operations are dependent to
a large degree on its net interest income and its ability to manage its
interest rate risk. Although TCF manages other risks, such as credit
and liquidity risk, in the normal course of its business, the Company
considers interest rate risk to be its most significant market risk.
Since TCF does not hold a trading portfolio, the Company is not
exposed to market risk from trading activities. The mismatch
between maturities, interest rate sensitivities and prepayment
characteristics of assets and liabilities results in interest rate risk.
2003 Annual Report
43
TCF, like most financial institutions, has material interest rate risk
exposure to changes in both short-term and long-term interest
rates as well as variable interest rate indices (e.g., prime).
TCF’s Asset/Liability Committee manages TCF’s interest-rate risk
based on interest rate expectations and other factors. The principal
objective of TCF’s asset/liability management activities is to provide
maximum levels of net interest income while maintaining acceptable
levels of interest rate risk and liquidity risk and facilitating the
funding needs of the Company.
Although the measure is subject to a number of assumptions and
is only one of a number of measurements, management believes that
the interest rate gap (difference between interest-earning assets
and interest-bearing liabilities repricing within a given period) is an
important indication of TCF’s exposure to interest rate risk and the
related volatility of net interest income in a changing interest rate
environment. While the interest rate gap measurement has some
limitations, which include no assumptions regarding future asset or
liability production and the possibility of a static interest rate envi-
ronment which can result in large quarterly changes due to changes
of the above items, interest rate gap represents the net asset or lia-
bility sensitivity at a point in time. In addition to the interest rate gap
analysis, management also utilizes a simulation model to measure
and manage TCF’s interest rate risk, relative to a base case scenario.
TCF’s one-year interest rate gap was a positive $161.3 million, or
1% of total assets, at December 31, 2003, compared with a positive
$1.1 billion, or 9% of total assets at December 31, 2002. A positive
interest rate gap position exists when the amount of interest-earning
assets maturing or repricing, including assumed prepayments, within
a particular time period exceeds the amount of interest-bearing lia-
bilities maturing or repricing. The decrease in the one-year interest
rate gap is primarily the result of a decrease in fixed-rate mortgage-
backed securities and residential real estate loans of $1.5 billion.
TCF’s balance sheet is generally positioned to benefit from rising
interest rates due to a positive interest rate gap position. TCF would
also likely benefit from an increase in interest rates as this might
signify that economic conditions are improving. The favorable impact
of an increase in interest rates on net interest income would be par-
tially diminished by the fact that at December 31, 2003, $1.7 billion
of variable rate consumer loans and $379 million of variable rate
commercial loans were at their interest rate floors. These loans will
remain at their interest rate floors until interest rates rise above the
floor rates. An increase in the TCF base rate of 50 basis points would
result in the repricing of $1.2 billion of variable rate consumer loans
and $303.9 million of variable rate commercial loans currently at
their floor rates. Additionally, increases in interest rates could have
an adverse impact on TCF’s checking account balances, if customers
transfer some of these funds to higher interest rate deposit products
or other investments and would likely result in an increase in the cost
of interest-bearing deposits. An increase in interest rates would
affect TCF’s fixed-rate/variable-rate product origination mix and
origination volumes and would also likely result in slower fixed-rate
loan prepayments.
While this positive interest rate gap may compress net interest
income in the short-term, TCF believes this positive interest rate
gap to be warranted because current rates are well below historical
averages, and consequently, there is a greater possibility over time
of higher interest rates versus lower interest rates. However, if interest
rates remain at current levels or fall further, TCF could continue to
experience an increase in prepayments of residential loans, mortgage-
backed securities and fixed-rate consumer and commercial real
estate loans and may continue to experience further compression
of its net interest income.
The one-year interest rate gap could be significantly affected by
external factors such as prepayment rates other than those assumed,
early withdrawals of deposits, changes in the correlation of various
interest-bearing instruments, competition, a general rise or decline
in interest rates, and the possibility that TCF’s counterparties will
exercise their option to call certain of TCF’s longer-term callable
borrowings. Decisions by management to purchase or sell assets
or to retire debt could change the maturity/repricing and spread
relationships. In addition, TCF’s interest-rate risk may increase
during periods of rising interest rates due to slower prepayments
on fixed-rate loans and mortgage-backed securities. TCF estimates
that a 100 basis point increase in interest rates would slow pre-
payments on the $2.7 billion of mortgage-backed securities and
residential real estate loans at December 31, 2003 by approximately
$328.8 million, or 49%. A slowing in prepayments would increase the
estimated life of the mortgage-backed securities and residential
real estate loan portfolios and may adversely impact net interest
income or net interest margin in the future.
44
TCF Financial Corporation and Subsidiaries
The following table summarizes TCF’s interest-rate gap position at December 31, 2003:
(Dollars in thousands)
Interest-earning assets:
Within
30 Days
30 Days to
6 Months
6 Months to
1 Year
1 to 3 Years
3+ Years
Total
Maturity/Rate Sensitivity
Loans held for sale . . . . . . . . . . . . . . . . . .
$
297,068
$
26,837
$
674
$
2,855
$
7,938
$
335,372
Securities available for sale (1) . . . . . . . . .
Real estate loans (1) . . . . . . . . . . . . . . . . . .
Leasing and equipment finance (1) . . . . . . .
29,827
34,190
38,964
Other loans (1) (2) . . . . . . . . . . . . . . . . . . . .
1,313,030
Investments . . . . . . . . . . . . . . . . . . . . . . .
21
154,165
219,260
165,563
613,204
51,157
192,421
225,849
182,498
624,448
–
461,476
345,461
496,363
2,267,208
–
695,399
387,883
277,009
1,156,848
24,045
1,533,288
1,212,643
1,160,397
5,974,738
75,223
1,713,100
1,230,186
1,225,890
3,573,363
2,549,122
10,291,661
Interest-bearing liabilities:
Checking deposits (3) . . . . . . . . . . . . . . . . . . .
Savings deposits (3) . . . . . . . . . . . . . . . . . . .
Money market deposits (3) . . . . . . . . . . . . .
Certificate deposits . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . .
Long-term borrowings (4) . . . . . . . . . . . . . .
Interest-earning assets over (under) interest-
bearing liabilities (Primary gap) . . . . . . . .
Impact of unsettled transactions:
Securities available for sale . . . . . . . . . . . .
Adjusted gap . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative adjusted gap . . . . . . . . . . . . . . . . . .
Cumulative adjusted gap as a percentage
of total assets:
At December 31, 2003 . . . . . . . . . . . . . .
At December 31, 2002 . . . . . . . . . . . . . .
203,034
928,532
405,591
164,318
290,689
109,134
2,101,298
–
–
–
631,897
190,025
21,834
843,756
–
–
–
414,166
397,698
17,541
829,405
–
–
–
336,970
–
964,109
1,301,079
3,045,378
977,391
439,700
64,772
–
423,795
4,951,036
3,248,412
1,905,923
845,291
1,612,123
878,412
1,536,413
10,026,574
(388,198)
386,430
396,485
2,272,284
(2,401,914)
265,087
(283,678)
$
$
(671,876)
(671,876)
13,546
399,976
(271,900)
$
$
36,692
433,177
161,277
$
$
106,283
$ 2,378,567
$ 2,539,844
127,157
$ (2,274,757)
$
265,087
–
$
$
265,087
265,087
(6)%
(4)%
(2)%
4 %
1%
9%
22%
19%
2%
3%
2%
3%
(1) Based upon contractual maturity, repricing date, if applicable, scheduled repayments of principal and projected prepayments of principal based upon experience and third party projections.
(2) At December 31, 2003, $1.7 billion of consumer variable rate loans and $379 million of commercial variable rate loans were at their floor rate and were treated as fixed-rate for gap reporting purposes.
At December 31, 2002, $1.1 billion of consumer variable rate loans were at their floor rate and were treated as fixed-rate.
(3) Includes non-interest bearing deposits. At December 31, 2003, 6% of checking deposits, 49% of savings deposits, and 48% of money market deposits are included in amounts repricing within one year.
All remaining checking, savings and money market deposits are assumed to mature in the “3+ Years” category. While management believes that these assumptions are reasonable, no assurance can
be given that amounts on deposit in checking, savings, and money market accounts will not significantly change or be repriced in the event of a general change in interest rates. At December 31, 2002,
7% of checking deposits, 59% of savings deposits, and 53% of money market deposits were included in amounts repricing within one year and 18% of savings deposits were included in the “1 to 3 Years”
category.
(4) Includes $767.5 million of callable borrowings. At December 31, 2003, the contract rates on all callable borrowings exceeded current market rates.
As previously noted, TCF also utilizes simulation models to esti-
mate the near-term effects (next twelve months) of changing inter-
est rates on its net interest income. Net interest income simulation
involves forecasting net interest income under a variety of scenarios,
including the level of interest rates, the shape of the yield curve,
and spreads between market interest rates. At December 31, 2003,
net interest income is estimated to increase by 2.3%, compared
with the base case scenario, over the next twelve months if interest
rates were to sustain an immediate increase of 100 basis points. In
the unlikely event interest rates were to decline by 100 basis points,
reflecting an interest rate on overnight Federal Funds of 0%, net
interest income is estimated to decrease by 5%, compared with
the base case scenario, over the next twelve months. The decrease
from the base case scenario is largely due to an assumed continued
decrease in total interest-earning assets.
Management exercises its best judgment in making assumptions
regarding loan prepayments, early deposit withdrawals, and other
non-controllable events in estimating TCF’s exposure to changes in
interest rates. These assumptions are inherently uncertain and, as a
result, the simulation models cannot precisely estimate net interest
income or precisely predict the impact of a change in interest rates
on net interest income. Actual results will differ from simulated
results due to the timing, magnitude and frequency of interest rate
changes and changes in market conditions and management strate-
gies, among other factors.
Summary of Critical Accounting Estimates Critical
accounting estimates occur in certain accounting policies and proce-
dures and are particularly susceptible to significant change. Policies
that contain critical accounting estimates include the determination
of the allowance for loan and lease losses, mortgage servicing rights,
2003 Annual Report
45
income taxes, lease financings and pension liability and expenses.
See Note 1 of Notes to Consolidated Financial Statements for further
discussion of critical accounting estimates.
obligations or expense. TCF is currently reviewing the Act and
considering its options. However, the effects of this Act are not
expected to be significant.
Recent Accounting Developments In January 2003, the
Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation (“FIN”) No. 46 “Consolidation of Variable Interest
Entities,” which addresses consolidation and disclosure of interests
in variable interest entities (“VIEs”). See Note 1 of Notes to
Consolidated Financial Statements for information relating to
investments in affordable housing limited partnerships. There
was no impact on TCF’s financial statements upon adoption of
this interpretation.
In December 2003, the FASB issued a revised version of FIN No.46.
The revised FIN No.46 clarifies some of the provisions of the original
interpretation and adds new scope exceptions. TCF expects no sig-
nificant impact on TCF’s financial statements upon adoption of the
revised interpretation.
In April 2003, the FASB issued SFAS No. 149, “Amendment of
Statement 133 on Derivative Instruments and Hedging Activities.”
SFAS No. 149 amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under
SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities.” This Statement is generally effective for contracts entered
into or modified and hedging relationships designated after June 30,
2003. There was no impact on TCF’s financial statements as a result
of the adoption of this Statement.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity.” SFAS No.150 establishes standards for how an issuer classi-
fies and measures certain financial instruments with characteristics
of both a liability and equity. It requires that an issuer classify certain
financial instruments as a liability, although the financial instrument
may previously have been classified as equity. This Statement was
effective for financial instruments entered into or modified after
May 31, 2003 and otherwise was effective at the beginning of the first
interim period beginning after June 15, 2003. There was no impact on
TCF’s financial statements upon adoption of this Statement.
On December 8, 2003, the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (the “Act”) was signed into law. This
Act includes a prescription drug benefit and a federal subsidy for
sponsors of retiree healthcare plans beginning in 2006. TCF offers a
prescription drug benefit to certain retirees in its post-retirement
medical plan. In January 2004, the FASB issued limited guidance
regarding the effects of the Act on the estimated costs of providing
this retirement benefit under SFAS No.106, “Employers’ Accounting
for Postretirement Benefits Other Than Pensions” with various
implementation options. The impact of the Act has not yet
been included in TCF’s determination of post retirement benefit
Fourth Quarter Summary In the fourth quarter of 2003, TCF
reported net income of $59.5 million, compared with $59.8 million in
the fourth quarter of 2002. Diluted earnings per common share was
86 cents for the fourth quarter of 2003, compared with 82 cents for
the fourth quarter of 2002. TCF opened 10 new branches in the fourth
quarter of 2003, of which two were supermarket branches.
Net interest income was $119.1 million and $126.6 million for
the quarter ended December 31, 2003 and 2002 respectively. The
net interest margin was 4.68% and 4.59% for the fourth quarter of
2003 and 2002, respectively. TCF’s net interest income declined by
$7.5 million, or 5.9% over the fourth quarter of 2002. Of this decline
in net interest income $11.6 million was due to interest rate changes,
partially offset by an increase of $4 million due to volume changes.
TCF provided $4 million for credit losses in the fourth quarter
of 2003, compared with $4.1 million in the fourth quarter of 2002.
Net loan and lease charge-offs were $6.1 million, or .30% of average
loans and leases outstanding, compared with $3.2 million, or .16%
of average loans and leases outstanding during the same 2002
period. Included in net charge-offs was a $1.3 million charge-off
related to an office building that TCF took ownership of during the
fourth quarter of 2003. Included in leasing and equipment net
charge-offs in the fourth quarter of 2003 was a $1.3 million charge-
off related to the sale of $5.6 million of under-performing leases
from the transportation portfolio.
Non-interest income increased $5.7 million, or 5.2%, during the
fourth quarter of 2003 to $114.9 million. The increase was primarily
due to increased leasing and mortgage banking revenues and fees
and service charges.
Non-interest expense increased $993 thousand, or.7%, in the
fourth quarter of 2003 to $142.2 million. Increases from the fourth
quarter of 2002 in occupancy expense of $1.2 million due to branch
expansion and in advertising of $1 million to support checking
account promotions were mostly offset by a $1.9 million decrease in
other non-interest expense primarily due to lower mortgage banking
volumes and lower ATM and debit card processing expense.
In the fourth quarter of 2003, the effective income tax rate was
reduced to 32.14% of income before tax expense for the quarter due
to the increased investments in affordable housing limited partner-
ships and a reduction in state and local income taxes.
Earnings Teleconference and Website Information TCF
hosts quarterly conference calls to discuss its financial results.
Additional information regarding TCF’s conference calls can be
obtained from the investor relations section within TCF’s website at
www.tcfexpress.com or by contacting TCF’s Corporate Communications
Department at (952) 745-2760. The website also includes free access
to company news releases, TCF’s annual report, quarterly reports,
46
TCF Financial Corporation and Subsidiaries
investor presentations and Securities and Exchange Commission
(“SEC”) filings. Replays of prior quarterly conference calls discussing
financial results may also be accessed at the investor relations sec-
tion within TCF’s website.
Legislative, Legal and Regulatory Developments
Federal and state legislation imposes numerous legal and regulatory
requirements on financial institutions. Future legislative or regula-
tory change, or changes in enforcement practices or court rulings,
may have a dramatic and potentially adverse impact on TCF and its
bank and other subsidiaries.
The Federal Deposit Insurance Corporation (“FDIC”) and members
of the United States Congress have proposed new legislation that
would reform the bank deposit insurance system. This reform could
merge the Bank Insurance Fund (“BIF”) and Savings Association
Insurance Fund (“SAIF”), increase the deposit insurance coverage
limits and index future coverage limitations, among other changes.
Most significantly, reform proposals could allow the FDIC to raise
or lower (within certain limits) the currently mandated designated
reserve ratio requiring the FDIC to maintain a 1.31% reserve ratio
($1.31 against $100 of insured deposits), and require certain changes
in the calculation methodology. Although it is too early to predict the
ultimate impact of such proposals, they could, if adopted, result in
the imposition of additional deposit insurance premium costs on TCF.
On July 30, 2002, the Sarbanes-Oxley Act of 2002 (“the Act”) was
signed into law by the President of the United States. The Act provides
for sweeping changes dealing with corporate governance, account-
ing practices and disclosure requirements for public companies, and
also for their directors and officers. Section 302 of the Act, entitled
“Corporate Responsibility for Financial Reports,” required the SEC to
adopt rules to implement certain requirements noted in the Act and
it did so effective August 29, 2002. The new rules require a company’s
chief executive and chief financial officers to certify the financial and
other information included in the company’s quarterly and annual
reports. The rules also require these officers to certify that they are
responsible for establishing, maintaining and regularly evaluating the
effectiveness of the company’s disclosure controls and procedures;
that they have made certain disclosures to the auditors and to the
audit committee of the board of directors about the company’s con-
trols and procedures; and that they have included information in their
quarterly and annual filings about their evaluation and whether
there have been significant changes in disclosure controls or internal
controls over financial reporting during the most recent fiscal quar-
ter that has materially affected, or is reasonably likely to materially
affect, internal control over financial reporting. These certifications
called for under Section 302 of the Act are filed as an exhibit to
Form 10-K. See “Controls and Procedures” in Form 10-K for TCF’s
evaluation of disclosure controls and procedures. TCF is also fur-
nishing as an exhibit to Form 10-K certificates called for under
Section 906 of the Act.
On June 5, 2003, the SEC published its final rules on Section 404 of
the Act, requiring public companies to complete an annual assessment
of the effectiveness of internal control over financial reporting. The
rules are effective in 2004 and a management report must be included
in the 2004 Form 10-K describing management’s responsibility for
establishing and maintaining adequate internal control over financial
reporting and its assessment of the effectiveness of such controls as
of year-end. The Company’s independent auditors will also be required
to complete an attestation report on management’s assessment.
In September 2002, the SEC issued its final ruling covering the
acceleration of periodic report filing dates. The rule applies to certain
companies, including TCF, and will reduce the annual report filing
deadline from 90 days after year-end to 60 days after year-end for
TCF’s 2004 Annual Report. The quarterly report on Form 10-Q filing
deadline will also be accelerated from 45 days after quarter-end
to 35 days after quarter-end for the quarterly Form 10-Q filings in
2005. TCF has taken steps to modify its financial reporting process
to meet these accelerated filing deadlines.
Forward-Looking Information
This Annual Report and other reports issued by the Company, including
reports filed with the SEC, may contain “forward-looking” statements
that deal with future results, plans or performance. In addition, 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, which could be impacted by lower prepay-
ment rates in a period of rising interest rates; deposit outflows; ability
to increase the number of checking accounts and the possibility
that deposit account losses (fraudulent checks, etc.) may increase;
reduced demand for financial services and loan and lease products;
adverse developments affecting TCF’s supermarket banking relation-
ships or any of the supermarket chains in which TCF maintains super-
market branches; changes in accounting policies or guidelines, or
monetary, fiscal or tax policies of the federal or state governments;
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;
the risk that TCF could be unable to effectively manage the volatility
of its mortgage banking business, which could adversely affect earn-
ings; results of litigation, including reductions in debit card revenues
resulting from litigation brought by retail merchants against VISA®
USA, or other significant uncertainties.
2003 Annual Report
47
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per-share data)
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Stockholders’ Equity
Deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:
At December 31,
2003
2002
$
370,054
75,223
1,533,288
335,372
3,630,341
1,916,701
427,696
1,160,397
7,135,135
1,212,643
8,347,778
(76,619)
8,271,159
282,193
145,462
5,907
52,036
248,321
$11,319,015
$ 3,248,412
1,905,923
845,291
5,999,626
1,612,123
7,611,749
878,412
1,536,413
2,414,825
371,583
10,398,157
$
416,397
153,722
2,426,794
476,475
3,005,882
1,835,788
440,074
1,039,040
6,320,784
1,800,344
8,121,128
(77,008)
8,044,120
243,452
145,462
7,573
62,644
225,430
$12,202,069
$ 2,864,896
2,041,723
884,614
5,791,233
1,918,755
7,709,988
842,051
2,268,244
3,110,295
404,766
11,225,049
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;
92,513,355 and 92,638,937 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings, subject to certain restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 22,037,025 and 18,783,051 shares, and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
925
518,878
1,234,804
5,652
(839,401)
920,858
$11,319,015
926
518,813
1,111,955
46,102
(700,776)
977,020
$12,202,069
See accompanying notes to consolidated financial statements.
48
TCF Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
Interest income:
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses . . . . . . . . . . . . . . . .
Non-interest income:
Fees and service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments and insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on termination of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense:
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2003
2002
2001
$513,171
103,821
20,016
4,511
641,519
56,795
103,579
160,374
481,145
12,532
468,613
247,456
52,991
43,623
13,901
357,971
51,088
12,719
9,014
430,792
32,832
(44,345)
–
(11,513)
419,279
302,804
88,423
25,536
–
143,346
560,109
327,783
111,905
$215,878
$
$
$
3.06
3.05
1.30
$585,693
118,272
22,464
6,934
733,363
95,386
138,752
234,138
499,225
22,006
477,219
226,051
47,190
45,296
15,848
334,385
51,628
6,979
13,272
406,264
11,536
–
1,962
13,498
419,762
294,295
83,131
21,894
–
139,968
539,288
357,693
124,762
$232,931
$
$
$
3.17
3.15
1.15
$681,110
112,267
24,266
8,966
826,609
162,727
182,660
345,387
481,222
20,878
460,344
195,162
40,525
45,768
11,554
293,009
45,730
12,042
16,526
367,307
863
–
3,316
4,179
371,486
266,818
78,774
20,909
7,777
127,718
501,996
329,834
122,512
$207,322
$
$
$
2.73
2.70
1.00
2003 Annual Report
49
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Balance, December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of 3,670,107 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 262,340 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, 86,677 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of TCF stock to fund the Employees Stock Purchase Plan, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan to deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of 3,108,431 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 61,440 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, 51,656 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of loans to deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of 3,459,490 shares
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 142,737 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, 62,779 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to consolidated financial statements.
50
TCF Financial Corporation and Subsidiaries
Number of
Common
Shares Issued
92,755,659
–
–
–
–
–
–
(36,115)
–
–
–
–
–
92,719,544
–
–
–
–
–
–
(80,607)
–
–
–
–
92,638,937
–
–
–
–
–
–
(125,582)
–
–
–
92,513,355
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock
and Other
Total
$
928
$ 508,682
$
835,605
$
(9,868)
$ (425,127)
$
910,220
–
–
–
–
–
–
(1)
–
–
–
–
–
927
–
–
–
–
–
–
(1)
–
–
–
–
926
–
–
–
–
–
–
(1)
–
–
–
925
$
–
–
–
–
–
3,057
(1,484)
15
885
9,744
41
–
520,940
–
–
–
–
–
1,139
(3,586)
28
1,536
(1,244)
–
518,813
–
–
–
–
–
1,704
(3,598)
–
1,264
695
$ 518,878
207,322
–
207,322
(77,473)
–
–
–
–
–
–
–
–
965,454
232,931
–
232,931
(86,430)
–
–
–
–
–
–
–
1,111,955
215,878
–
215,878
(93,029)
–
–
–
–
–
–
$1,234,804
–
16,097
16,097
–
–
–
–
–
–
–
–
–
6,229
–
39,873
39,873
–
–
–
–
–
–
–
–
46,102
–
(40,450)
(40,450)
–
–
–
–
–
–
–
5,652
$
–
–
–
–
(148,043)
(3,057)
646
11,049
2,405
(9,744)
–
(4,646)
(576,517)
–
–
–
–
(148,030)
(1,139)
742
11,590
1,551
1,244
9,783
(700,776)
–
–
–
–
(150,356)
(1,704)
2,371
9,701
2,058
(695)
$ (839,401)
207,322
16,097
223,419
(77,473)
(148,043)
–
(839)
11,064
3,290
–
41
(4,646)
917,033
232,931
39,873
272,804
(86,430)
(148,030)
–
(2,845)
11,618
3,087
–
9,783
977,020
215,878
(40,450)
175,428
(93,029)
(150,356)
–
(1,228)
9,701
3,322
–
920,858
$
2003 Annual Report
51
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights amortization and impairment . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . .
Principal collected on loans held for sale . . . . . . . . . . . . . . . . . . . . . . . .
Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in other assets and accrued
expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on termination of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Principal collected on loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originations and purchases of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of lease financing receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of equipment for lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of securities available for sale . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of and principal collected
on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in Federal Home Loan Bank stock . . . . . . . . . . . . . . . . .
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of deposits, net of cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of loans to deferred compensation plans . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net increase (decrease) in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by financing activities . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of loans and leases to other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to consolidated financial statements.
TCF Financial Corporation and Subsidiaries
52
Year Ended December 31,
2003
2002
2001
$
215,878
$
232,931
$
207,322
39,478
44,833
12,532
2,944,298
8,913
(2,816,960)
(14,913)
(32,832)
44,345
(8,655)
221,039
436,917
4,343,655
(4,108,727)
(58,421)
(510,140)
849,333
881,885
(871,559)
79,307
(69,782)
–
–
7,648
543,199
(98,239)
36,361
425,469
(1,147,876)
(150,356)
(93,029)
1,211
(1,026,459)
(46,343)
416,397
370,054
157,751
139,120
44,292
$
$
$
$
40,772
35,374
22,006
2,703,744
15,814
(2,734,741)
43,091
(13,900)
–
(20,141)
92,019
324,950
3,434,153
(2,984,568)
–
(470,917)
485,406
718,431
(1,973,974)
3,126
(60,279)
(15,206)
9,783
92
(853,953)
628,142
122,192
52,462
(11,665)
(148,030)
(86,430)
2,029
558,700
29,697
386,700
416,397
234,046
87,899
51,713
$
$
$
$
46,599
20,964
20,878
2,135,218
12,469
(2,375,396)
91,612
(4,393)
–
(9,885)
(61,934)
145,388
3,352,341
(2,719,682)
–
(449,231)
33,645
398,316
(587,324)
(18,927)
(44,682)
(26,958)
(4,646)
(15,544)
(82,692)
237,180
(178,836)
677,334
(579,529)
(148,043)
(77,473)
1,364
(68,003)
(5,307)
392,007
386,700
352,903
24,128
33,447
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation The consolidated financial statements
include the accounts of TCF Financial Corporation and its wholly
owned subsidiaries. TCF Financial Corporation (“TCF” or the
“Company”) is a national financial holding company engaged
primarily in community banking, mortgage banking and leasing and
equipment finance through its wholly owned subsidiary, TCF National
Bank. TCF National Bank owns leasing and equipment finance,
mortgage banking, brokerage and investment and insurance sales,
and real estate investment trust (“REIT”) subsidiaries. These sub-
sidiaries are consolidated with TCF National Bank and are therefore
included in the consolidated financial statements of TCF Financial
Corporation. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Certain reclassifications have been made to prior years’ finan-
cial statements to conform to the current year presentation. For
Consolidated Statements of Cash Flows purposes, cash and cash
equivalents include cash and due from banks.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
POLICIES RELATED TO CRITICAL ACCOUNTING ESTIMATES
Summary of Critical Accounting Estimates Critical
accounting estimates occur in certain accounting policies and proce-
dures and are particularly susceptible to significant change. Policies
that contain critical accounting estimates include the determination
of the allowance for loan and lease losses, mortgage servicing rights,
income taxes, lease financings and pension liability and expenses.
Allowance for Loan and Lease Losses The allowance for loan
and lease losses is maintained at a level believed to be appropriate
by management to provide for probable loan and lease losses inher-
ent in the portfolio 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.
Management’s judgment as to the amount of the allowance, including
the allocated and unallocated elements, is a result of ongoing review
of larger individual loans and leases, the overall risk characteristics
of the portfolios, changes in the character or size of the portfolios,
the level of impaired and non-performing assets, historical net
charge-off amounts, geographic location, prevailing economic
conditions and other relevant factors. Impaired loans include all
non-accrual and restructured commercial real estate and commercial
business loans and equipment finance loans. Consumer loans, resi-
dential real estate loans and leases are excluded from the definition
of an impaired loan. Loan impairment is measured as the present
value of the expected future cash flows discounted at the loan’s
initial effective interest rate or the fair value of the collateral for
collateral-dependent loans. Consumer loans, residential loans,
smaller-balance commercial loans and leases and equipment finance
loans are segregated by loan type and sub-type, and are evaluated
on a group basis. Loans and leases are charged off to the extent they
are deemed to be uncollectible. The amount of the allowance for
loan and lease losses is highly dependent upon management’s esti-
mates 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 peri-
odically and adjustments, if necessary, are recorded in the provision
for credit losses in the periods in which they become known.
Mortgage Servicing Rights TCF records a mortgage servicing
rights asset for its right to service mortgage loans it has sold to third
parties, but continues to service for a fee. The total cost of loans
sold is allocated between the loans sold and the servicing rights
retained based on the relative fair values of each. Mortgage servic-
ing rights are initially recorded at cost and are subsequently carried
at the lower of cost, adjusted for amortization, or estimated fair
value. Mortgage servicing rights are amortized in proportion to, and
over the period of, estimated net servicing income.
TCF periodically evaluates its capitalized mortgage servicing rights
for impairment. Loan type and note rate are the predominant risk
characteristics of the underlying loans used to stratify capitalized
mortgage servicing rights for purposes of measuring impairment. The
fair value of mortgage servicing rights is estimated by calculating the
present value of estimated future net servicing cash flows, taking into
consideration actual and expected mortgage loan prepayment rates,
discount rates, servicing costs, and other economic factors. The
expected and actual rate of mortgage loan prepayments are the most
significant factors driving the value of mortgage servicing rights.
Adjustments to the mortgage servicing rights valuation allowance
for other than permanent impairment are recorded in mortgage bank-
ing revenues. Permanent impairment is recognized as a reduction in
the capitalized mortgage servicing rights and a charge to the related
valuation allowance.
2003 Annual Report
53
Income Taxes Income taxes are accounted for using the asset
and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those tem-
porary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is rec-
ognized in income in the period that includes the enactment date.
The determination of current and deferred income taxes is based
on complex analyses of many factors including interpretation of
Federal and state income tax laws, the difference between tax
and financial reporting basis of assets and liabilities (temporary
differences), estimates of amounts due or owed such as the timing
of reversals of temporary differences and current financial account-
ing standards. Actual results could differ significantly from the
estimates and interpretations used in determining the current and
deferred income tax liabilities.
Lease Financing TCF provides various types of lease financing
that are classified for accounting purposes as either direct financing,
sales-type, leveraged or operating leases. Leases that transfer sub-
stantially all of the benefits and risks of equipment ownership to the
lessee are classified as direct financing or sales-type leases and are
included in loans and leases. Direct financing and sales-type leases
are carried at the combined present value of the future minimum
lease payments and the lease residual value. Investments in leveraged
leases are the sum of all lease payments (less non-recourse debt
payments) plus estimated residual values, less unearned income.
The determination of the lease classification requires various judg-
ments and estimates by management including the fair value of the
equipment at lease inception, useful life of the equipment under
lease, and collectibility of minimum lease payments.
Sales-type leases generate dealer profit which is recognized at
lease inception by recording lease revenue net of the lease cost.
Lease revenue consists of the present value of the future minimum
lease payments discounted at the rate implicit in the lease. Lease
cost consists of the leased equipment’s book value, less the present
value of its residual. The revenues associated with other types of
leases are recognized over the term of the underlying leases. Interest
income on direct financing and sales-type leases is recognized using
methods which approximate a level yield over the term of the leases.
Income from leveraged leases is recognized using a method which
approximates a level yield over the term of the leases based on the
unrecovered equity investment. Management has policies and proce-
dures in place for the determination of lease classification and
review of the related judgments and estimates for all lease financings.
Additionally, some lease financings include a residual value
component, which represents the estimated value of the leased
equipment at the end of the initial term of the lease. The estimation
of residual values involves judgments regarding product and technol-
ogy changes, customer behavior, shifts in supply and demand and
other economic assumptions. These estimates are reviewed at least
annually and downward adjustments, if necessary, are charged to
non-interest expense in the periods in which they become known.
Pension Plan As summarized in Note 18, TCF provides pension
benefits to eligible employees in the TCF Cash Balance Pension Plan.
In accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 87 “Employers’ Accounting for Pensions,” the Company
does not consolidate the assets and liabilities associated with the
pension plan.
The measurement of the projected benefit obligation, prepaid
pension asset and annual pension expense involves complex actuarial
valuation methods and the use of actuarial and economic assump-
tions. Due to the long-term nature of the pension plan obligation,
actual results may differ significantly from the actuarial-based
estimates. Differences between estimates and actual experience are
required to be deferred and under certain circumstances amortized
over the future expected working lifetime of plan participants.
As a result, these differences are not recognized when they occur.
TCF closely monitors all assumptions and updates them annually.
OTHER SIGNIFICANT ACCOUNTING POLICIES
Investments Investments are carried at cost, adjusted for amor-
tization of premiums or accretion of discounts, using methods which
approximate a level yield.
Securities Available for Sale Securities available for sale
are carried at fair value with the unrealized holding gains or losses,
net of related deferred income taxes, reported as accumulated
other comprehensive income (loss), which is a separate component
of stockholders’ equity. Cost of securities sold is determined on a
specific identification basis and gains or losses on sales of securities
available for sale are recognized at trade dates. Declines in the
value of securities available for sale that are considered other than
temporary are recorded in noninterest income as a loss on securities
available for sale. Discounts and premiums on securities available
for sale are amortized using methods which approximate a level yield
over the life of the security.
Loans Held for Sale Loans held for sale include residential
mortgage and education loans. Residential mortgage loans held for
sale are carried at the lower of cost or market as adjusted for the
effects of fair value hedges using quoted market prices. See Note 19
for additional information concerning derivative instruments and
54
TCF Financial Corporation and Subsidiaries
hedging activities. Education loans held for sale are carried at the
lower of cost of market. Net fees and costs associated with originat-
ing and acquiring loans held for sale are deferred and are included
in the basis for determining the gain or loss on sales of loans held for
sale. Gains on sales are recorded at the settlement date and cost is
determined on a specific identification basis.
Loans and Leases Net fees and costs associated with originating
and acquiring loans and most leases are deferred and amortized
over the lives of the assets. The net fees and costs for sales-type
leases are offset against revenues recorded at the commencement
of sales-type leases. Discounts and premiums on loans purchased,
net deferred fees and costs, unearned discounts and finance
charges, and unearned lease income are amortized using methods
which approximate a level yield over the estimated remaining lives
of the loans and leases.
Loans and leases, including loans that are considered to be
impaired, are reviewed regularly by management and are placed
on non-accrual status when the collection of interest or principal
is 90 days or more past due (150 days or six payments or more past
due for loans secured by residential real estate), unless the loan or
lease is adequately secured and in the process of collection. When
a loan or lease is placed on non-accrual status, uncollected interest
accrued in prior years is charged off against the allowance for loan
and lease losses. Interest accrued in the current year is reversed.
For those non-accrual leases that have been funded on a non-
recourse basis by third-party financial institutions, the related
debt is also placed on non-accrual status. Interest payments
received on non-accrual loans and leases are generally applied
to principal unless the remaining principal balance has been deter-
mined to be fully collectible.
Premises and Equipment Premises and equipment, including
leasehold improvements, are carried at cost and are depreciated or
amortized on a straight-line basis over their estimated useful lives
of owned assets and for leasehold improvements over the estimated
useful life of the related asset or the lease term, whichever is shorter.
Maintenance and repairs are charged to expense as incurred.
Other Real Estate Owned Other real estate owned is recorded
at the lower of cost or fair value minus estimated costs to sell at the
date of transfer to other real estate owned. At the time a loan is
transferred to other real estate owned, any carrying amount in excess
of the fair value less estimated costs to sell the property is charged
off to the allowance for loan and lease losses. Subsequently, should
the fair value of an asset less the estimated costs to sell decline to
less than the carrying amount of the asset, the deficiency is recog-
nized in the period in which it becomes known and is included in
other non-interest expense.
Investments in Affordable Housing Limited Partnerships
Investments in affordable housing consist of investments in limited
partnerships that operate qualified affordable housing projects or
that invest in other limited partnerships formed to operate afford-
able housing projects. TCF generally utilizes the effective yield
method to account for these investments with the tax credits net
of the amortization of the investment reflected in the Consolidated
Statements of Income as a reduction of income tax expense;
however, depending on circumstances, the equity or cost methods
may be utilized. The amount of the investment along with any
unfunded equity contributions which are unconditional and legally
binding are recorded in other assets. A liability for the unfunded
equity contributions is recorded in other liabilities. At December 31,
2003, TCF’s investments in affordable housing limited partnerships
were $41.8 million, compared with $27.2 million at December 31,
2002 and were recorded in other assets.
Three of these investments in affordable housing limited
partnerships are considered variable interest entities under the
Financial Accounting Standards Board (“FASB”) Interpretation
No. 46, “Consolidation of Variable Interest Entities” (FIN 46). These
partnerships are not required to be consolidated with TCF under
FIN 46. As of December 31, 2003, the carrying amount of these
three investments, which were made in May and October 2002 and
November 2003, was $39.3 million. This amount included $9 million
of unconditional unfunded equity contributions which are recorded
in other liabilities. Thus, the maximum exposure to loss on these
three investments was $39.3 million at December 31, 2003; however,
the general partner of these partnerships provides various guaran-
tees to TCF including guaranteed minimum returns. These guarantees
are backed by a AAA credit-rated company and significantly limit
any risk of loss.
Intangible Assets On January 1, 2002, TCF adopted SFAS No.142,
“Goodwill and Other Intangible Assets,” which requires that goodwill
and intangible assets with indefinite lives no longer be amortized,
but instead tested for impairment annually. Upon adoption of
SFAS No.142, TCF performed impairment testing and concluded that
goodwill was not impaired. There have been no subsequent events
that have occurred that would change the conclusions reached.
Deposit based intangibles are amortized over 10 years on an acceler-
ated basis. The Company reviews the recoverability of the carrying
values of these assets whenever an event occurs indicating that they
may be impaired. See Notes 9 and 22 for additional information con-
cerning intangible assets and goodwill.
Stock-Based Compensation TCF utilizes the recognition provi-
sions of SFAS No. 123, “Accounting for Stock-Based Compensation,”
for stock-based grants. 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. TCF applied the
2003 Annual Report
55
intrinsic value based method of accounting prescribed by Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock
Issued to Employees,” as amended, for stock-based transactions
through December 31, 1999. Accordingly, no compensation expense
has been recognized for any stock option grants made prior to 2000.
Compensation expense for restricted stock is recorded as unearned
compensation in stockholders’ equity and amortized to compensation
expense over the vesting periods. The amount of pre-2000 stock
option grants accounted for under APB Opinion No. 25 and the
related pro-forma impact on net income and earnings per share
during 2002, 2001 and 2000 had the recognition provisions of SFAS
No. 123 been applied to such grants is not material. See Note 17 for
additional information concerning stock-based compensation.
Derivative Financial Instruments TCF utilizes derivative
financial instruments to meet the ongoing credit needs of its
customers and in order to manage the market exposure of its
residential loans held for sale and its commitments to extend credit
for residential loans. Derivative financial instruments include com-
mitments to extend credit and forward mortgage loan sales commit-
ments. See Notes 19 and 20 for additional information concerning
these derivative financial instruments.
Note 2. Cash and Due from Banks
At December 31, 2003, TCF was required by Federal Reserve Board
(“FRB”) regulations to maintain reserve balances of $34.3 million
in cash on hand or at the FRB.
Note 3. Investments
The carrying values of investments, which approximate their fair values, consist of the following:
(In thousands)
Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Reserve Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The carrying values and yields on investments at December 31, 2003, by contractual maturity, are shown below:
(Dollars in thousands)
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No stated maturity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
$ 50,411
24,045
767
$ 75,223
Carrying
Value
$
767
74,456
$ 75,223
2002
$128,855
23,999
868
$153,722
Yield
.88%
4.19
4.15
(1) Balance represents FRB and Federal Home Loan Bank (“FHLB”) stock, required regulatory investments.
Note 4. Securities Available for Sale
Securities available for sale consist of the following:
At December 31,
2003
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
2002
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Fair
Value
Amortized
Cost
(Dollars in thousands)
Mortgage-backed securities:
Federal agencies . . . . . . . . . . . . . . . . . . .
$1,514,400
$
13,744
$
(4,677)
$1,523,467
$2,341,549
$
73,225
$
(35) $2,414,739
Private issuer and collateralized
mortgage obligations . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . .
9,272
750
–
–
(201)
–
9,071
750
12,178
750
4
–
(877)
11,305
–
750
$1,524,422
$
13,744
$
(4,878)
$1,533,288
$2,354,477
$
73,229 $
(912) $2,426,794
Weighted-average yield . . . . . . . . . . . . . . .
5.33%
5.96%
Gross gains of $32.8 million, $11.5 million and $863 thousand were recognized on sales of securities available for sale during 2003, 2002 and
2001, respectively. Mortgage-backed securities aggregating $1.3 billion and $867.7 million were pledged as collateral to secure certain deposits
and borrowings at December 31, 2003 and 2002, respectively. See Notes 12 and 13 for additional information regarding securities pledged as col-
lateral to secure certain borrowings.
56
TCF Financial Corporation and Subsidiaries
The following table shows the securities available for sale portfolio’s gross unrealized losses and fair value, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003. TCF has reviewed
these securities and has concluded that the unrealized losses are temporary and no permanent impairment has occurred at December 31, 2003.
Less than 12 months
12 months or more
Total
(In thousands)
Mortgage-backed securities:
Fair Value
Unrealized
Losses
Fair Value
Federal agencies . . . . . . . . . . . . . . . . . . . .
$716,264
$ (4,662)
$
1,477
Private issuer and collateralized
mortgage obligations . . . . . . . . . . . . .
–
–
Total temporarily impaired securities . . . .
$716,264
$ (4,662)
8,113
$
9,590
Unrealized
Losses
$
$
(15)
(201)
(216)
Fair Value
Unrealized
Losses
$717,741
$ (4,677)
8,113
$725,854
(201)
$ (4,878)
Note 5. Loans Held for Sale
Loans held for sale consist of the following:
(In thousands)
Residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Education loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
$101,035
234,337
$335,372
2002
$277,395
199,080
$476,475
Note 6. Loans and Leases
Loans and leases consist of the following:
(Dollars in thousands)
Consumer:
At December 31,
2003
2002
Percentage
Change
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,588,027
$2,955,644
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,265
15,049
33,411
16,827
Total consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,630,341
3,005,882
Commercial:
Commercial real estate:
Permanent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,745,435
171,266
1,916,701
427,696
2,344,397
1,639,860
195,928
1,835,788
440,074
2,275,862
Leasing and equipment finance:
Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
309,740
289,558
Lease financings:
Direct financing leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales-type leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease residuals, excluding leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned income and deferred lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer, commercial and leasing and equipment finance . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
853,395
33,073
34,171
(92,710)
22,728
850,657
1,160,397
7,135,135
1,212,643
$8,347,778
758,169
30,346
35,375
(95,927)
21,519
749,482
1,039,040
6,320,784
1,800,344
$8,121,128
21.4%
(18.4)
(10.6)
20.8
6.4
(12.6)
4.4
(2.8)
3.0
7.0
12.6
9.0
(3.4)
(3.4)
5.6
13.5
11.7
12.9
(32.6)
2.8
2003 Annual Report
57
The aggregate amount of loans to non-management directors of
TCF and their related interests was $60.9 million and $35.3 million at
December 31, 2003 and 2002, respectively. During 2003, $23 million
of new loans were made, repayments of such loans totaled $15.3 mil-
lion and changes in the composition of outside directors and their
related interests increased loans outstanding by $17.9 million. All
loans to outside directors and their related interests were made in
the ordinary course of business on normal credit terms, including
interest rates and collateral, as those prevailing at the time for com-
parable transactions with unrelated persons. The aggregate amount
of loans to executive officers of TCF was $25 thousand at December 31,
2003 and 2002. During 2002, TCF’s Board of Directors eliminated the
loan feature from its officers’ and directors’ deferred compensation
plans and requested and received repayment in full of all outstand-
ing loans totaling $9.8 million. The deferred compensation plans sold
166,665 shares of TCF common stock owned by plan participants to
repay the outstanding loans to the plans. See Note 15 for additional
information regarding loans to the deferred compensation plan. In
the opinion of management the above mentioned loans to outside
directors and their related interests and executive officers do not
represent more than a normal credit risk of collection.
The investment in leveraged leases represents net unpaid rentals
and estimated unguaranteed residual values of the leased assets,
less related unearned income. TCF has no general obligation for prin-
cipal and interest on notes representing third-party participation
related to leveraged leases; such notes, which totaled $30.2 million
at December 31, 2003, down from $34.6 million at December 31,
2002, are recorded as an offset against the related rental receivable.
As the equity owner in a leveraged lease, TCF is taxed on total lease
payments received and is entitled to tax deductions based on the
cost of the leased asset and tax deductions for interest paid to
third-party participants. Included in the investment in leveraged
leases at December 31, 2003 is $19.8 million for a 100% equity
interest in a Boeing 767-300 aircraft on lease to Delta Airlines in
the United States. The leveraged lease has renewal and purchase
options by the lessee at the end of the lease term. The lessee is
current on the lease payments and the lease expires in 2010. This
lease represents TCF’s only material direct exposure to the commer-
cial airline industry.
TCF’s net investment in leveraged leases is comprised of the following:
At December 31,
(In thousands)
Rental receivable (net of principal and interest on non-recourse debt) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated residual value of leased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
$ 12,758
18,679
(8,709)
22,728
(11,813)
$ 10,915
Future minimum lease payments for direct financing and sales-type leases as of December 31, 2003 are as follows:
(In thousands)
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to
be Received
by TCF
$261,464
214,890
150,244
95,980
44,031
17,687
Payments to
be Received by
Other Financial
Institutions
$ 46,335
18,813
4,251
538
54
–
2002
$ 12,758
18,679
(9,918)
21,519
(9,005)
$ 12,514
Total
$307,799
233,703
154,495
96,518
44,085
17,687
$784,296
$ 69,991
$854,287
58
TCF Financial Corporation and Subsidiaries
Note 7. Allowance for Loan and Lease Losses
Following is a summary of the allowance for loan and lease losses and selected statistics:
(Dollars in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratio of net loan and lease charge-offs to average loans and leases outstanding . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses as a percentage of total loan and lease balances at year end . . . . . . . . . . .
Information relating to impaired loans and non-accrual loans and leases is as follows:
(In thousands)
Impaired loans:
Year Ended December 31,
2003
$ 77,008
12,532
(16,369)
3,448
(12,921)
$ 76,619
.16%
.92
2002
$ 75,028
22,006
(24,361)
4,335
(20,026)
$ 77,008
.25%
.95
2001
$ 66,669
20,878
(16,951)
4,432
(12,519)
$ 75,028
.15%
.91
At or For the Year Ended December 31,
2003
2002
2001
Balance, at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,133
$ 12,090
$ 18,839
Related allowance for loan losses, at year-end (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average recorded investment in impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income recognized on impaired loans (cash basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accrual loans and leases:
Balance, at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual interest (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income recognized on non-accrual loans and leases (cash basis) . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,456
10,770
27
35,328
3,271
783
5,512
14,686
92
42,068
4,301
1,225
4,986
9,939
29
51,224
5,450
1,711
(1) There were no impaired loans at December 31, 2003, 2002 and 2001 which did not have a related allowance for loan losses.
(2) Represents interest which would have been recorded had the loans and leases performed in accordance with their original terms.
At December 31, 2003, 2002 and 2001, TCF had no loans outstanding with terms that had been modified in troubled debt restructurings.
There were no material commitments to lend additional funds to customers whose loans or leases were classified as non-accrual at
December 31, 2003.
Note 8. Premises and Equipment
Premises and equipment are summarized as follows:
(In thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
$ 76,902
169,098
40,927
242,958
529,885
247,692
$282,193
2002
$ 62,226
155,954
39,208
213,759
471,147
227,695
$243,452
TCF leases certain premises and equipment under operating leases. Net lease expense was $23.5 million, $20.8 million and $20.7 million in
2003, 2002 and 2001, respectively.
2003 Annual Report
59
At December 31, 2003, the total annual minimum lease commitments for operating leases were as follows:
(In thousands)
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,310
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9. Goodwill and Other Intangible Assets
Goodwill and other intangible assets are summarized as follows:
(In thousands)
Amortizable intangible assets:
Mortgage servicing rights, net . . . . . . . . . . .
Deposit base intangibles . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortizable intangible assets:
At December 31,
Gross
Amount
$ 76,306
21,180
$ 97,486
2003
Accumulated
Amortization
$ 24,270
15,273
$ 39,543
Net
Amount
$ 52,036
5,907
$ 57,943
Gross
Amount
$ 92,525
21,180
$113,705
2002
Accumulated
Amortization
$ 29,881
13,607
$ 43,488
Goodwill (included in Banking Segment) . . .
$145,462
$145,462
$145,462
20,364
18,495
16,988
15,329
71,298
$164,784
Net
Amount
$ 62,644
7,573
$ 70,217
$145,462
Amortization expense for intangible assets was $25.3 million and $24.5 million for the years ended December 31, 2003 and 2002, respectively.
The following table shows the estimated future amortization expense for amortized intangible assets based on existing asset balances and the
interest rate environment as of December 31, 2003. The Company’s actual amortization expense in any given period may be significantly differ-
ent from the estimated amounts depending upon the addition of new intangible assets, changes in mortgage interest rates, prepayment rates
and other market conditions.
(In thousands)
Estimated Amortization Expense for the Year Ended December 31,:
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage
Servicing Rights
$12,389
10,063
7,763
5,917
4,540
Deposit Base
Intangibles
$ 1,662
1,659
1,630
913
17
Note 10. Mortgage Banking
The activity in mortgage servicing rights and the related valuation allowance is summarized as follows:
(In thousands)
Mortgage servicing rights at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
$ 71,990
21,385
12,840
(23,679)
(28,500)
54,036
9,346
21,154
(28,500)
2,000
$ 52,036
60
TCF Financial Corporation and Subsidiaries
Total
$14,051
11,722
9,393
6,830
4,557
2001
$ 41,032
31,854
7,285
(16,564)
–
63,607
946
4,400
–
5,346
Year Ended December 31,
2002
$ 63,607
30,781
8,976
(22,874)
(8,500)
71,990
5,346
12,500
(8,500)
9,346
$ 62,644
$ 58,261
The following table represents the components of mortgage banking revenue:
(In thousands)
Servicing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less mortgage servicing rights:
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net servicing income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total mortgage banking revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
$ 20,533
23,679
21,154
44,833
(24,300)
33,505
3,514
$ 12,719
Year Ended December 31,
2002
$ 20,443
22,874
12,500
35,374
(14,931)
18,110
3,800
$ 6,979
2001
$ 16,932
16,564
4,400
20,964
(4,032)
11,795
4,279
$ 12,042
Gains on sales of loans includes the changes in fair value of residential mortgage loans held for sale, loan applications in process and related
forward sales contracts. The net unrealized gains (losses) related to these items are summarized as follows:
(In thousands)
Unrealized gains (losses):
At December 31,
2003
2002
Residential loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,092
$ 6,066
Loan applications in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward sales contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195
1,287
(1,105)
4,162
10,228
(7,454)
Net unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
182
$ 2,774
At December 31, 2003, 2002 and 2001, TCF was servicing real estate
loans for others with aggregate unpaid principal balances of approx-
imately $5.1 billion, $5.6 billion and $4.7 billion, respectively. At
December 31, 2003 and 2002, TCF had custodial funds of $128.5 mil-
lion and $287.4 million, respectively, relating to the servicing of
residential real estate loans, which are included in deposits in the
Consolidated Statements of Financial Condition. These custodial
deposits relate primarily to mortgage servicing operations and
represent funds due to investors on mortgage loans serviced by TCF
and customer funds held for real estate taxes and insurance.
The estimated fair value of mortgage servicing rights included in
the Consolidated Statements of Financial Condition at December 31,
2003 was approximately $58 million. The estimated fair value is
based on estimated cash flows discounted using rates management
believes are commensurate with the risks involved. Assumptions
regarding prepayments, defaults and interest rates are determined
using available market information.
Note 11. Deposits
Deposits are summarized as follows:
(Dollars in thousands)
Checking:
Rate at
Year End
2003
Amount
Non-interest bearing . . . . . . . . . . . . . . . . .
–%
$2,113,572
Interest bearing . . . . . . . . . . . . . . . . . . . . .
Savings:
Non-interest bearing . . . . . . . . . . . . . . . . .
Interest bearing . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . .
Total checking, savings,
and money market . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . .
.08
.03
–
.43
.41
.37
.20
2.01
.58
1,134,840
3,248,412
104,104
1,801,819
1,905,923
845,291
5,999,626
1,612,123
$7,611,749
At December 31,
% of
Total
27.8%
14.9
42.7
1.3
23.7
25.0
11.1
78.8
21.2
100.0%
Rate at
Year End
2002
Amount
–%
$1,879,584
.12
.04
–
.90
.80
.74
.42
2.85
1.02
985,312
2,864,896
228,210
1,813,513
2,041,723
884,614
5,791,233
1,918,755
$7,709,988
% of
Total
24.4%
12.8
37.2
2.9
23.5
26.4
11.5
75.1
24.9
100.0%
2003 Annual Report
61
Certificates of deposit had the following remaining maturities at December 31, 2003:
(In thousands)
Maturity
$100,000
Minimum
Other
Total (1)
0-3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
83,153
$ 388,049
$ 471,202
4-6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7-12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13-24 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25-36 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37-48 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49-60 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 60 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,592
50,507
38,588
8,604
8,497
1,604
836
284,306
363,776
238,396
51,381
33,353
15,120
5,361
324,898
414,283
276,984
59,985
41,850
16,724
6,197
$
232,381
$1,379,742
$1,612,123
(1) Includes no brokered deposits.
Note 12. Short-term Borrowings
The following table sets forth selected information for short-term borrowings (borrowings with an original maturity of less than one year) for
each of the years in the three year period ended December 31, 2003:
(Dollars in thousands)
At December 31,
2003
2002
2001
Amount
Rate
Amount
Rate
Amount
Rate
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . .
$ 219,000
.95%
$ 265,000
1.20%
$
48,000
Securities sold under repurchase agreements . . . . . . . .
Treasury, tax and loan note payable . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
607,631
14,781
37,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 878,412
1.30
.73
1.95
1.23
547,743
15,808
13,500
$ 842,051
1.37
1.12
2.20
1.32
669,734
125
2,000
$ 719,859
Year ended December 31,
Average daily balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . .
$ 231,060
1.12%
$ 188,559
1.67%
$ 120,812
Securities sold under repurchase agreements . . . . . . . .
Treasury, tax and loan note payable . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
504,328
5,103
16,637
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 757,128
Maximum month-end balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . .
$ 321,000
Securities sold under repurchase agreements . . . . . . . .
Treasury, tax and loan note payable . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
896,752
31,903
47,000
N.A. Not applicable.
1.26
.86
2.63
1.25
N.A.
N.A.
N.A.
N.A.
340,311
29,348
15,717
$ 573,935
$ 271,000
766,511
200,000
42,500
1.70
1.50
3.23
1.72
N.A.
N.A.
N.A.
N.A.
908,016
62,111
6,749
$1,097,688
$ 304,000
1,047,301
262,680
30,500
1.73%
1.83
1.40
2.41
1.82
3.77%
4.14
3.61
5.57
4.08
N.A.
N.A.
N.A.
N.A.
The securities underlying the repurchase agreements are book entry securities. During the borrowing period, book entry securities were deliv-
ered by appropriate entry into the counterparties’ accounts through the Federal Reserve System. The dealers may sell, loan or otherwise dispose
of such securities to other parties in the normal course of their operations, but have agreed to resell to TCF identical or substantially the same
securities upon the maturities of the agreements. At December 31, 2003, all of the securities sold under repurchase agreements provided for the
repurchase of identical securities. At December 31, 2003, $607.6 million of securities sold under repurchase agreements with an interest rate of
1.30% maturing in 2004 were collateralized by mortgage-back securities having a fair value of $612.8 million.
TCF Financial Corporation (parent company only) has a $105 million line of credit maturing in April 2004 which is unsecured and contains cer-
tain covenants common to such agreements. TCF is not in default with respect to any of its covenants under the credit agreement. The interest
rate on the line of credit is based on either the prime rate or LIBOR. TCF has the option to select the interest rate index and term for advances on
the line of credit. The line of credit may be used for appropriate corporate purposes.
62
TCF Financial Corporation and Subsidiaries
Note 13. Long-term Borrowings
Long-term borrowings consist of the following:
(Dollars in thousands)
Federal Home Loan Bank (“FHLB”) advances and
securities sold under repurchase agreements . . . . . . . . . . . . . . .
Discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year of
Maturity
2003
2004
2005
2006
2009
2010
2011
2003
2004
2005
2006
2007
2008
$
2003
Amount
–
3,000
741,500
303,000
122,500
100,000
200,000
1,470,000
–
43,607
18,097
4,134
522
53
66,413
$1,536,413
At December 31,
Weighted-
Average
Rate
Amount
2002
Weighted-
Average
Rate
–%
$ 135,000
5.76%
4.76
3.82
4.20
5.25
6.02
4.85
4.31
–
6.24
5.68
5.55
5.30
5.54
6.04
4.38
853,000
446,000
303,000
122,500
100,000
200,000
2,159,500
62,461
36,101
9,459
723
–
–
108,744
$2,268,244
5.72
6.13
4.30
5.25
6.02
4.85
5.51
7.30
7.08
6.88
6.94
–
–
7.19
5.59
At December 31, 2003, $599.5 million of securities sold under repurchase agreements maturing in 2005 were collateralized by mortgage-
backed securities having a fair value of $655.8 million.
During 2003, TCF prepaid $954 million of fixed-rate borrowings. These borrowings had an average interest rate of 5.66% and an average remain-
ing maturity of 13 months. Certain of these borrowings were replaced with $787 million of fixed-rate borrowings with an average maturity of 12
months and an average interest rate of 1.42%. The termination cost of prepaying these borrowings was $44.3 million ($29.2 million after-tax).
For certain equipment leases, TCF utilizes its lease rentals and underlying equipment as collateral to borrow from other financial institutions
at fixed rates on a non-recourse basis. In the event of a default by the customer in non-recourse financings, the other financial institution has
a first lien on the underlying leased equipment with no further recourse against TCF.
FHLB advances and repurchase agreements are collateralized by residential real estate loans, consumer loans and FHLB stock with an
aggregate carrying value of $2.4 billion at December 31, 2003. Included in FHLB advances and repurchase agreements at December 31, 2003
are $767.5 million of fixed-rate FHLB advances and repurchase agreements with other financial institutions which are callable at par on certain
anniversary dates and, for most, quarterly thereafter until maturity. If called, replacement funding will be provided by the counterparties at the
then-prevailing market interest rates. The probability that these advances and repurchase agreements will be called depends primarily on the
level of related interest rates during the call period. At December 31, 2003, the next call dates for these advances and repurchase agreements
were within 2004. The stated maturity dates for the callable advances and repurchase agreements outstanding at December 31, 2003 were as
follows (dollars in thousands):
Year
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stated Maturity
$342,000
3,000
122,500
100,000
200,000
$767,500
Weighted-
Average
Rate
6.20%
5.46
5.25
6.02
4.85
5.67
2003 Annual Report
63
Note 14. Income Taxes
Income tax expense consists of:
(In thousands)
Year ended December 31, 2003:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2002:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2001:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$111,922
4,830
$116,752
$ 31,829
1,810
$ 33,639
$ 112,288
6,188
$ 118,476
$ (4,649)
(198)
$ (4,847)
$ 86,288
4,834
$ 91,122
$
$
3,707
329
4,036
$107,273
4,632
$111,905
$ 118,117
6,644
$ 124,761
$ 115,995
6,517
$ 122,512
Income tax expense differs from the amounts computed by applying the federal income tax rate of 35% to income before income tax expense
as a result of the following:
(Dollars in thousands)
Computed income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in income tax expense resulting from:
State income tax, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductible stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in affordable housing limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
$114,724
3,011
(3,291)
(1,419)
–
(1,120)
$111,905
34.14%
The significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:
(In thousands)
Deferred tax assets:
Year Ended December 31,
2002
$125,192
2001
$115,442
4,319
(3,682)
(489)
–
(579)
4,236
(2,758)
(331)
2,553
3,370
$124,761
34.88%
$122,512
37.14%
At December 31,
2003
2002
Restricted stock and deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34,325
27,108
61,433
Deferred tax liabilities:
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109,279
Subsidiary tax year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan fees and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,931
18,428
15,061
9,066
3,214
5,145
189,124
$127,691
$ 33,189
28,811
62,000
91,770
59,857
15,326
12,970
9,455
26,215
1,946
217,539
$155,539
The company has determined that a valuation allowance for deferred tax assets is not necessary.
64
TCF Financial Corporation and Subsidiaries
Note 15. Stockholders’ Equity
Restricted Retained Earnings Retained earnings at
December 31, 2003 includes approximately $134.4 million for
which no provision for federal income taxes has been made. This
amount represents earnings legally appropriated to bad debt
reserves and deducted for federal income tax purposes and is
generally not available for payment of cash dividends or other
distributions to shareholders. Future payments or distributions
of these appropriated earnings could invoke a tax liability for
TCF based on the amount of the distributions removed and the
tax rates in effect at that time.
Shareholder Rights Plan TCF’s preferred share purchase
rights will become exercisable only if a person or group acquires or
announces an offer to acquire 15% or more of TCF’s common stock.
When exercisable, each right will entitle the holder to buy one one-
hundredth of a share of a new series of junior participating preferred
stock at a price of $100. In addition, upon the occurrence of certain
events, holders of the rights will be entitled to purchase either TCF’s
common stock or shares in an “acquiring entity” at half of the market
value. TCF’s Board of Directors (the “Board”) is generally entitled to
redeem the rights at $.001 per right at any time before they become
exercisable. The rights will expire on June 9, 2009, if not previously
redeemed or exercised.
Treasury Stock and Other Treasury stock and other consists of the following:
(In thousands)
At December 31,
2003
2002
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(751,586)
$(608,007)
Shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(71,103)
(16,712)
(70,408)
(22,361)
$(839,401)
$(700,776)
TCF purchased 3,459,490, 3,108,431 and 3,670,107 shares of
its common stock during the years ended December 31, 2003, 2002
and 2001, respectively. On July 21, 2003, TCF’s Board of Directors
authorized the repurchase of up to an additional 5% of TCF’s common
stock, or 3.6 million shares. At December 31, 2003, 3.7 million shares
remain under remaining authorizations from the Board of Directors.
In 2002, TCF’s Board of Directors eliminated the loan feature
from its officers’ and directors’ deferred compensation plans and
requested and received repayment in full of all outstanding loans
totaling $9.8 million. The deferred compensation plans sold 166,665
shares of TCF common stock owned by plan participants to repay the
outstanding loans to the plans.
Shares Held in Trust for Deferred Compensation Plans
TCF has deferred compensation plans that allow eligible executives,
senior officers and certain other employees to defer payment of up
to 100% of their base salary and bonus as well as grants of restricted
stock. There are no company contributions to these plans, other
than payment of administrative expenses. The amounts deferred
are invested in TCF stock or other publicly traded stocks, bonds or
mutual funds. At December 31, 2003 the fair value of the assets in
the plans totaled $205.4 million and included $198.3 million invested
in TCF common stock. The cost of TCF common stock held by TCF’s
deferred compensation plans is reported separately in a manner
similar to treasury stock (that is, changes in fair value are not rec-
ognized) with a corresponding deferred compensation obligation
reflected in additional paid-in capital.
Note 16. Regulatory Capital Requirements
TCF is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by the federal banking agencies that could have
a direct material effect on TCF’s financial statements. Also, in general,
TCF National Bank may not declare or pay a dividend to TCF in excess
of 100% of its net profits for that year combined with its retained net
profits for the preceding two calendar years without prior approval
of the Office of the Comptroller of the Currency (“OCC”).
2003 Annual Report
65
The following table sets forth TCF’s and TCF National Bank’s regulatory tier 1 leverage, tier 1 risk-based and total risk-based capital levels,
and applicable percentages of adjusted assets, together with the excess over minimum capital requirements:
Actual
Minimum Capital
Requirement
Excess
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2003:
Tier 1 leverage capital
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . . .
Tier 1 risk-based capital
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . . .
Total risk-based capital
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . . .
As of December 31, 2002:
Tier 1 leverage capital
$765,271
754,599
765,271
754,599
841,982
831,310
6.87%
6.83
9.75
9.64
10.73
10.62
$334,402
331,649
313,825
313,143
627,650
626,286
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . . .
$ 773,594
750,935
6.42%
6.24
$ 361,435
361,017
Tier 1 risk-based capital
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . . .
Total risk-based capital
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . . .
773,594
750,935
850,694
828,035
9.96
9.68
10.95
10.68
310,828
310,247
621,657
620,493
3.00%
3.00
4.00
4.00
8.00
8.00
3.00%
3.00
4.00
4.00
8.00
8.00
$430,869
422,950
451,446
441,456
214,332
205,024
$ 412,159
389,918
462,766
440,688
229,037
207,542
3.87%
3.83
5.75
5.64
2.73
2.62
3.42%
3.24
5.96
5.68
2.95
2.68
At December 31, 2003, TCF and TCF National Bank exceeded their regulatory capital requirements and are considered “well-capitalized”
under guidelines established by the FRB and the OCC pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.
Note 17. Incentive Stock Program
The TCF Financial 1995 Incentive Stock Program (the “Program”)
was adopted to enable TCF to attract and retain key personnel.
Under the Program, no more than 5% of the shares of TCF common
stock outstanding on the date of initial shareholder approval may
be awarded. At December 31, 2003, there were 2,707,627 shares
reserved for issuance under the Program, including 240,848 shares
related to outstanding stock options.
At December 31, 2003, there were 1,071,123 shares of
performance-based restricted stock that will vest only if certain
earnings per share goals are achieved by 2008. Failure to achieve
the goals will result in all or a portion of the shares being forfeited.
Other restricted stock grants generally vest over periods from
three to eight years. The weighted-average grant date fair value
of restricted stock was $45.00, $48.93 and $39.53 in 2003, 2002
and 2001, respectively. Compensation expense for restricted stock
totaled $9.7 million, $11.6 million and $11.1 million in 2003, 2002
and 2001, respectively.
TCF has also issued stock options under the Program that generally
become exercisable over a period of one to 10 years from the date
of the grant and expire after 10 years. All outstanding options have
a fixed exercise price equal to the market price of TCF common stock
on the date of grant.
66
TCF Financial Corporation and Subsidiaries
The following table reflects TCF’s stock option and restricted stock transactions under the Program since December 31, 2000:
Restricted Stock
Stock Options
Exercise Price
Range
Weighted-
Average
$ 3.46-33.28
$
23.32
Outstanding at December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . .
N.A. Not applicable.
Shares
2,275,100
262,340
–
(18,850)
(59,179)
2,459,411
61,400
–
(23,245)
(862,250)
1,635,316
127,950
–
(107,240)
(125,449)
1,530,577
N.A.
Price Range
$16.56-43.70
27.98-48.20
–
27.98-48.20
16.56-40.75
20.88-48.20
41.42-52.78
–
22.10-52.78
20.88-50.33
22.10-52.78
37.45-50.63
Shares
467,515
–
(86,832)
(10,558)
–
–
3.46-32.19
23.56-32.19
–
370,125
5.33-33.28
–
(51,798)
(14,450)
–
–
5.33-33.28
23.56-32.19
–
303,877
6.88-33.28
–
–
–
(62,779)
21.81-32.19
22.10-52.78
22.10-40.75
22.10-52.78
N.A.
(250)
–
240,848
232,998
21.81
–
6.88-33.28
6.88-33.28
–
17.47
24.73
–
24.65
–
19.72
25.91
–
25.43
–
24.22
21.81
–
25.76
25.75
The following table summarizes information about stock options outstanding at December 31, 2003:
Exercise Price Range
$6.88 to $20.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20.01 to $25.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25.01 to $30.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.01 to $33.28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
23,298
89,500
61,750
66,300
Total options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
240,848
Options Outstanding
Options Exercisable
Weighted-
Average
Exercise Price
$
9.91
23.60
28.94
31.27
25.76
Weighted-
Average
Remaining
Contractual
Life in Years
1.4
5.0
5.4
4.2
4.5
Weighted-
Average
Exercise Price
$
9.91
23.59
28.96
31.27
25.75
Shares
23,298
85,400
58,000
66,300
232,998
Note 18. Employee Benefit Plans
Employee Stock Purchase Plan The TCF Employees Stock
Purchase Plan generally allows participants to make contributions
by salary deduction of up to 50% of their salary on a tax-deferred
basis. TCF matches the contributions of all employees at the rate of
50 cents per dollar, with a maximum company contribution of 3%
of the employee’s salary. Employee contributions vest immediately
while the Company’s matching contributions are subject to a gradu-
ated vesting schedule based on an employee’s years of vesting service
over five years. Employee contributions and matching contributions
are invested in TCF stock. Employees age 50 and over may invest all
or a portion of their account balance in various mutual funds. The
Company’s matching contributions are expensed when made. At
December 31, 2003, the fair value of the assets in the plan totaled
$217 million and included $211.7 million invested in TCF common
stock. Additionally, as of December 31, 2003, $95 million of plan
assets were eligible for diversification under plan provisions,
while $5 million have actually diversified. TCF’s contribution to
the plan was $3.9 million, $3.6 million and $3 million in 2003, 2002
and 2001, respectively.
Pension Plan The TCF Cash Balance Pension Plan (the “Pension
Plan”) is a qualified defined benefit plan covering all full time
employees and certain part-time employees who are at least
21 years old and have completed a year of eligibility service with
TCF. TCF makes a monthly allocation to the participant’s account
based on a percentage of the participant’s compensation. The per-
centage is based on the sum of the participant’s age and years of
employment with TCF. Participants are fully vested after five years
of qualifying service.
2003 Annual Report
67
Postretirement Plan TCF provides health care benefits for eligible retired employees (the “Postretirement Plan”). Effective January 1, 2000,
TCF modified the Postretirement Plan for employees not yet eligible for benefits under the Postretirement Plan by eliminating the Company subsidy.
The plan provisions for full-time and retired employees then eligible for these benefits were not changed. The Postretirement Plan is not funded.
The following table sets forth the status of the Pension Plan and the Postretirement Plan at the dates indicated:
Pension Plan
Postretirement Plan
Year Ended December 31,
Year Ended December 31,
(In thousands)
Benefit obligation:
2003
2002
Accrued participant balance – vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,958
$ 37,993
Accrued participant balance – unvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of future service and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,621
46,579
4,251
$ 50,830
$ 43,230
3,101
41,094
1,230
$ 42,324
$ 35,516
Change in benefit obligation:
2003
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
2002
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,324
$ 36,053
$ 11,837
$ 9,578
Service cost – benefits earned during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TCF contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status of plans:
Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid (accrued) benefit cost at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N.A. Not applicable.
3,950
2,950
3,907
(2,301)
50,830
49,486
6,670
(2,301)
–
53,855
3,025
–
(452)
23,344
$ 25,917
3,547
2,857
1,736
(1,869)
42,324
59,604
(8,249)
(1,869)
–
49,486
7,162
–
(813)
19,733
60
740
891
(1,142)
12,386
–
–
(1,142)
1,142
–
(12,386)
1,883
–
4,742
48
685
2,838
(1,312)
11,837
–
–
(1,312)
1,312
–
(11,837)
2,093
–
4,077
$ 26,082
$ (5,761)
$ (5,667)
On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Act”) was signed into law. This Act
includes a prescription drug benefit and a federal subsidy for sponsors of a retiree healthcare plan, like TCF’s Postretirement Plan, beginning
in 2006. TCF offers a prescription drug benefit to certain retirees. In January 2004, the FASB issued limited guidance regarding the effects of the
Act on the estimated costs of providing this retirement benefit under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other
Than Pensions” with various implementation options. The effects of the Act have not yet been included in TCF’s determination of post retirement
benefit obligations or expenses summarized in the table above. TCF is currently reviewing the Act and considering its options.
The measurement date used for determining the Pension Plan and the Postretirement Plan projected and accumulated benefit obligations
above and the date used to value plan assets disclosed above was September 30, 2003 and 2002. The discount rate and rate of increase in future
compensation used to measure the benefit obligation were as follows:
Pension Plan
Year Ended December 31,
Postretirement Plan
Year Ended December 31,
2003
6.0%
4.5
2002
6.5%
4.5
2001
7.5%
4.5
2003
6.0%
N.A.
2002
6.5%
N.A.
2001
7.5%
N.A.
Assumptions used to
determine benefit obligations
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . .
N.A. Not applicable.
68
TCF Financial Corporation and Subsidiaries
Net periodic benefit cost (credit) included in compensation and employee benefits expense consists of the following:
(In thousands)
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Amortization of transition obligation . . . . . . . .
Amortization of prior service cost . . . . . . . . . . .
Recognized actuarial (gain) loss . . . . . . . . . . .
2003
$ 3,950
2,950
(6,374)
–
(361)
–
Net periodic benefit cost (credit) . . . . . . . .
$
165
Pension Plan
Year Ended December 31,
Postretirement Plan
Year Ended December 31,
2002
$ 3,547
2,857
(7,683)
–
(1,056)
(387)
$(2,722)
2001
$ 2,969
2,480
(7,156)
–
(1,057)
(1,810)
$(4,574)
$
2003
60
740
–
210
–
226
$
2002
48
685
–
210
–
38
$
2001
49
547
–
209
–
(3)
$ 1,236
$
981
$
802
The discount rate, the expected long-term rate of return on plan assets and the rate of increase in future compensation used to determine
the net benefit cost (credit) were as follows:
Assumptions used to determine
net periodic benefit cost (credit)
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return
on plan assets . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . .
N.A. Not applicable.
Pension Plan
Year Ended December 31,
Postretirement Plan
Year Ended December 31,
2003
6.5%
8.5
4.5
2002
7.5%
10.0
4.5
2001
7.5%
10.0
4.5
2003
6.5%
N.A.
N.A.
2002
7.5%
N.A.
N.A.
2001
7.5%
N.A.
N.A.
TCF’s pension plan asset allocation is summarized as follows:
Asset Category
Equity securities, excluding TCF Financial Corporation common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TCF Financial Corporation common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Plan
Percentage of Plan Assets
at December 31
2003
75%
21
2
2
100%
2002
67%
26
5
2
100%
The assets in TCF’s pension plan are managed by external investment managers. The plan’s investment policy allows the investment manager
to determine the mix of equity and fixed income debt securities and the individual investments held. No single investment, other than U.S. gov-
ernment securities, may exceed 5% of plan assets, foreign securities are also limited to 5% and the use of derivative instruments is prohibited.
The results of the investment managers performance is periodically monitored and is compared with a benchmark return consisting of 75% S&P
500 Index and 25% Lehman Brothers Aggregate Bond Index returns.
The actuarial assumptions used in the pension plan valuation are reviewed annually. The expected long-term rate of return on plan assets is
changed based on historical returns on plan assets and adjusted for future expectations of returns, if necessary. Over the past 20 years, TCF’s
pension plan assets have achieved actual returns, net of investment management fees, of 10.6%. TCF is not aware of any reasons why it should
not be able to achieve future average annual returns of 8.5% long-term expected return on plan assets assumption over complete market cycles.
A 1% difference in the expected return on plan assets would result in a $701 thousand change in net periodic pension expense.
TCF currently does not expect to contribute to the Pension Plan in 2004. TCF expects to contribute approximately $1.1 million to the
Postretirement Plan in 2004.
The following table presents assumed health care cost trend rates for the Postretirement Plan at December 31, 2003 and 2002:
Health care cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Final health care cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year that the final health care trend rate is reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
11.0%
5.0%
2009
2002
12%
5%
2009
2003 Annual Report
69
Assumed health care cost trend rates have an effect on the amounts reported for the Postretirement Plan. A one-percentage-point change
in assumed health care cost trend rates would have the following effects:
(In thousands)
Effect on total of service and interest cost components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on postretirement benefits obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1-Percentage-
Point Increase
1-Percentage-
Point Decrease
$ 38
610
$ (35)
(545)
TCF currently has no plans to pre-fund the Postretirement Plan in 2004.
Note 19. Derivative Instruments and Hedging Activities
All derivative instruments as defined, including derivatives embedded
in other financial instruments or contracts, are recognized as either
assets or liabilities in the Consolidated Statements of Financial
Condition at fair value. Changes in the fair value of a derivative are
recorded in the Consolidated Statements of Income.
TCF’s pipeline of locked residential mortgage loan commitments,
adjusted for loans not expected to close, and forward sales contracts
are considered derivatives and are recorded at fair value, with the
changes in fair value recognized in gains on sales of loans under
mortgage banking revenue in the Consolidated Statements of
Income. TCF utilizes forward sales contracts to hedge its risk of
changes in the fair value, due to changes in interest rates, of both
its locked residential mortgage loan commitments and its residen-
tial loans held for sale. Residential mortgage loans held for sale are
carried at the lower of cost or market as adjusted for the effects of
fair value hedges using quoted market prices. Because the fair value
of the residential loans held for sale are hedged with forward sales
contracts of the same loan types, or substantially the same loan
types, the hedges are highly effective at managing the risk of chang-
ing fair values of such loans. Any differences between the changes
in fair value of the hedged residential loans held for sale and in the
fair value of the forward sales contracts are not expected to be
and were not material due to the nature of the hedging instruments
and were recorded in gains on sales of loans and was not material.
Forward mortgage loan sales commitments totaled $149.1 million
and $511 million at December 31, 2003 and 2002, respectively.
Note 20. Financial Instruments with
Off-Balance-Sheet Risk
TCF is a party to financial instruments with off-balance-sheet risk,
primarily to meet the financing needs of its customers. These finan-
cial instruments, which are issued or held by TCF for purposes other
than trading, involve elements of credit and interest-rate risk in
excess of the amount recognized in the Consolidated Statements
of Financial Condition.
TCF’s exposure to credit loss in the event of non-performance
by the counterparty to the financial instrument for commitments
to extend credit and standby letters of credit is represented by the
contractual amount of the commitments. TCF uses the same credit
policies in making these commitments as it does for on-balance-
sheet instruments. TCF evaluates each customer’s creditworthiness
on a case-by-case basis. The amount of collateral obtained is based
on management’s credit evaluation of the customer.
Financial instruments with off-balance sheet risk are summarized as follows:
(In thousands)
Commitments to extend credit:
At December 31,
2003
2002
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,382,348
$1,154,133
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans serviced with recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit and guarantees on industrial revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
624,664
57,485
56,007
2,120,504
130,765
40,796
576,568
67,006
32,419
1,830,126
180,285
27,094
$2,292,065
$2,037,505
70
TCF Financial Corporation and Subsidiaries
Commitments to Extend Credit Commitments to extend credit
are agreements to lend to a customer provided there is no violation
of any condition in the contract. These commitments generally have
fixed expiration dates or other termination clauses and may require
payment of a fee. Since certain of the commitments are expected
to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. Collateral
predominantly consists of residential and commercial real estate.
Loans Serviced with Recourse Loans serviced with recourse
represent a contingent guarantee based upon failure to perform
by another party. These loans consist of $126 million of Veterans
Administration (“VA”) loans and $4.8 million of loans sold with
recourse to the Federal National Mortgage Association (“FNMA”).
As is typical of a servicer of VA loans, TCF must cover any principal
loss in excess of the VA’s guarantee if the VA elects its “no-bid”
option upon the foreclosure of a loan. TCF has established a liability
of $100 thousand relating to this VA “no-bid” exposure on VA loans
serviced with partial recourse at December 31, 2003 and 2002,
respectively, which was recorded in other liabilities. No claims have
been made under the “no-bid” option during 2003 or 2002. Loans
sold with recourse to FNMA represent residential real estate loans
sold to FNMA prior to 1982. TCF no longer sells loans on a recourse
basis. The contingent guarantee related to both types of recourse
remains in effect for the duration of the loans and thus expires in
various years through the year 2033. All loans sold with recourse
are collateralized by residential real estate. Since conditions under
which TCF would be required to cover any principal loss in excess
of the VA’s guarantee or repurchase the loan sold to FNMA may not
materialize, the actual cash requirements are expected to be less
than the outstanding commitments.
Standby Letters of Credit Standby letters of credit
and guarantees on industrial revenue bonds are conditional
commitments issued by TCF guaranteeing the performance of a
customer to a third party. These conditional commitments expire
in various years through the year 2011. Collateral held primarily
consists of commercial real estate mortgages. Since the conditions
under which TCF is required to fund these commitments may not
materialize, the cash requirements are expected to be less than
the total outstanding commitments.
Note 21. Fair Values of Financial Instruments
TCF is required to disclose the estimated fair value of financial
instruments, both assets and liabilities on and off the balance sheet,
for which it is practicable to estimate fair value. Fair value estimates
are made at a specific point in time, based on relevant market infor-
mation and information about the financial instruments. Fair value
estimates are subjective in nature, involving uncertainties and mat-
ters of significant judgment, and therefore cannot be determined
with precision. Changes in assumptions could significantly affect
the estimates.
The carrying amounts of cash and due from banks, investments
and accrued interest payable and receivable approximate their fair
values due to the short period of time until their expected realization.
Securities available for sale are carried at fair value, which is based
on quoted market prices. Certain financial instruments, including
lease financings and discounted lease rentals, and all non-financial
instruments are excluded from fair value of financial instrument
disclosure requirements.
The following methods and assumptions are used by the Company
in estimating fair value disclosures for its remaining financial instru-
ments, all of which are issued or held for purposes other than trading.
Loans The fair value of residential loans is estimated based on
quoted market prices of loans with similar characteristics. For certain
variable-rate loans that reprice frequently and that have experi-
enced no significant change in credit risk, fair values are based on
carrying values. The fair values of other loans are estimated by dis-
counting contractual cash flows adjusted for prepayment estimates,
using interest rates currently being offered for loans with similar
terms to borrowers with similar credit risk characteristics.
Deposits The fair value of checking, savings and money market
deposits is deemed equal to the amount payable on demand.
The fair value of certificates of deposit is estimated based on
discounted cash flow analyses using interest rates offered by TCF
for certificates of deposit with similar remaining maturities. The
intangible value of long-term relationships with depositors is not
taken into account in the fair values disclosed in the table below.
Borrowings The carrying amounts of short-term borrowings
approximate their fair values. The fair values of TCF’s long-term
borrowings are estimated based on quoted market prices or
discounted cash flow analyses using interest rates for borrowings
of similar remaining maturities.
Financial Instruments with Off-Balance-Sheet Risk
The fair values of TCF’s commitments to extend credit and standby
letters of credit are estimated using fees currently charged to enter
into similar agreements. For fixed-rate loan commitments and
standby letters of credit issued in conjunction with fixed-rate loan
agreements, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of
loans serviced with recourse approximates the carrying value recorded
in other liabilities.
2003 Annual Report
71
As discussed above, the carrying amounts of certain of the Company’s financial instruments approximate their fair value.
The carrying amounts and fair values of the Company’s remaining financial instruments are set forth in the following table:
(In thousands)
Financial instrument assets:
At December 31,
2003
2002
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
335,372
$
340,189
$
476,475
$
480,409
Forward mortgage loan sales commitments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,105)
(1,105)
(7,454)
(7,454)
Loans:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,630,341
1,916,701
427,696
309,740
1,212,643
(67,654)
3,649,810
1,947,267
429,727
312,948
1,247,610
–
3,005,882
1,835,788
440,074
289,558
1,800,344
(68,143)
3,068,900
1,883,183
438,106
299,035
1,868,132
–
$ 7,763,734
$ 7,926,446
$ 7,772,524
$ 8,030,311
Financial instrument liabilities:
Checking, savings and money market deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,999,626
$ 5,999,626
$ 5,791,233
$ 5,791,233
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,612,123
878,412
1,536,413
1,630,511
878,615
1,627,253
1,918,755
842,051
2,268,244
1,948,947
842,051
2,443,653
Financial instruments with off-balance-sheet risk: (3)
Commitments to extend credit (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans serviced with recourse (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,026,574
$10,136,005
$10,820,283
$11,025,884
$
$
22,773
43
(100)
22,716
$
$
22,773
43
(100)
22,716
$
$
24,569
32
(100)
24,501
$
$
24,569
32
(100)
24,501
(1) Carrying amounts are included in accrued expenses and other liabilities.
(2) Excludes the allowance for lease losses.
(3) Positive amounts represent assets, negative amounts represent liabilities.
(4) Carrying amounts are included in other assets.
Note 22. Net Income and Goodwill Amortization
On January 1, 2002, TCF adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill and other intangible
assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. The following table reconciles
prior period net income and earnings per share to an adjusted basis, which excludes goodwill amortization, for comparison purposes:
(In thousands, except per-share data)
Net Income:
Reported net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add back: Amortization of goodwill, net of applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings Per Common Share:
Reported earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill, net of applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Common Share:
Reported earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill, net of applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2003
2002
2001
$
$
$
$
$
$
215,878
–
215,878
3.06
–
3.06
3.05
–
3.05
$
$
$
$
$
$
232,931
–
232,931
3.17
–
3.17
3.15
–
3.15
$
$
$
$
$
$
207,322
7,600
214,922
2.73
.10
2.83
2.70
.10
2.80
72
TCF Financial Corporation and Subsidiaries
Note 23. Earnings per Common Share
The computation of basic and diluted earnings per share is presented in the following table:
(Dollars in thousands, except per-share data)
Basic Earnings Per Common Share
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested restricted stock grants (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding for basic earnings per common share . . . . . . . . . . . . . . . . .
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Common Share
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of common shares outstanding adjusted for effect of dilutive securities:
Year Ended December 31,
2003
2002
2001
$
215,878
$
232,931
$
207,322
72,014,020
(1,520,753)
70,493,267
$
$
3.06
215,878
75,240,321
(1,644,879)
73,595,442
$
$
3.17
232,931
78,233,471
(2,408,454)
75,825,017
2.73
207,322
$
$
Weighted average common shares outstanding used in basic earnings per common share calculation . . . . .
70,493,267
73,595,442
75,825,017
Net dilutive effect of:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,673
183,424
70,770,364
$
3.05
124,222
221,280
73,940,944
$
3.15
149,711
868,209
76,842,937
$
2.70
(1) At December 31, 2003, 2002 and 2001, there were 1,071,123, 1,145,000 and 1,145,000 shares, respectively, of performance-based restricted stock granted to certain executive officers which will
vest only if certain earnings per share goals are achieved by 2008. Failure to achieve the goals will result in all or a portion of the shares being forfeited. In accordance with SFAS No. 128, “Earnings per
Share,” these shares have been deducted from weighted average shares outstanding used for the computation of basic and diluted earnings per common share, as all necessary conditions for inclusion
have not been satisfied. The remaining unvested restricted stock grants vest over specified time periods, and are included in the computation of diluted earnings per common share in accordance with
the treasury stock method prescribed in SFAS No. 128.
Note 24. Comprehensive Income
Comprehensive income is the total of net income and other comprehensive income (loss), which for TCF is comprised entirely of unrealized gains
and losses on investment securities available for sale. The following table summarizes the components of comprehensive income:
(In thousands)
Year Ended December 31,
2003
2002
2001
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
215,878
$
232,931
$
207,322
Other comprehensive income:
Unrealized holding gains (losses) arising during the period on securities available for sale . . . . . . . . . . . . .
Reclassification adjustment for gains included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30,619)
(32,832)
(23,001)
(40,450)
74,044
(11,536)
22,635
39,873
26,295
(863)
9,335
16,097
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
175,428
$
272,804
$
223,419
Note 25. Other Expense
Other expense consists of the following:
(In thousands)
Deposit account losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Postage and courier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telecommunication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit card processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing liquidation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal deposit insurance and OCC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit base intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
$
2002
19,750
13,579
12,738
10,270
10,071
9,023
2,394
2,761
1,671
57,712
$
2001
19,415
13,150
11,541
6,901
9,723
9,315
1,440
2,757
1,939
51,537
2003
19,495
14,358
12,634
10,883
9,545
9,316
4,352
2,796
1,666
58,301
$
143,346
$
139,969
$
127,718
2003 Annual Report
73
Note 26. Business Segments
Banking, leasing and equipment finance, and mortgage banking
have been identified as reportable operating segments. Banking
includes the following operating units that provide financial services
to customers: deposits and investment products, commercial lend-
ing, consumer lending, residential lending and treasury services.
Management of TCF’s banking area is organized by state. The sepa-
rate state operations have been aggregated for purposes of segment
disclosures. Leasing and equipment finance provides a broad range
of comprehensive leasing and equipment finance products address-
ing the financing needs of diverse companies. Mortgage banking
activities include the origination and purchase of residential
mortgage loans primarily for sale to third parties, generally with
servicing retained. In addition, TCF operates a bank holding company
(“parent company”) and has corporate functions that provide data
processing, bank operations and other professional services to the
operating segments.
TCF evaluates performance and allocates resources based on
the segments’ net income. The business segments follow generally
accepted accounting principles as described in the Summary of
Significant Accounting Policies. TCF generally accounts for inter-
segment sales and transfers at cost.
The following table sets forth certain information about the reported profit or loss and assets of each of TCF’s reportable segments,
including a reconciliation of TCF’s consolidated totals. The results of TCF’s parent company and corporate functions comprise the “other”
category in the table below.
(In thousands)
At or For the Year Ended December 31, 2003:
Revenues from external customers:
Interest income . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . .
Other non-interest expense . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
At or For the Year Ended December 31, 2002:
Revenues from external customers:
Interest income . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . .
Other non-interest expense . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . .
$
$
$
Banking
545,764
355,387
901,151
414,288
4,361
355,387
487,808
96,496
$
180,010
$10,935,853
$
$
$
632,803
359,896
992,699
435,883
12,778
359,896
471,739
110,158
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
201,104
$ 11,806,012
At or For the Year Ended December 31, 2001:
Revenues from external customers:
Interest income . . . . . . . . . . . . . . . . . . . . .
$
722,722
Non-interest income . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill . . . . . . . . . . . . . . . . .
Other non-interest expense . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . .
313,501
$ 1,036,223
$
423,043
7,359
313,501
7,350
432,298
109,063
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
180,474
$ 10,985,850
74
TCF Financial Corporation and Subsidiaries
Leasing and
Equipment
Finance
$
$
$
$
81,912
51,088
133,000
45,358
8,171
51,088
41,977
17,031
29,267
$ 1,216,854
$
$
$
$
85,447
51,628
137,075
41,374
9,228
51,806
40,983
15,497
27,472
$ 1,100,744
$
$
$
$
$
89,131
45,730
134,861
39,429
13,519
45,730
427
38,369
12,410
20,434
988,387
Mortgage
Banking
13,843
12,719
26,562
21,357
–
13,102
29,963
1,590
2,906
173,867
15,112
6,979
22,091
20,676
–
8,316
24,796
1,511
2,685
447,840
14,334
12,042
26,376
14,919
–
15,439
–
20,893
3,577
5,888
374,263
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Eliminations
and
Reclassifications
Other
Consolidated
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
–
85
85
(199)
–
88,760
89,078
(3,212)
2,695
$
$
$
$
–
–
–
341
–
(89,058)
(88,717)
–
–
105,634
$(1,113,193)
1
1,259
1,260
(45)
–
95,272
95,961
(2,404)
1,670
75,270
422
213
635
433
–
96,829
–
99,274
(2,538)
526
74,673
$
$
$
$
–
–
–
1,337
–
(95,528)
(94,191)
–
–
$ (1,227,797)
$
$
$
$
–
–
–
3,398
–
(100,013)
–
(96,615)
–
–
$ (1,064,458)
$
641,519
419,279
$ 1,060,798
$
481,145
12,532
419,279
560,109
111,905
$
215,878
$11,319,015
$
733,363
419,762
$ 1,153,125
$
499,225
22,006
419,762
539,288
124,762
$
232,931
$ 12,202,069
$
826,609
371,486
$ 1,198,095
$
481,222
20,878
371,486
7,777
494,219
122,512
$
207,322
$ 11,358,715
Note 27. Parent Company Financial Information
TCF Financial Corporation’s (parent company only) condensed statements of financial condition as of December 31, 2003 and 2002, and the
condensed statements of income and cash flows for the years ended December 31, 2003, 2002 and 2001 are as follows:
Condensed Statements of Financial Condition
(In thousands)
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in TCF National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends receivable from TCF National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2003
2002
397
2,457
910,186
228
11,400
21,867
20,179
$
352
1,796
954,361
366
10,308
17,043
17,786
Liabilities and Stockholders’ Equity:
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
37,000
$
13,500
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,856
45,856
920,858
11,492
24,992
977,020
$ 966,714
$1,002,012
$ 966,714
$1,002,012
Condensed Statements of Income
(In thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2003
40
438
(398)
$
2002
323
508
(185)
$
2001
833
376
457
Dividends from TCF National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,653
206,566
206,970
Other non-interest income:
Affiliate service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense:
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax benefit and equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,116
1,338
9,454
7,184
631
1,631
9,446
219,263
907
220,170
(4,292)
13,755
(322)
13,433
12,965
847
1,348
15,160
204,654
1,852
206,506
26,425
14,292
95
14,387
13,785
784
1,690
16,259
205,555
496
206,051
1,271
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 215,878
$ 232,931
$ 207,322
2003 Annual Report
75
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Year Ended December 31,
2003
2002
2001
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 215,878
$ 232,931
$ 207,322
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,292
(1,102)
3,190
219,068
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(661)
Investments in TCF National Bank, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan to deferred compensation plans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
–
Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(661)
Cash flows from financing activities:
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(93,029)
(150,356)
23,500
1,523
(26,425)
5,323
(21,102)
211,829
861
–
9,783
(112)
10,532
(86,430)
(148,030)
11,500
914
(1,271)
5,381
4,110
211,432
21,339
(6,000)
(4,646)
(273)
10,420
(77,473)
(148,043)
2,000
1,510
Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(218,362)
(222,046)
(222,006)
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
45
352
397
315
37
352
$
(154)
191
37
$
Note 28. Litigation and Contingent Liabilities
From time to time, TCF is a party to legal proceedings arising out of its lending, leasing and deposit operations. TCF is and expects to become
engaged in a number of foreclosure proceedings and other collection actions as part of its loan and leasing collection activities. From time to
time, borrowers and other customers have also brought actions against TCF, in some cases claiming substantial amounts of damages. Financial
services companies are subject to the risk of class action litigation, and TCF has had such actions brought against it from time to time. After
review with its legal counsel, management believes that the ultimate disposition of existing litigation will not have a material effect on TCF’s
financial condition but litigation is often unpredictable and the actual results of litigation cannot be determined with certainty.
76
TCF Financial Corporation and Subsidiaries
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders of
TCF Financial Corporation:
We have audited the accompanying consolidated statements of
financial condition of TCF Financial Corporation and subsidiaries
as of December 31, 2003 and 2002, and the related consolidated
statements of income, stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2003.
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of TCF Financial Corporation and subsidiaries as of December 31, 2003
and 2002, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2003,
in conformity with accounting principles generally accepted in the
United States of America.
As discussed in note 1 to the consolidated financial statements,
the Company adopted the provisions of the Financial Accounting
Standards Board’s Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002.
Minneapolis, Minnesota
February 23, 2004
2003 Annual Report
77
OTHER FINANCIAL DATA
Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands,
except per-share data)
Selected Financial Condition Data:
Securities available for sale . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases excluding
Dec. 31,
2003
Sept. 30,
2003
June 30,
2003
At
March 31,
2003
Dec. 31,
2002
Sept. 30,
2002
June 30,
2002
March 31,
2002
$ 1,533,288
$ 1,604,282
$ 1,980,830
$ 2,442,724
$ 2,426,794
$ 2,252,786
$ 1,965,664
$ 1,556,798
1,212,643
2,745,931
1,283,640
2,887,922
1,393,183
3,374,013
1,568,430
4,011,154
1,800,344
4,227,138
1,975,481
2,249,365
4,228,267
4,215,029
2,458,431
4,015,229
residential real estate loans . . . . . . .
7,135,135
6,863,683
6,705,169
6,485,179
6,320,784
6,106,818
5,879,607
5,693,330
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
11,319,015
11,253,906
11,807,764
12,127,272
12,202,069
11,970,331
11,527,351
11,170,583
Checking, savings and money market
deposits . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . .
(Dollars in thousands,
except per-share data)
Selected Operations Data:
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . .
Net interest income after provision
5,999,626
1,612,123
7,611,749
2,414,825
920,858
6,115,863
1,596,740
7,712,603
2,243,725
931,968
6,234,447
1,745,290
7,979,737
2,506,039
952,069
6,068,095
1,897,243
7,965,338
2,767,890
5,791,233
1,918,755
7,709,988
3,110,295
5,636,989
2,023,508
7,660,497
2,955,295
5,397,505
2,159,121
7,556,626
2,702,133
971,413
977,020
950,290
920,088
5,108,494
2,185,478
7,293,972
2,610,712
921,847
Dec. 31,
2003
Sept. 30,
2003
June 30,
2003
March 31,
2003
Dec. 31,
2002
Sept. 30,
2002
June 30,
2002
March 31,
2002
Three Months Ended
$
148,919
$
156,482
$
164,004
$
172,114
$
182,352
$
182,406
$
184,234
$
184,371
29,827
119,092
4,037
36,605
119,877
2,658
44,240
119,764
3,127
49,702
122,412
2,710
55,729
126,623
4,067
58,637
123,769
4,071
59,925
124,309
4,714
59,847
124,524
9,154
for credit losses . . . . . . . . . . . . . .
115,055
117,219
116,637
119,702
122,556
119,698
119,595
115,370
Non-interest income:
Fees and other revenue . . . . . . . . . . . .
114,865
118,089
101,003
96,835
106,346
102,837
102,032
95,049
Gains on sales of securities
available for sale . . . . . . . . . . . . .
Gains (losses) on termination
of debt . . . . . . . . . . . . . . . . . . . . .
Gains on sales of branches . . . . . . . . .
Total non-interest income . . . . . .
Non-interest expense . . . . . . . . . . . . . . . .
Income before income tax expense . . .
Income tax expense . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
Per common share:
Basic earnings . . . . . . . . . . . . . . . . . . .
Diluted earnings . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . .
Financial Ratios:
Return on average assets (1) . . . . . . . . . . . .
Return on average common equity (1) . . . . .
Net interest margin (1) . . . . . . . . . . . . . . . . . .
Average total equity to average assets . . .
(1) Annualized.
–
–
–
114,865
142,244
87,676
28,180
59,496
.86
.86
.325
2.13%
26.18
4.68
8.13
$
$
$
$
–
11,695
21,137
2,830
2,662
(37,769)
–
80,320
142,382
55,157
19,193
35,964
.51
.51
.325
$
$
$
$
–
–
112,698
136,733
92,602
32,311
60,291
.85
.85
.325
$
$
$
$
(6,576)
–
111,396
138,750
92,348
32,221
60,127
.83
.83
.325
$
$
$
$
–
–
109,176
141,251
90,481
30,705
59,776
.83
.82
.2875
$
$
$
$
–
–
105,499
134,485
90,712
31,845
58,867
.81
.80
.2875
$
$
$
$
$
$
$
$
–
–
–
102,032
132,130
89,497
31,526
57,971
.78
.78
.2875
$
$
$
$
1.24%
2.04%
1.99%
1.97%
2.03%
2.04%
15.77
4.57
7.89
25.17
4.45
8.11
24.70
4.45
8.06
25.17
4.59
7.82
25.53
4.68
7.96
25.36
4.76
8.03
6,044
–
1,962
103,055
131,422
87,003
30,686
56,317
.75
.75
.2875
2.01%
24.68
4.83
8.15
78
TCF Financial Corporation and Subsidiaries
SENIOR OFFICERS
T C F F I N A N C I A L
C O R P O R A T I O N
Chairman of the Board and
Chief Executive Officer
WILLIAM A. COOPER
President and Chief Operating Officer
LYNN A. NAGORSKE
Vice Chairman, General Counsel and
Secretary
GREGORY J. PULLES
Executive Vice President,
Chief Financial Officer and Treasurer
NEIL W. BROWN
Executive Vice President and
Chief Information Officer
EARL D. STRATTON
Executive Vice Presidents
CRAIG R. DAHL
RONALD J. PALMER
MARY E. SARLES
Senior Vice Presidents
JAMES S. BROUCEK
TIMOTHY G. DOYLE
DANIEL P. ENGEL
JASON E. KORSTANGE
MARK R. LUND
NORMAN G. MORRISSON
BARBARA E. SHAW
DAVID M. STAUTZ
T C F N A T I O N A L B A N K
C O R P O R A T E
Chief Executive Officer and President
BARRY N. WINSLOW
Executive Vice Presidents
PAUL B. BRAWNER
WALLACE A. FUDOLD
GREGG R. GOUDY
Senior Vice Presidents
BEVERLY M. CRAIG
DANIEL R. EDWARD
SHELLEY A. FITZMAURICE
JOSEPH T. GREEN
KENNETH W. GRENIER
DOUGLASS B. HIATT
CHARLES P. HOFFMAN, JR.
KATHERINE D. JOHNSON
SCOTT W. JOHNSON
GLORIA J. KARSKY
JAMES C. LAPLANTE
JAMES M. MATHEIS
DAVID B. MCCULLOUGH
ANTON J. NEGRINI
ROGER W. STARR
LEONARD D. STEELE
STEPHEN D. STEEN
DIANE O. STOCKMAN
R. ELIZABETH TOPOLUK
T C F N A T I O N A L B A N K
M I N N E S O T A
President
MARK L. JETER
Executive Vice Presidents
JOHN E. BESSE
SARA L. EVERS
TIMOTHY B. MEYER
JOHN F. SCHROEDER
Senior Vice Presidents
JEFFREY R. ARNOLD
ROBERT C. BORGSTROM
RONALD L. BRITZ
TIMOTHY J. DONNEGAN
JAMES T. DOWIAK
SCOTT A. FEDIE
MARK L. FOSTER
CLAIRE M. GRAUPMANN
KATHERINE L. LANDON
K. ROBERT LEA
DANIEL M. REYELTS
STEVEN E. RYKKELI
KURT A. SCHRUPP
JAMES T. STAHLMANN
DANIEL G. THORBERG
T C F N A T I O N A L B A N K
I L L I N O I S / W I S C O N S I N /
I N D I A N A
President
TIMOTHY P. BAILEY
Chief Operating Officer, Retail
MICHAEL B. JOHNSTONE
Executive Vice Presidents
MARK B. DILLON
MICHAEL R. KLEMZ
MARK W. ROHDE
C. HUNTER WESTBROOK
Senior Vice Presidents
ROBERT J. BRUEGGEMAN
MAUREEN F. CIPRIANO
DAVID R. CREEL
PETER R. DAUGHERTY
JEFFREY T. DOERING
GINA L. GALANTE
MARK W. GAULT
JAMES L. KOON
RUSSELL P. MCMINN
TODD A. PALMER
MICHAEL ROIDT
STEPHEN W. SINNER
SUZANNE M. STUEBE
DENNIS J. VENA
DAVID J. VEURINK
T C F N A T I O N A L B A N K
M I C H I G A N
President
THOMAS J. WAGNER
Executive Vice Presidents
LUIS J. CAMPOS
CHARLES L. HAYNE
ROBERT H. SCOTT
Senior Vice Presidents
JERRY E. COVIAK
LARRY M. CZEKAJ
DENNIS J. GISTINGER
NATALIE A. GLASS
DONALD J. HAWKINS
JOHN J. OWENS
TERRENCE B. PRYOR
DAVID F. WIBLE
T C F N A T I O N A L B A N K
C O L O R A D O
President
WAYNE A. MARTY
Senior Vice Presidents
MATTHEW G. LAMB
EDWARD F. TIERNEY
T C F I N S U R A N C E
A G E N C Y , I N C .
President
MARY E. SARLES
Senior Vice Presidents
DAMON J. BRINSON
SZABLIS M. KRUGER
STEPHEN M. MAGISTAD
WILLIAM A. MILLER
TIMOTHY J. O’KEEFE
T C F I N V E S T M E N T S , I N C .
President
BRIAN J. HURD
Chief Operating Officer
FRANK A. MCCARTHY
Senior Vice President
BUFFIE A. BLESI
T C F M O R T G A G E
C O R P O R A T I O N
President
JOSEPH W. DOYLE
Executive Vice President
DOUGLAS L. DINNDORF
Senior Vice Presidents
ANDREA L. CARROLL
PAULA T. HUGHES
TAMARA J. SALVO
CAROL B. SCHIRMERS
ALFRED K. VELASCO
JEFFREY G. WILLIAMSON
T C F L E A S I N G , I N C .
President
CRAIG R. DAHL
Executive Vice Presidents
WILLIAM S. HENAK
MARK D. NYQUIST
Senior Vice Presidents
PETER C. DARIN
WALTER E. DZIELSKY
BRADLEY C. GUNSTAD
THOMAS F. JASPER
CHARLES A. SELL, JR.
ROBERT J. STARK
W I N T H R O P R E S O U R C E S
C O R P O R A T I O N
Chairman
CRAIG R. DAHL
President
RONALD J. PALMER
Senior Vice Presidents
GARY W. ANDERSON
PAUL L. GENDLER
JOHN G. MCMANIGAL
DEBORAH L. MOGENSEN
RICHARD J. PIEPER
DEAN J. STINCHFIELD
2003 Annual Report
79
BOARD OF DIRECTORS
OFFICES
WILLIAM A. COOPER 5
Chairman of the Board
President and Chief Executive Officer,
PETER L. SCHERER 4
E X E C U T I V E O F F I C E S
C O L O R A D O
and Chief Executive Officer
Scherer Bros. Lumber Co.
GERALD A. SCHWALBACH 1,2,3,4
Chairman,
Superior Storage LLC
RALPH STRANGIS 4,5
Senior Partner,
Kaplan, Strangis and Kaplan, P.A.
1 Audit Committee
2 Compensation/Nominating/
Corporate Governance Committee
3 Advisory Committee –
TCF Employees Stock Purchase Plan
4 Shareholder Relations/
De Novo Banking Committee
5 Executive Committee
WILLIAM F. BIEBER 2,3,4
Chairman,
Acrometal Companies, Inc.
RODNEY P. BURWELL 2,3,4
Chairman,
Xerxes Corporation
THOMAS A. CUSICK 4
Retired Vice Chairman
JOHN M. EGGEMEYER III 2,3,4
President,
Castle Creek Capital LLC
ROBERT E. EVANS 1
Retired Vice Chairman
LUELLA G. GOLDBERG 1,2,3,4,5
Past Chair,
University of Minnesota Foundation,
Former Acting President,
Wellesley College
GEORGE G. JOHNSON 1
CPA/Managing Director,
George Johnson & Company
THOMAS J. MCGOUGH 2,3,4,5
President and Chief Executive Officer
McGough Companies
LYNN A. NAGORSKE
President and Chief Operating Officer
80
TCF Financial Corporation and Subsidiaries
TCF Financial Corporation
Headquarters
200 LAKE STREET EAST
MAIL CODE EX0-03-A
6400 SOUTH FIDDLER’S GREEN CIRCLE
SUITE 800
WAYZATA, MN 55391-1693
ENGLEWOOD, CO 80111
(612) 661-6500
(720) 200-2400
M I N N E S O T A
Headquarters
801 MARQUETTE AVENUE
MAIL CODE 001-03-P
MINNEAPOLIS, MN 55402
(612) 661-6500
Traditional Branches
MINNEAPOLIS/ST. PAUL AREA (44)
GREATER MINNESOTA (6)
Supermarket Branches
MINNEAPOLIS/ST. PAUL AREA (44)
GREATER MINNESOTA (4)
Traditional Branches
METRO DENVER AREA (11)
COLORADO SPRINGS (2)
Supermarket Branches
METRO DENVER AREA (2)
COLORADO SPRINGS (3)
T C F M O R T G A G E
C O R P O R A T I O N
Headquarters
801 MARQUETTE AVENUE
MINNEAPOLIS, MN 55402
(612) 661-7500
I L L I N O I S / W I S C O N S I N /
I N D I A N A
Headquarters
T C F L E A S I N G , I N C .
Headquarters
11100 WAYZATA BOULEVARD
800 BURR RIDGE PARKWAY
SUITE 801
MINNETONKA, MN 55305
(952) 656-5080
W I N T H R O P R E S O U R C E S
C O R P O R A T I O N
Headquarters
11100 WAYZATA BOULEVARD
SUITE 800
MINNETONKA, MN 55305
(952) 936-0226
BURR RIDGE, IL 60527
(630) 986-4900
Traditional Branches
CHICAGOLAND (34)
MILWAUKEE AREA (11)
KENOSHA/RACINE AREA (7)
Supermarket Branches
CHICAGOLAND (157)
MILWAUKEE AREA (13)
KENOSHA/RACINE AREA (3)
INDIANA (5)
M I C H I G A N
Headquarters
401 EAST LIBERTY STREET
ANN ARBOR, MI 48104
(734) 769-8300
Traditional Branches
METRO DETROIT AREA (39)
GREATER MICHIGAN (10)
Supermarket Branches
METRO DETROIT AREA (5)
GREATER MICHIGAN (1)
SHAREHOLDER INFORMATION
S T O C K D A T A
C O M M O N S T O C K D I V I D E N D R E I N V E S T M E N T P L A N
Year
Close
High
Low
2003
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2002
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2001
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2000
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
1999
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$51.35
47.95
39.84
40.04
$43.69
42.33
49.10
52.61
$47.98
46.06
46.31
37.79
$44.56
37.63
25.69
23.81
$24.88
28.56
27.88
26.06
$54.25
49.72
42.54
45.77
$44.75
50.30
54.07
54.60
$48.25
51.12
46.55
44.38
$45.56
37.88
29.06
24.88
$30.56
29.38
30.69
27.25
$47.81
39.52
36.90
36.50
$35.10
39.90
46.65
46.87
$39.40
39.45
34.90
32.81
$33.81
25.75
22.00
18.00
$23.75
26.63
25.13
21.69
Dividends
Paid
Per Share
$ .325
.325
.325
.325
$.2875
.2875
.2875
.2875
$
.25
.25
.25
.25
$.2125
.2125
.2125
.1875
$.1875
.1875
.1875
.1625
T R A D I N G O F C O M M O N S T O C K
The common stock of TCF Financial Corporation is listed on the
New York Stock Exchange under the symbol TCB. At December 31, 2003,
TCF had approximately 70.5 million shares of common stock outstanding.
2 0 0 4 C O M M O N S T O C K D I V I D E N D D A T E S
Expected Record:
February 6
May 7
August 6
November 5
Expected Payment:
February 27
May 28
August 31
November 30
T R A N S F E R A G E N T A N D R E G I S T R A R
EquiServe Trust Company, N.A.
PO Box 43010
Providence, RI 02940-3010
(800) 730-4001
www.equiserve.com
Approximately 58% of TCF’s 10,645 shareholders of record participate in
the Dividend Reinvestment Plan. Under the plan, common shareholders
may purchase additional shares of common stock at market price without
service charges or brokerage commissions through automatic reinvestment
of cash dividends. Optional cash contributions may be made monthly
with a minimum investment of $25 per month and limited to $25,000 per
quarter. Information is available from:
EquiServe Trust Company, N.A.
PO Box 43010
Providence, RI 02940-3010
(800) 730-4001
www.equiserve.com
I N V E S T O R / A N A L Y S T C O N T A C T
Jason Korstange
Senior Vice President
Corporate Communications
(952) 745-2755
A D D I T I O N A L I N F O R M A T I O N
TCF’s report on Form 10-K is filed with the Securities and Exchange
Commission and is available to shareholders without charge.
Information may also be obtained from:
TCF Financial Corporation
Corporate Communications
200 Lake Street East
EX0-02-C
Wayzata, MN 55391-1693
(952) 745-2760
C O R P O R A T E W E B S I T E
Please visit our website at www.tcfexpress.com for free access to investor
information, news, investor presentations, access to TCF’s quarterly
conference calls, TCF’s annual report, quarterly reports and SEC filings.
A N N U A L M E E T I N G
The annual meeting of shareholders of TCF will be held on Wednesday,
April 28, 2004 at 10:00 a.m. at the Sheraton Minneapolis West,
12201 Ridgedale Drive, Minnetonka, Minnesota.
2003 Annual Report
81
TCF Financial Corporation
SNL All Bank & Thrift Index
S&P 500*
Total Return to Shareholders
(In Dollars)
$900
800
700
600
500
400
300
200
100
0
12/31/93
12/31/94
12/31/95
12/31/96
12/31/97
12/31/98
12/31/99
12/31/00
12/31/01
12/31/02
12/31/03
* Source: CRSP, Center for Research in Security Prices, Graduate School of Business, The University of Chicago 2004. Used with permission. All rights reserved. crsp.com.
Credit Ratings
Last Rating Action
Moody’s
TCF National Bank:
Outlook
Issuer
Long-term deposits
Short-term deposits
Bank financial strength
Stock Price Performance
(In Dollars)
$54
51
48
45
42
39
36
33
30
27
24
21
18
15
12
9
6
3
0
Last Review
February 2003
Last Rating Action
Last Review
August 2003
Stable
A2
A2
Prime-1
C+
Standard & Poor’s
Outlook
TCF Financial Corporation:
Long-term counterparty
Short-term counterparty
TCF National Bank:
Long-term counterparty
Short-term counterparty
Stable
BBB+
A-2
A-
A-2
Last Rating Action
FITCH
Outlook
Issuer rating
TCF Financial Corporation:
Long-term senior
Short-term
TCF National Bank:
Long-term deposits
Short-term deposits
Stock Price
Dividend
Last Review
January 2003
Stable
B
A-
F1
A
F1
$1.50
1.25
1.00
0.75
0.50
0.25
0.00
Year Ending
6-86 12-86
12-87
12-88
12-89
12-90
12-91
12-92
12-93
12-94
12-95
12-96
12-97
12-98
12-99
12-00
12-01
12-02
12-03
Stock Price
$3.00 $3.03
$1.72
$2.22
$3.38
$1.91
$4.84
$7.25
$8.50
$10.31
$16.56
$21.75
$33.94
$24.19
$24.88
$44.56
$47.98
$43.69
$51.35
Dividend Paid
N/A
N/A
N/A
$0.05
$0.10
$0.10
$0.10
$0.12
$0.17
$0.25
$0.30
$0.36
$0.47
$0.61
$0.73
$0.83
$1.00
$1.15
$1.30
82
TCF Financial Corporation and Subsidiaries
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TCF Financial Corporation
200 Lake Street East
Wayzata, MN 55391-1693
www.tcfexpress.com
E In an effort to help save our natural resources, the cover and inside
pages of this annual report are printed on paper stock made from
30% post-consumer waste and a total 50% recycled fiber content.
This report is printed with vegetable-based inks.
2690-AR-04
TCFIR9322