132406_TCF AR 04 Cover_C 2/15/05 4:27 PM Page 1
TCF Financial Corporation
200 Lake Street East
Wayzata, MN 55391-1693
www.TCFExpress.com
High Performance Banking
TCF Financial Corporation 2004 Annual Report
2690-AR-05
TCFIR9328
132406_TCF AR 04 Cover_F 2/18/05 8:48 AM Page 2
Financial Highlights
(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 revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on termination of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs as a percentage of average loans and leases . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TCF Financial Corporation and Subsidiaries
TCF Financial Corporation and Subsidiaries – 2004 Annual Report
At or For the Year Ended December 31,
2004
2003
% Change
$
$
$
622,809
130,918
491,891
10,947
480,944
467,866
22,600
–
490,466
586,934
384,476
129,483
254,993
1.87
1.86
.75
32.62
23.92
32.14
6.99
4.60X
2.15%
27.02
4.54
.11
7.77
$
$
$
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
1.53
1.53
.65
27.13
18.25
25.68
6.53
3.93X
1.85%
23.05
4.54
.16
8.14
(2.9)%
(18.4)
2.2
(12.6)
2.6
8.6
(31.2)
100.0
17.0
4.8
17.3
15.7
18.1
22.2
21.6
15.4
25.2
7.0
17.0
16.2
17.2
–
(31.3)
(4.5)
At December 31,
2004
2003
% Change
$
1,619,941
1,014,166
2,634,107
8,372,491
152,599
46,442
12,340,567
6,493,545
1,468,650
7,962,195
1,056,111
2,048,492
958,418
137,186,160
$
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
140,952,660
5.7%
(16.4)
(4.1)
17.3
4.9
(10.8)
9.0
8.2
(8.9)
4.6
20.2
33.3
4.1
(2.7)
• TCF banks a large and diverse customer base. TCF emphasizes con-
• TCF encourages stock ownership by our officers, directors and
venience in banking; we’re open 12 hours a day, seven days a week,
employees. We have a mutuality of interest with our shareholders,
364 days per year. We provide customers innovative products through
and our goal is to earn above-average returns for our shareholders.
Corporate Philosophy
multiple banking channels, including traditional and supermarket
branches, TCF EXPRESS TELLER® ATMs, debit cards, phone banking,
and Internet banking.
• TCF operates like a partnership. We’re organized geographically and by
function, with profit center goals and objectives. TCF emphasizes return
on average assets, return on average equity and earnings per share
growth. We know which products are profitable and contribute to these
goals. Local geographic managers are responsible for local 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 a significant portion 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 busi-
ness, we can minimize credit risk on the asset side.
• TCF strives to place The Customer First. We believe providing great
service to our many customers creates value for shareholders.
• TCF utilizes conservative accounting and reporting principles that
accurately and honestly report our financial condition and results
of operations.
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• 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.
• TCF believes interest-rate risk should be minimized. Interest-rate
speculation does not generate consistent profits and is high risk.
• 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.
• TCF believes in community participation, both financially and through
volunteerism. We feel a responsibility to help those less fortunate.
• 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.
132406_TCF AR 04 Guts_B 2/14/05 10:30 AM Page 1
Leadership in Action
TCF’s banking philosophies are centered on bringing value
straightforward and enduring strategies, based on a well-
to our shareholders and customers. These philosophies have
grounded philosophy coupled with successful execution and
guided TCF’s business strategies, which have become the
solid management, have made TCF an institution recognized
principles by which TCF conducts its business. Simple,
nationally for its High Performance Banking.
Corporate Profile
Table of Contents
TCF Financial Corporation is a Wayzata, Minnesota-based national
financial holding company with $12.3 billion in assets. TCF has 430
banking offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado
and Indiana. Other TCF affiliates provide leasing and equipment
finance, securities brokerage, and investments and insurance sales.
3
9
18
48
53
77
78
80
81
83
85
Letter to Our Shareholders
Business Highlights
Management’s Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Management’s Report on Internal Control
Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Other Financial Data
Corporate Information
Shareholder Information
Corporate Philosophy
2004 Annual Report
1
132406_TCF AR 04 Guts_B 2/14/05 10:30 AM Page 2
William Cooper, Chairman of the Board and Chief Executive Officer; Lynn Nagorske, President and Chief Operating Officer.
2
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:30 AM Page 3
Leadership in Action
Dear Shareholders:
• Our dividend increased from $.65 per share in 2003 to $.75 per share
We are pleased to report that 2004 was a record year for TCF. Our
in 2004. In 2005, our dividend increased again and will be $.85 per
disciplined focus on long-term strategies for growth produced some
share. This is the fourteenth consecutive year we have increased the
of the best performance ratios in the banking industry. TCF is clearly
dividend. We are proud that TCF has a ten-year compounded dividend
a high performance bank.
growth rate of 19.6 percent, the fifth highest dividend growth rate
Summarizing the year:
• TCF earned a record $255 million in 2004 compared to $215.9 million
in 2003. An increase of 18.1 percent.
• Diluted earnings per share (EPS) were $1.86 for 2004 compared to
$1.53 in 2003. An increase of 21.6 percent.
among the 50 largest banks in the country.
The major factors impacting TCF’s performance in 2004 were as follows:
1. TCF’s net interest income resumed its growth in 2004. Net interest
income in 2004 was $491.9 million, up 2 percent from 2003. Most of
this improvement was due to balance sheet growth. TCF’s net inter-
est margin remained unchanged for 2004 at 4.54 percent. Short-
• TCF’s 2004 return on average assets (ROA) of 2.15 percent and
term interest rates rose over the year as a result of Federal Reserve
return on average equity (ROE) of 27.02 percent improved over the
Board interest rate hikes. This rise in short-term rates helped TCF’s
previous year.
• TCF’s stock price closed at $32.14 on December 31, 2004, up 25 percent
from $25.68 per share on December 31, 2003. Our annualized total
return to investors over the past ten years was over 22 percent.
net interest margin because interest rate sensitive assets exceed
variable-rate sensitive liabilities. The ten-year treasury rates
started and ended the year at about 4.25 percent. This resulted in
2004 Annual Report
3
132406_TCF AR 04 Guts_B 2/14/05 10:30 AM Page 4
a flattening of the yield curve, which hurt our net interest margin.
more ACH transactions. This change in behavior impacts TCF’s fee
TCF’s longer-term mortgage backed securities (MBSs) and fixed-rate
income. Some of our customers have abused their debit card spend-
loans were originated or purchased at lower yields than the loans
ing privileges and, as a result, their accounts have been closed. This
and MBSs that were repaid or sold.
has negatively impacted TCF’s fees and service charges. We are work-
2. Credit quality improved in 2004 and remained very strong. TCF’s $18.8
million leveraged lease to Delta Airlines remains a possible dark
cloud on the horizon. This situation improved in the fourth quarter
of 2004 as Delta averted bankruptcy, but we are not yet out of
ing to address this situation, but its impact will continue into 2005.
TCF’s card revenue grew 19.5 percent in 2004 to $63.3 million. The
debit card is now an integral part of the checking account with many
customers using their cards more frequently than they write checks.
the woods.
4. During 2004, TCF restructured its mortgage banking business.
3. TCF’s checking account growth slowed in 2004. The number of
checking accounts grew in 2004 by 91,000 accounts (up 6.3 per-
cent) compared to 106,000 (up 8 percent) in 2003. While our new
account openings were fairly close to our expectations, despite
increased competition, we were hurt by higher than anticipated
attrition. Checking account customers are changing their behavior.
Debit card transactions continue to replace checks and there are
Wholesale loan origination activities were eliminated and the retail
loan origination function was downsized and integrated into our
consumer lending area. We believe these actions will improve future
profitability, lower TCF’s prepayment risk and lower future earn-
ings volatility from this cyclical business. We continue to evaluate
our options as it relates to the remaining $4.5 billion mortgage
servicing portfolio.
5. TCF realized $22.6 million of gains on MBS sales in 2004 versus $32.8
million of gains in 2003. In 2003, TCF incurred $44.3 million of debt
prepayment penalties to cancel high cost fixed-rate borrowings.
We sold MBSs in 2004 when longer-term interest rates hovered near
Diluted EPS
(dollars)
$1.35
$1.17
40 year lows.
$1.86
$1.58
$1.53
Power Assets® and Power Liabilities®
TCF continued to experience strong growth in its core businesses in 2004.
Power Assets grew 17.3 percent. Consumer loans increased 21.7 per-
cent, which is an excellent performance. Commercial loans increased
10 percent, which was a good performance. Leasing and equipment
finance showed a strong increase of 18.5 percent which was aided
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01
02
03
04
4
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:30 AM Page 5
since 1998 now have $1.5 billion in deposits with an average interest
cost of .53 percent and 576,000 checking accounts. Checking account
growth in new branches was approximately 16 percent. Our new tradi-
tional branches are generally performing close to our expectations and
financial models. However, we have had traditional branch opening
delays due to government approval difficulties, construction delays
and poor weather, which has negatively impacted growth in new check-
ing accounts. We have continued to improve our internal capabilities
to identify and select the best sites for future growth.
During 2004, we entered into a new supermarket banking relationship
in Colorado with King Soopers®, an affiliate of Kroger®. We are encour-
aged by the early results.
We believe TCF’s de novo strategy is a better use of our capital than
paying the high premiums of a bank acquisition. We intend to stick to
this disciplined approach in 2005.
Net Income
(millions of dollars)
$255
$233
$216
$207
$186
“TCF continued to experience
strong growth in its core
businesses in 2004.”
by the 2004 acquisition of VGM Financial Services, a company spe-
cializing in home medical equipment financing. We are pleased with
this acquisition and our leasing operation results.
Average balances for TCF’s core deposits increased $249.4 million, or
4 percent. Certificates of deposit continued to decline in 2004, as other
lower cost funding sources were available to TCF. The weighted-average
interest rate on deposits at December 31, 2004 was .69 percent, one
of the lowest rates in the country. This low cost is directly attributa-
ble to our convenience banking strategy and the large amount of TCF’s
non-interest bearing deposits. We look to grow deposits faster in 2005
to fund a larger portion of TCF’s Power Asset growth.
New Branch Expansion
A good portion of TCF’s growth comes from our new branch expansion.
This strategy has provided TCF an ever-growing customer base with a
very low cost of funds.
TCF opened 30 new branches during 2004, including 19 new traditional
branches and 11 new supermarket branches. New branches opened
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01
02
03
04
2004 Annual Report
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132406_TCF AR 04 Guts_B 2/14/05 10:30 AM Page 6
Risks
2004 and will continue to be a challenge in 2005. We are also relying
We think it is appropriate to discuss what we consider to be the major
on the continued long-term success of branch banking. Our de novo
risks to our continued success. First, as demonstrated over the last two
banking expansion is staked on this premise.
years, the management of interest rate risk is a major challenge. The
measurements of interest rate risk are assumption laden and results
can quickly change. Changes in interest rates may also adversely
impact the value of TCF’s mortgage servicing rights. Second, TCF, like
all banks, is subject to the effects of economic activity. In particular,
a significant decline in home values in our markets could have a neg-
Regulatory issues and the related compliance burden continue to
increase. The Bank Secrecy Act, the Patriot Act and the Sarbanes-Oxley
Act have increased our compliance risk. We are also subject to the risks
of new regulations. Legal and tax issues are always a risk (the 2003 Visa
debit card lawsuit is a good example of this legal risk).
ative effect on our results. A bad economy can result in increased loan
None of these risks are new. Our consistent results over a long period
and lease charge-offs. The third risk is our ability to attract and retain
have proven that we have prudently managed these risks in the past
new customers. Competition has stiffened and customer behavior is
and we believe we are adequately prepared to manage them in the
changing. Debit card transactions now outnumber checks. Other
future. Our philosophy at TCF is to run a highly profitable bank and to
electronic transactions (ACH, ARC, Check 21, etc.) are all changing
minimize risk.
customer behavior in checking. Our overall growth is dependent on our
ability to grow checking accounts and related fee income, while con-
In Closing
trolling fraud losses and attrition. This area became more difficult in
A careful reading of this annual report will tell you everything about our
company. We try to keep our financial reporting simple, but as complete
as possible. In our opinion, TCF’s accounting is conservative.
We continue to have a mutuality of interest with our shareholders. Our
senior management and board of directors own approximately 12 mil-
lion shares, or 8.8 percent of TCF stock. Seventy-nine percent of our
eligible employees participate in TCF’s Employees Stock Purchase Plan,
which at year-end held over 8.1 million shares. Our stock plans for senior
management continue to be performance-based restricted stock grants
which vest based on long-term growth in earnings per share. These
stock grants are expensed in the income statement just like all the rest
of TCF’s expenses.
Net Interest Income
(millions of dollars)
$481
$499
$481
$492
$439
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01
02
03
04
6
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_C 2/15/05 4:48 PM Page 7
“Our philosophy at TCF
is to run a highly profitable
bank and to minimize risk.”
In January of 2005, approximately 1.1 million shares of performance-
based restricted stock vested for senior management. Since the issuance
We once again would like to thank our hardworking, responsive and
dedicated Board of Directors. Our Board of Directors consists largely of
entrepreneurial business people who also own TCF stock. We appreciate
their valuable insights and support. During 2004, Doug Scovanner
joined TCF’s Board of Directors. Doug’s retailing perspectives provide
a valuable contribution.
We would also like to recognize and thank our outstanding employees for
being part of the TCF Team. Their exceptional abilities, commitment
and energy make everything happen. We are proud of the TCF Team and
their accomplishments.
of this grant in 2000, TCF’s diluted EPS has increased 86 percent, or a 13
Thank you for your continued support and investment in TCF. 2005
percent compound annualized growth rate. Over the same time period,
promises to be another interesting and challenging year. We remain
TCF’s stock price has increased 158 percent, or a 21 percent compound
optimistic about TCF’s future prospects.
annualized return to shareholders plus dividends. The cost of this stock
grant was largely offset by the related income tax benefit for the market
value of the grant when it vested. We believe this performance-based
restricted stock plan has helped produce superior financial results for
our shareholders and has retained and motivated our talented man-
agement team. We are true owners as we face the downside risks of
decisions as well as the upside potential.
TCF repurchased 4 million shares of its stock in 2004 at an average cost
of $29.14 per share. TCF has repurchased a total of 54.2 million shares
(29 percent) since the beginning of 1998, at an average cost of $17.58
per share. We will repurchase fewer shares in 2005 since we will be required
to retain more capital to fund our balance sheet growth. We consider
the return from repurchasing TCF stock as a hurdle rate for acquisitions.
William A. Cooper
Chairman of the Board and Chief Executive Officer
Lynn A. Nagorske
President and Chief Operating Officer
2004 Annual Report
7
132406_TCF AR 04 Guts_D 2/17/05 6:46 AM Page 8
Holding Company Senior Management
Seated, from left: Lynn Nagorske; Craig Dahl. Standing, from left: Paul Brawner; William Cooper;
Earl Stratton; Barry Winslow; Neil Brown; Gregory Pulles; Barbara Shaw.
8
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 9
Leading the Way
Structure
One of TCF’s most important assets is its management bench strength
TCF’s flagship state of Minnesota, which began over 80 years ago in
and depth. TCF is organized geographically and by function. Each of
1923, operates 101 full service branches, including 51 branches located
the bank presidents is responsible for the operational goals of their
inside Cub® Foods stores. TCF Minnesota’s experienced management is
state as well as a functional operation such as consumer lending, com-
focused on retaining and cultivating its large and profitable customer
mercial lending, branches, or marketing. We believe strongly that local
base by strategically growing our branch network and building additional
management teams make the best decisions regarding local issues.
relationships with our customers through our higher-yielding consumer
Each of our bank management teams are responsible for local business
and commercial loan products. Minnesota’s consumer lending division
decisions, business development, customer relations, and community
originates home equity loans and lines of credit. The Minnesota con-
involvement. As firmly as TCF believes that local, geographically-
sumer lending division is approaching $2 billion in loans outstanding.
based management is best suited to run our businesses, we also believe
functional product line management benefits from a more centralized
approach. Centralized functional management facilitates efficient
product development, effective communication, consistent implemen-
tation, and close monitoring of our strategic initiatives, as well as cen-
tral accountability for the success of each of our major product areas.
By organizing management teams to most efficiently and effectively
manage our local banks and our strategic product areas, TCF has the
best of both worlds. We enjoy informed, timely local decision-making
that allows us to compete in our markets on a daily basis and long-
term strategic product management positioning us for the future.
Campus banking is an excellent example of TCF’s innovative product
development. The Minnesota bank is proud to have added Minnesota
State University-Mankato in 2004 to an impressive list of state schools,
including the University of Minnesota, that offer this special program
to students and faculty.
TCF Lakeshore, comprised of our Illinois, Wisconsin and Indiana opera-
tions, has our largest branch system, our largest supermarket-banking
network and our largest employee team with over 4,000 helpful members.
Since 1998, Lakeshore has added 178 branches and now has 237 branches
including 179 supermarket branches.
2004 Annual Report
9
132406_TCF AR 04 Guts_C 2/15/05 4:48 PM Page 10
TCF Lakeshore’s supermarket division reached the billion-dollar mark in
20 traditional branches and 12 supermarket branches. By the end of
total deposits early in 2004. This division has branches inside Jewel-Osco®
2005, TCF Colorado plans to incorporate a business banking division
stores, the leading grocery chain by market share in Chicago, and in
and open ten new branches.
certain Cub Foods stores. Not content to be the “most convenient bank”
with seven-day-a-week banking and long hours (84 hours a week in
the supermarkets), TCF has begun remodeling and upgrading many of
its supermarket branches. Certain branches will have a new plasma-
screen merchandising system installed, allowing TCF to combine prod-
uct messages, current promotions, news, weather, and sports
information for the consideration and enjoyment of our customers.
In addition to our banking franchise, we have a separate leasing and
equipment finance group headquartered in Minnetonka, Minnesota.
TCF has developed an experienced team of equipment finance pro-
fessionals that provide a variety of unique finance solutions to a
diverse group of small to large commercial customers. TCF’s leasing
and equipment finance operations is national in scope with a broad
range of equipment types financed in all 50 states. During 2004, our
In Michigan, TCF has focused its expansion efforts in the Detroit metro
leasing and equipment finance portfolio increased 19 percent and new
area with five offices opened in 2004 and eight planned for 2005.
business volume rose more than 27 percent.
Michigan’s consumer lending division and commercial lending group
achieved double-digit growth in 2004 and plan to expand its number of
lenders in 2005. Also, TCF Michigan recently added 11 business bankers
with plans to add several more to meet its aggressive 2005 goals.
TCF’s holding company and corporate functions provide capital and
centralized management services such as data processing, bank
operations, product development and marketing, finance, treasury
services, employee benefits, legal, compliance, credit review, and
The Colorado franchise in Denver and Colorado Springs is TCF’s fastest
internal audit. This structure gives locally managed banks the flexi-
growing market and continues to represent an area of great poten-
bility to share, compare and refine new products and services while
tial for future expansion. TCF Colorado now has 32 total branches:
enjoying the economies of scale of a much larger organization.
Retail Distribution Growth
(number of branches)
Strategies
TCF’s banking philosophy is based on carefully planned and consistently
executed business strategies. These strategies have become the prin-
Traditional Branches Supermarket Branches
ciples by which TCF conducts its business. TCF’s long-term strategies
395
401
430
for growth are somewhat unique among our competitors and have
served, and will continue to serve, our customers and shareholders well.
375
352
TCF’s strategies begin with the premise that every customer is valu-
able. We bank a large and diverse customer base. We do not believe
in focusing only on one “profitable” customer segment. Every customer
is potentially profitable and may become more so over time through
cross-sell initiatives. Each of our many customers contributes incre-
mentally to our revenue.
00
01
02
03
04
10
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 11
“We listen to our customers
and as a result, put emphasis
on convenience in banking.”
We listen to our customers and as a result, put emphasis on conven-
ience in banking. TCF is “The Leader in Convenience Banking,” and we
use our premier convenience services to attract a large, economically
diverse and growing customer base. We provide convenience by being
open longer hours, seven days a week and open on most holidays. TCF
offers a large supermarket branch network, complemented by tradi-
tional branches, providing customers with alternative locations to
of the balance sheet. By earning at least one percent on each side of
the balance sheet, we can generate a total return on assets greater
than two percent.
TCF’s superior earnings performance allows us to regularly buy back
our own stock. In evaluating potential acquisitions, we look at the
stock buy back opportunity as an acquisition alternative that may
provide superior returns. Investing in our own stock has been good for
TCF and its shareholders.
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 United States.
De Novo Expansion
TCF continues to be committed to de novo expansion in both our branch
conduct their banking. TCF’s free online banking services, extensive
network and in our development of new products and services. Each
ATM network, automated telephone service, and Internet banking pro-
of these components play a fundamental and complementary role –
vide even more convenient options – meeting customers needs.
to add new branches supporting our growing customer base and to
Strategically adding new branches where they can best support and
increase our customer base, introducing new products and services,
and enhancing our existing products and services, are strategies that
have worked well for TCF over the last decade.
TCF places emphasis on what it defines as Power Assets (higher-yielding
consumer loans, commercial loans and leasing assets) and Power
Liabilities (lower-cost checking, savings, money market and certificate
of deposit accounts). A principal strategy of TCF’s Power Assets is to
lend on a secured basis. Our strong credit quality is evidence that this
Card Revenue
(millions of dollars)
important strategy is working; TCF has one of the lowest charge-off
$37.6
ratios in the banking industry. TCF’s Power Liabilities are the founda-
$28.8
tion of our business and are proven profit drivers at TCF. By focusing on
both Power Assets and Power Liabilities, we recognize the important
contributions to overall profitability by both the liability and asset side
$63.3
$53.0
$47.2
00
01
02
03
04
2004 Annual Report
11
132406_TCF AR 04 Guts_D 2/17/05 6:46 AM Page 12
Bank Senior Management
Seated: Barry Winslow. Standing, from left: Robert Scott; Timothy Bailey; Wayne Marty; Mark Jeter. Not pictured: Thomas Wagner.
12
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 13
provide new products and services, allowing us to attract new cus-
In 2004, TCF launched the “TCF Miles PlusSM Card”, a free non-revolving
tomers and deepen our customer relationships.
credit card that is attached to a checking account. This free card
Since January of 1998, TCF has added 258 new branches to our rapidly
growing branch network – nearly 60 percent of our existing branches.
offers points that may be redeemed for airline travel on virtually any
airline, anytime, anywhere with the option to use points to purchase
merchandise from a leading Internet retailer. The TCF Miles Plus Card
In some of our markets, TCF has taken the opportunity to support and
attracts a new group of customers to TCF, providing us an opportunity
compliment existing supermarket branches with new traditional branches.
to introduce them to our many other products and services.
Traditional branches act as a visible anchor in our communities, provid-
ing convenient, full-service banking to both our retail customers and
our growing commercial and small business customers. In 2005, TCF
plans to open 22 new traditional branches and two campus branches.
TCF’s de novo strategy of branch expansion and product line improve-
ments continues to complement each other. New products and serv-
ices with convenient locations attract new customers to our branch
network, which support and grow these relationships by providing the
Supermarket banking continues to play a key role in TCF’s ability to
most convenient banking services in our markets. TCF plans to continue
provide the most convenient banking services in the markets we serve.
this successful strategy.
Our customers enjoy the convenience of one-stop shopping and bank-
ing, causing these lower-cost, high-volume branches to become
profitable more quickly than traditional branches. Our supermarket
branches in Cub Foods, King Soopers and Jewel-Osco play an important
role in our expansion strategy. In 2005, TCF plans to open five new
supermarket branches.
Convenience
Everything we do at TCF revolves around the idea of convenience;
our fundamental banking strategy is to provide premier convenience
products and services to our customers. We deliver convenience based
on knowing what our customers want, and we continue to expand and
The other key element of TCF’s de novo expansion strategy is the evolu-
enhance our offerings based on their needs.
tion of our convenient products and services. New products attract new
customers and allow us to develop additional relationships with our exist-
ing customers. TCF’s innovative culture fuels the strategic initiatives that
have led to the introduction of many of our products and services.
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 product. As most
of our competitors are attempting to copy this product, we success-
fully introduced several new checking account products in 2004. We
had similar success with our home equity loan products. We have been
able to add several enhancements to this product over the years
including tiered pricing, Visa credit line access, payment protection
products, and this year, a fast-close service.
New Branch1 Banking Fees & Other Revenue2
(millions of dollars)
$154
$126
$108
$85
$61
$39
$14
98
99
00
01
02
03
04
1 Branches opened since January 1, 1998.
2 Consisting of fees and service charges, card revenue, ATM revenue, and investment
and insurance revenue.
2004 Annual Report
13
132406_TCF AR 04 Guts_C 2/15/05 4:48 PM Page 14
TCF’s extensive branch network is at the core of our convenience strat-
moved, consolidated and remodeled targeted branches. We have also
egy. Spanning six states, TCF’s 430 branches are conveniently located
added more traditional branch drive-through lanes, which is another
where our customers live, shop and do business. We’re open seven days
easy one-stop banking option for TCF customers. Drive-throughs will
a week, with extended hours in both our supermarket and traditional
become even more readily available as we continue to expand our
branches, to ensure that our customers can do business when it’s con-
traditional branch network.
venient for them. Even on most holidays, TCF customers know that per-
sonal service is available to open new accounts, make deposits and
withdrawals, obtain loans, make investments, and have access to
other banking products and services.
For customers who prefer the convenience of electronic banking, TCF
provides a host of products and services. These include an automated
phone system, an extensive network of TCF® EXPRESS TELLER® ATMs and
online banking products such as TCF® Totally Free Online, TCF® Preferred
Supermarket branches continue to play an important role in TCF’s con-
Online and TCF® Online Bill Pay. During 2004, TCF’s call center opera-
venience strategy. These full-service branches allow customers to sim-
tions embarked on an initiative to centralize its retail call centers and
plify their schedules by handling their banking needs while shopping.
implement a new state-of-the-art phone system simplifying phone
During 2004, TCF began remodeling and upgrading its supermarket
menu options and incorporating skill-based routing functionality for
branches. By the end of 2005, certain supermarket branches will have
improved customer service. Our commitment to convenience banking
installed new plasma-screen merchandising systems, allowing TCF to pro-
was also evidenced during 2004 by enhancements to our online bill
mote its products while displaying news, weather, and sports information.
payment service, a complete redesign of the TCFExpress.com website
TCF’s customers have also enjoyed the enhancements made to some of
and printable check images available to all online customers.
our traditional branches. During 2004, we evaluated customer’s ease
Online at TCF® Express Trade®, customers can buy and sell stocks, mutual
of access to some of our traditional branch locations and, as a result,
funds and other securities. Access to investment holdings, account
history, stock research, and order placement are available 24 hours a
day, seven days a week, 365 days a year. Customers preferring personal
service can contact a personal trading representative.
Small business customers may also take advantage of TCF’s Internet
banking services. TCF® 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
to download transaction detail into financial software applications,
helping small business owners manage their businesses.
TCF continues to expand its customer base by offering services like TCF
Check CashingSM and on-site coin counting through TCF® Express Coin
Service. New products attract new customers to TCF, such as newly
launched TCF Premier Checking PlusSM with TCF Miles PlusSM Card, TCF
New Branch1 Total Deposits
(millions of dollars)
$1,503
$1,225
$1,088
$744
$594
$344
$190
12/98
12/99
12/00
12/01
12/02
12/03
12/04
1 Branches opened since January 1, 1998.
14
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 15
Premier CheckingSM, TCF Premier SavingsSM, and TCF PLUS e CheckingSM.
banks in the country. Additionally, TCF once again had one of the low-
Additionally, in 2004, TCF’s consumer lending and home loan divisions
est net charge-off ratios in the banking industry at .11 percent.
merged offering new home purchase customers quicker access to their
funds through TCF’s fast-close loan program.
Consumer lending had another exceptional year, comprising over 52
percent of Power Assets at year end. Consumer loans, which are 99
Our customers’ lives and business needs are evolving and we will continue
percent home equity loans, increased by $788.2 million, or 22 percent,
to develop and enhance products and services to meet their needs. At
during 2004, and ended the year with $4.4 billion in loans outstand-
TCF, we remain committed to being “The Leader in Convenience Banking.”
ing. This was accomplished by adding new lenders, plus developing and
maintaining our staff of the best consumer lenders in the marketplace.
Power Assets and Power Liabilities
In 2004, TCF continued its focus on building Power Assets and Power
TCF’s leasing and equipment finance operations delivered double-digit
growth in 2004, gaining $215 million in loans and leases outstanding,
Liabilities. TCF defines Power Assets as higher-yielding commercial
or 19 percent. This increase included the purchase of VGM Financial
loans, commercial real estate loans, leasing and equipment finance,
Services, a home medical equipment leasing company that TCF Leasing
and consumer home equity loans. Power Liabilities include checking,
acquired early in 2004. Overall, TCF’s leasing operations continued to
savings, money market accounts, and certificates of deposits. Power
improve credit quality by reducing net charge-offs and delinquencies
Assets and Power Liabilities now comprise approximately 66 percent
from year-end 2003.
of TCF’s balance sheet and in 2004 contributed over 92 percent of
net income.
TCF’s commercial lending group also performed well in 2004, increasing
loans outstanding by $234.1 million, or 10 percent. The addition of
TCF was one of the very first banks in America to offer “Totally Free
commercial real estate lending in the Colorado market and the
Checking” – which continues to be our most popular and most prof-
increased number of commercial lenders in our other banking states
itable deposit product. We now have over 1,500,000 checking 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.
Total New Branches1
(number of branches)
By year-end 2004, this resulted in $3.9 billion in checking deposits (an
Traditional Branches Supermarket Branches
increase of more than $657.6 million), $1.9 billion in savings deposits
and $659.7 million in money market accounts.
TCF’s Power Asset and Power Liability business strategies are inter-
related. Because Power Liabilities are 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. In 2004, TCF’s return on average assets was 2.15 percent and
return on average equity was 27.02 percent – one of the top performing
287
258
228
212
190
163
140
105
12/98
12/99
12/00
12/01
12/02
12/03
12/04
2005
Plan
1 Branches opened since January 1, 1998.
2004 Annual Report
15
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 16
contributed to this growth. With a focus on secured lending, this port-
There are a variety of ways local nonprofit organizations receive finan-
folio continues to have strong credit quality and low net charge-offs,
cial support from the TCF Foundation, TCF Bank and its employees:
ending the year at .03 percent.
• Branch Funds – Contributions or grants awarded to organizations
Power Assets and Power Liabilities remain the cornerstone of TCF’s
located near TCF branches.
growth, profitability and success.
Community Giving
TCF is dedicated to improving quality of life within the communities
we serve. We believe that we have a special obligation to local com-
munities that goes beyond simply providing financial services. TCF and
its employees support many local organizations through generous gifts
of time, talent and resources.
TCF reflects its commitment to the community by supporting a vari-
• Employee Matching Gifts – Donations contributed by employees,
matched dollar-for-dollar by TCF, to nonprofit organizations of
their choice.
• Employee’s Fund – Funds contributed by employees through pay-
roll deduction; contributions are matched 100 percent by the
TCF Foundation.
• TCF Foundation and Corporate Giving – Larger grants and multi-year
commitments awarded to many local and some national organizations.
ety of nonprofit organizations through volunteer time, management
During the past ten years, TCF has contributed more than $21 million
counsel and grants. This support is concentrated into four categories:
in grants to charitable organizations. We have also supported local
human services, community development, education, and arts & cul-
affordable housing efforts and assisted with the capitalization of
ture. Additionally, we provide assistance to many local organizations
several affordable housing loan funds.
supported by TCF employees through their active volunteerism or
service on boards and committees.
Checking Accounts
(thousands)
1,535
1,444
1,338
1,249
1,131
In June of 2004, TCF received the National Business Partner of the Year
Award from Goodwill Easter Seals. Seven years ago, TCF joined forces
with Goodwill/Easter Seals to develop a program to help give people
with barriers to employment a chance to learn skills for entry-level
work in the banking industry. TCF has since provided more than $300,000
to support Goodwill’s campaigns and its Bank Skills Training Program.
TCF and its employees are dedicated to making a difference to those
in need. We are proud of our investment and will continue to support
numerous programs vital towards improving the well-being of
our communities.
12/00
12/01
12/02
12/03
12/04
16
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 17
page
Management’s Discussion and Analysis
The Financials
18
20
20
20
21
21
21
25
26
30
31
32
32
32
32
36
38
39
40
40
41
41
42
42
43
43
46
46
46
46
46
47
47
48
53
77
78
80
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
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
Market Risk – 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
Controls and Procedures
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Management’s Report on Internal Control
Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Other Financial Data – Selected Quarterly Financial Data
2004 Annual Report
17
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 18
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
beginning 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 430 banking offices in
Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana
at December 31, 2004.
TCF provides convenient financial services through multiple
channels to customers located primarily in the Midwest. TCF has
developed products and services designed to meet the needs of
all consumers. The Company focuses on attracting and retaining
customers through service and convenience, including branches
that are open seven days a week and on most holidays, extensive
full-service supermarket branches and automated teller machine
(“ATM”) networks, and telephone and Internet banking. TCF’s philos-
ophy 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 super-
market bank branches, campus banking, EXPRESS TELLER® ATM’s,
Visa U.S.A. Inc. (“Visa”) debit cards, commercial banking, small
business banking, consumer lending, leasing and equipment finance
and investment, securities brokerage and insurance services.
TCF emphasizes the checking account as its anchor account, which
provides opportunities to cross-sell other convenience products
and services and generate additional fee income. During 2004,
TCF generated 504,310 new checking accounts and closed 412,979
accounts, or 28.6%, of the checking accounts existing at the begin-
ning of the year, up from 27% in 2003. TCF’s management monitors
the opening and closing of accounts and is pursuing opportunities to
reduce account attrition to further increase the growth in checking
accounts. The continued growth in checking accounts is a significant
part of TCF’s growth strategy.
At December 31, 2004, 258, or 60%, of TCF’s 430 branches were
opened since January 1, 1998 and consist of 197 supermarket branches
and 61 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 produce net losses during the
first 24-36 months of operations before they become profitable, and
therefore the level and timing of new branch expansion can have a
significant impact on TCF’s profitability. TCF’s growth in checking
accounts is primarily occurring in new branches with growth in older,
mature branches being slower. The success of TCF’s branch expansion
is dependent on the continued long-term success and viability of
branch banking. Success in the supermarket branches is also
dependent on the success and viability of the supermarket branch
locations. Economic slowdowns, financial or labor difficulties and
competitive pressures may have an adverse impact on the supermarket
industry and therefore reduce customer activity in TCF’s supermarket
branches. TCF is subject to the risk, among others, that its license for
its supermarket branches will terminate in connection with the sale
or closure of a store by a supermarket chain.
TCF’s lending strategy is to originate high credit quality, primarily
secured, loans and leases. Commercial loans are generally made
on local properties or to local customers. TCF’s largest core lending
business is its consumer home equity loan operation, which offers
fixed- and variable-rate loans and lines of credit secured by resi-
dential real estate properties. The leasing and equipment finance
businesses consist of Winthrop Resources Corporation (“Winthrop”),
a leasing company that primarily leases technology and data pro-
cessing equipment, and TCF Leasing, Inc. (“TCF Leasing”), a company
that delivers equipment finance solutions to businesses in select
markets. 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 inher-
ent in the loan and lease portfolio. See “Consolidated Financial
Condition Analysis – Allowance for Loan and Lease Losses.”
18
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 19
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, repre-
sents 50.1% of TCF’s total revenue. Net interest income can change
significantly from period to period based on general levels of inter-
est rates, customer prepayment patterns, the mix of interest earning
assets and the mix of interest bearing and non-interest bearing
deposits and borrowings. TCF manages the risk of changes in interest
rates on its net interest income through an Asset/Liability Committee
and through related interest rate risk monitoring and management
policies. See “Market Risk – Interest-Rate Risk” for further discus-
sion of TCF’s interest rate risk position.
The historically low interest rates in 2003 and 2004 were a
significant challenge to asset/liability risk and management made
several key decisions that impacted TCF’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 $111.8 million during 2004 and $1.5 billion during 2003.
The Company’s Visa debit card program has grown significantly
since its inception in 1996. TCF is one of the largest issuers of Visa
Classic debit cards in the United States. TCF earns interchange rev-
enue from customer debit card transactions. During 2004, 88.7% of
TCF’s debit card sales volume was generated from off-line (signature-
based) transactions. The average interchange rate on these off-line
transactions was 1.40% in 2004 compared with 1.43% in 2003. The
decrease in the average off-line interchange rate was the result of
Visa establishing new interchange rates, as part of the settlement
of its class action lawsuits, which took effect in August 2003 and
were revised in February 2004. Class action litigation against Visa
brought by certain merchants who chose not to participate in the
2003 settlements remains pending. In October 2004, the United
States Supreme Court decided not to hear an appeal of a ruling
that Visa and MasterCard may not bar member banks from issuing
cards on rival networks. Rival card networks, such as Discover and
American Express, have brought or are considering bringing private
legal action against Visa and MasterCard. Visa is a defendant in
several other legal actions. The ultimate impact of any such litiga-
tion cannot be predicted at this time. The continued success of
TCF’s debit card program is dependent on the success and viability
of Visa and the continued use by customers and acceptance by
merchants of its debit cards.
TCF’s mortgage banking business originated residential mortgage
loans and sold them to investors, primarily retaining the servicing
rights and related servicing revenue. During 2004, TCF restructured
its mortgage banking business by eliminating the wholesale loan
origination activities and downsizing and integrating its retail loan
origination function with TCF’s consumer lending business. TCF’s
mortgage banking business no longer originates any new loans and
continues to service the remaining $4.5 billion portfolio of mortgage
loans for third party investors. Generally accepted accounting prin-
ciples require TCF to record the value of the servicing rights on the
balance sheet at the time the loans are sold. Capitalized mortgage
servicing rights are amortized in proportion to, and over the period
of, estimated 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. TCF does not utilize derivatives to man-
age 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 2004,
2003 and 2002 and on information about TCF’s balance sheet, credit
quality, liquidity and funding resources, capital, critical accounting
estimates and other matters.
2004 Annual Report
19
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 20
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 & 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,
2004
982,357
491,891
10,947
467,866
22,600
586,934
384,476
129,483
254,993
1.87
1.86
.75
$
$
$
$
$
$
2003
900,424
481,145
12,532
430,792
(11,513)
560,109
327,783
111,905
215,878
1.53
1.53
.65
$
$
$
$
$
$
2002
918,987
499,225
22,006
406,264
13,498
539,288
357,693
124,762
232,931
1.58
1.58
.575
$
$
$
$
$
$
2001
852,708
481,222
20,878
367,307
4,179
501,996
329,834
122,512
207,322
1.37
1.35
.50
$
$
$
$
$
$
2000
774,812
438,536
14,772
323,463
12,813
457,202
302,838
116,593
186,245
1.18
1.17
.4125
$
$
$
$
$
$
At December 31,
(Dollars in thousands, except per-share data)
2004
2003
2002
2001
2000
Securities available for sale . . . . . . . . . . . . . . . .
$ 1,619,941
$ 1,533,288
$ 2,426,794
$ 1,584,661
$ 1,403,888
Residential real estate loans . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,014,166
2,634,107
1,212,643
2,745,931
1,800,344
4,227,138
2,733,290
4,317,951
3,673,831
5,077,719
Loans and leases excluding residential
real estate loans . . . . . . . . . . . . . . . . . . . . .
8,372,491
7,135,135
6,320,784
5,510,912
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,340,567
11,319,015
12,202,069
11,358,715
Checking, savings and money market deposits . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . .
Book value per common share . . . . . . . . . . . . . .
6,493,545
1,468,650
7,962,195
3,104,603
958,418
6.99
5,999,626
1,612,123
7,611,749
2,414,825
920,858
6.53
5,791,233
1,918,755
7,709,988
3,110,295
977,020
6.61
4,778,714
2,320,244
7,098,958
3,023,025
917,033
5.96
4,872,868
11,197,462
4,086,219
2,805,605
6,891,824
3,184,245
910,220
5.67
Key Ratios and Other Data:
Compound Annual Growth Rate
1-Year
2004/2003
5-Year
2004/1999
9.1%
2.2
(12.6)
8.6
N.M.
4.8
17.3
15.7
18.1
22.2
21.6
15.4
5.9%
3.0
(8.3)
11.3
(10.5)
5.6
7.1
3.9
9.0
13.1
13.2
15.7
Compound Annual Growth Rate
1-Year
2004/2003
5-Year
2004/1999
5.7%
(16.4)
(4.1)
17.3
9.0
8.2
(8.9)
4.6
28.6
4.1
7.0
1.3%
(23.7)
(13.5)
16.1
3.0
11.8
(12.6)
3.9
0.1
3.4
7.2
2000
1.72%
22.64
7.58
4.35
35.26%
352
1,131
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.
2004
2.15%
27.02
7.94
4.54
40.32%
430
1,535
At or For the Year Ended December 31,
2003
1.85%
23.05
8.03
4.54
42.48%
401
1,444
2002
2.01%
25.38
7.91
4.71
36.39%
395
1,338
2001
1.79%
23.06
7.78
4.51
37.04%
375
1,249
Performance Summary TCF reported diluted earnings per com-
mon share of $1.86 for 2004, compared with $1.53 for 2003 and $1.58
for 2002. Net income was $255 million for 2004, compared with $215.9
million for 2003 and $232.9 million for 2002. Return on average assets
was 2.15% in 2004, compared with 1.85% in 2003 and 2.01% in 2002.
Return on average equity was 27.02% in 2004, compared with 23.05%
in 2003 and 25.38% in 2002. During 2003, TCF prepaid $954 million of
high cost FHLB borrowings, incurring early termination fees of $44.3
million ($29.2 million after-tax) which reduced diluted earnings per
share by 21 cents. There were no debt terminations in 2004 or 2002.
20
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 21
Operating Segment Results BANKING, comprised of deposits
and investment products, commercial banking, small business bank-
ing, consumer lending, residential lending and treasury services,
reported net income of $219.9 million for 2004, up 22% from $180.2
million in 2003. Banking net interest income for 2004 was $427.5 mil-
lion, compared with $415.2 million for 2003. The provision for credit
losses totaled $4.1 million in 2004, down slightly from $4.4 million
in 2003. Non-interest income totaled $426.9 million, up 20.2% from
$355.1 million in 2003. During 2003, TCF prepaid $954 million of FHLB
advances and recorded losses on terminations of debt totaling
$44.3 million. There were no debt terminations during 2004. During
2004, TCF sold mortgage-backed securities and realized gains of
$22.6 million, compared with similar gains of $32.8 million for 2003.
See “Consolidated Income Statement Analysis – Consolidated Net
Interest Income” for further discussion on debt terminations and on
the sales of mortgage-backed securities. Fees and other revenues
were $404.3 million for 2004, up $37.7 million, or 10.3%, from 2003.
These increases resulted from TCF’s expanding branch network and
customer base, new products and services, and increased fees.
Banking non-interest expense totaled $516.6 million, up 5.6% from
$489.2 million in 2003. The increases were primarily due to costs
associated with new branch expansion.
TCF had 430 branches, including 248 full service supermarket
branches at December 31, 2004. During 2004, TCF opened 30 new
branches, of which 11 were supermarket branches. TCF remains
focused on a long-term strategy of expanding its franchise with the
planned opening of 29 new branches in 2005, consisting of 22 new
traditional branches, five new supermarket branches and two
campus branches. See “Consolidated Financial Condition Analysis –
New Branch Expansion” for further information.
LEASING AND EQUIPMENT FINANCE, an operating segment com-
prised of TCF’s wholly-owned subsidiaries Winthrop and TCF Leasing,
which includes TCF Leasing’s newly acquired business VGM Financial
Services (“VGM”), provides a broad range of comprehensive lease
and equipment finance products. During the first quarter of 2004,
TCF Leasing acquired VGM, a company specializing in financing of
home medical equipment. Leasing and Equipment Finance reported
net income of $35.9 million for 2004, up 22.6% from $29.3 million in
2003. Net interest income for 2004 was $55.7 million, up 22.8% from
$45.4 million in 2003. The provision for credit losses for this operat-
ing segment totaled $6.8 million in 2004, down from $8.2 million in
2003, primarily as a result of a decrease in net charge-offs. Non-
interest income totaled $50.7 million in 2004, down $391 thousand
from $51.1 million in 2003. 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 $43.7 million in 2004, up $1.7 million from $42 mil-
lion in 2003. Included in non-interest expenses for 2004 was an
impairment charge of $1.6 million related to a reduction in the
estimated residual value of an aircraft leveraged lease investment.
MORTGAGE BANKING activities included the origination of residen-
tial mortgage loans, generally for sale to third parties with servicing
retained and the servicing of loans for third party investors. This
operating segment reported a net loss of $3.2 million for 2004, com-
pared with net income of $2.9 million for 2003. TCF’s mortgage bank-
ing operations funded $856.7 million in loans during 2004, down from
$3 billion in 2003, primarily reflecting a decline in refinance activity
as well as the restructuring of this business operation. Non-interest
income totaled $14.3 million, up from $13.1 million in 2003. The
increase in non-interest income was primarily due to a $28.1 million
increase in net servicing income partially offset by a $26.9 million
decline in gains on sales of loans and other income. See Note 10
of Notes to the Consolidated Financial Statements for further dis-
cussion. The prepayment rate on the third party servicing portfolio
was 21.4% in 2004, down from 51.8% in 2003. Mortgage Banking’s
non-interest expense totaled $27.4 million for 2004, down 8.7%
from $30 million for 2003. Contributing to the decrease in non-
interest expense during 2004 were decreased expenses resulting
from the decline in refinance activity and the elimination of whole-
sale loan origination activities and downsizing and integrating of
the retail origination function with the consumer lending business.
The Mortgage Banking operations recorded $2.3 million of expense
related to the restructuring of its operations in 2004.
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 50.1% of TCF’s revenue in 2004. 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, by loan and deposit pricing strategies and competitive con-
ditions, the volume and the mix of interest-earning assets and
interest-bearing liabilities, and the level of non-performing assets.
2004 Annual Report
21
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 22
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, 2004
Year Ended
December 31, 2003
Change
Average
Yields
and
Interest(1) Rates
Average
Balance
Average
Balance
Interest(1)
Average
Yields
and
Rates
Average
Balance
Interest (1)
Average
Yields
and
Rates
(bps)
2.77% $
5.25
101,455 $
4,511
1,891,062
103,821
4.45% $
5.49
3.48
488,634
20,016
4.10
23,378 $
(1,056)
(168)
(354,389)
(157,105)
(23,178)
(8,483)
$
124,833 $
1,536,673
331,529
4,005,558
2,008,943
431,793
1,285,925
7,732,219
1,104,814
8,837,033
10,830,068
1,052,679
3,455
80,643
11,533
245,439
110,446
18,569
89,364
463,818
63,360
527,178
622,809
6.13
5.50
4.30
6.95
6.00
5.73
5.97
5.75
3,288,040
1,854,452
445,634
1,094,532
6,682,658
1,440,688
8,123,346
10,604,497
1,053,073
$11,657,570
$ 2,355,000
$ 2,232,883
1,338,893
1,823,852
763,925
3,926,670
1,493,938
5,420,608
7,775,608
809,106
1,984,069
2,793,175
8,213,783
3,820
7,490
2,992
14,302
28,279
42,581
42,581
12,664
75,673
88,337
130,918
130,918
.29
.41
.39
.36
1.89
.79
.55
1.57
3.81
3.16
1.59
1.24
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
10,311,643
409,539
10,721,182
936,388
$11,657,570
214,971
108,867
19,020
81,912
424,770
88,401
513,171
641,519
948
9,298
4,447
14,693
42,102
56,795
56,795
9,451
94,128
103,579
160,374
160,374
6.54
5.87
4.27
7.48
6.36
6.14
6.32
6.05
.09
.50
.50
.39
2.41
1.02
.73
1.25
5.29
4.08
1.99
1.56
$
$
717,518
154,491
(13,841)
191,393
1,049,561
(335,874)
713,687
225,571
(394)
225,177
122,117
274,513
(23,923)
(123,348)
127,242
(249,595)
(122,353)
(236)
51,978
205,398
257,376
135,023
257,140
(39,355)
217,785
7,392
$
225,177
(24)
(62)
(41)
(37)
3
(53)
(36)
(41)
(35)
(30)
20
(9)
(11)
(3)
(52)
(23)
(18)
30,468
1,579
(451)
7,452
39,048
(25,041)
14,007
(18,710)
2,872
(1,808)
(1,455)
(391)
(13,823)
(14,214)
(14,214)
3,213
32
(18,455)
(148)
(15,242)
(29,456)
(29,456)
(92)
(40)
(32)
(Dollars in thousands)
Assets:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale (2) . . . . . . . . . . . . . . . . . .
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 (3) . . . . . . . . . . . . . . .
Total interest-earning assets . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Stockholders’ Equity:
Non-interest bearing deposits . . . . . . . . . . . . . . . . .
Interest-bearing deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . .
Borrowings:
Short-term borrowings . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . .
Total borrowings . . . . . . . . . . . . . . . . . . . . . .
Total interest-bearing liabilities . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
$11,882,747
Total deposits and borrowings . . . . . . . . . . .
10,568,783
Other liabilities (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity (4) . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . .
370,184
10,938,967
943,780
$11,882,747
Net interest income and margin . . . . . . . . . . . . . . .
$
491,891
4.54%
$
481,145
4.54%
$
10,746
–
bps = basis points.
(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 $638,000 and $523,000
was recognized during the years ended December 31, 2004 and 2003, 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
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132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 23
Year Ended
December 31, 2003
Year Ended
December 31, 2002
Change
Average
Balance
Interest(1)
Average
Yields
and
Rates
Average
Balance
Interest(1)
Average
Yields
and
Rates
Average
Balance
Interest(1)
$
101,455 $
4,511
4.45% $
154,862 $
6,934
4.48% $
(53,407) $
(2,423)
(Dollars in thousands)
Assets:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale (2) . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,891,062
488,634
103,821
20,016
5.49
4.10
1,879,674
437,702
118,272
22,464
6.29
5.13
11,388
50,932
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
6.93
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 of deposit . . . . . . . . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity (4) . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . .
409,539
10,721,182
936,388
$11,657,570
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
9,903
128,849
138,752
234,138
234,138
.16
1.02
1.06
.80
3.24
1.73
1.29
1.73
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
$
Average
Yields
and
Rates
(bps)
(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)
(88)
(531)
(6,626)
(5,290)
(12,447)
(26,144)
(38,591)
(38,591)
(452)
(34,721)
(35,173)
(73,764)
(73,764)
(7)
(52)
(56)
(41)
(83)
(71)
(56)
(48)
(37)
(79)
(81)
(72)
Net interest income and margin . . . . . . . . . . . . . . . . . . .
$
481,145
4.54%
$
499,225
4.71%
$
(18,080)
(17)
bps = basis points.
(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 and $354,000
was recognized during the years ended December 31, 2003 and 2002, 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.
2004 Annual Report
23
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 24
The following table presents the components of the changes in net interest income by volume and rate:
(In thousands)
Interest income:
Investments . . . . . . . . . . . . . . . . . . . . . . . .
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 of deposit . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31, 2004
Versus Same Period in 2003
Increase (Decrease) Due to
Year Ended
December 31, 2003
Versus Same Period in 2002
Increase (Decrease) Due to
Volume (1)
Rate(1)
Total
Volume (1)
Rate (1)
Total
$
890
(18,761)
(5,775)
$ (1,946)
(4,417)
(2,708)
$ (1,056)
(23,178)
(8,483)
$ (2,375)
713
2,421
$
(48)
(15,164)
(4,869)
$ (2,423)
(14,451)
(2,448)
44,623
8,743
(594)
13,597
(19,557)
13,444
189
(119)
(566)
(5,508)
684
9,982
3,911
10,247
(14,155)
(7,164)
143
(6,145)
(5,484)
(32,154)
2,683
(1,689)
(889)
(8,315)
2,529
(28,437)
(33,367)
499
30,468
1,579
(451)
7,452
(25,041)
(18,710)
2,872
(1,808)
(1,455)
(13,823)
3,213
(18,455)
(29,456)
10,746
40,204
7,026
518
8,009
(49,442)
1,006
209
2,535
(329)
(10,602)
2,693
(26,838)
1,396
685
(32,725)
(16,514)
(4,197)
(11,544)
(13,857)
(92,850)
(740)
(9,161)
(4,961)
(15,542)
(3,145)
(7,883)
(75,160)
(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)
(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.
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 asset
sensitive (i.e. more assets than liabilities will be maturing, repricing,
or prepaying during the next twelve months). Although this positive
gap position may benefit TCF in a rising rate environment, if interest
rates remain at current levels or fall further, the net interest margin
may compress and net interest income may decline. An increase in
interest rates would affect TCF’s fixed-rate/variable-rate product
origination mix and would extend the estimated life of its residen-
tial real estate loan and mortgage-backed securities portfolios. A
change in origination mix and/or the extending of the estimated
life of mortgage-related assets may have an adverse impact on
future net interest income or net interest margin as fixed-rate
assets are funded with interest-bearing liabilities with increasing
rates. Competition for checking, savings and money market deposits,
important sources of lower-cost funds for TCF, is intense. A decline
in these 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 – Market Risk – Interest-Rate Risk” and “Consolidated
Financial Condition Analysis – Deposits” for further discussion on
TCF’s interest rate risk position.
24
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 25
The increase in 2004 in net interest income primarily reflects the
growth in average consumer, commercial and leasing and equipment
finance balances, up $1 billion over 2003, partially offset by the
reductions in residential real estate loans and mortgage-backed
securities, down $690.3 million from 2003, and residential mortgage
loans held for sale down $179.9 million during the same period. The
decrease in average residential real estate loans and mortgage-
backed securities reflects management’s decision to delay investing
in long-term fixed-rate residential real estate loans and mortgage-
backed securities to replace prepayments and sales of such assets
during the very low interest rate environment coupled with the growth
in higher yielding consumer, commercial and lease equipment finance
loans and leases.
The decrease in 2003, from 2002, in both net interest income and
net interest margin was primarily the result of a decline in the over-
all 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 88 basis points from
6.93% 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 $75.2 mil-
lion due to lower cost of funds, partially offset by a $1.4 million
increase due to volume.
Net interest income and net interest margin in 2002 increased
from 2001 primarily as a result of 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 (commercial,
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.
Provision for Credit Losses TCF provided $10.9 million for
credit losses in 2004, compared with $12.5 million in 2003 and $22
million in 2002. The decrease in the provision from 2003 primarily
reflects declines in net charge-offs. Net loan and lease charge-offs
were $9.5 million, or .11% of average loans and leases in 2004, down
from $12.9 million, or .16% of average loans and leases in 2003 and
$20 million, or .25% of average loans and leases in 2002. Leasing
and equipment finance net charge-offs were $5.5 million, or .43% of
related average loans and leases during 2004, down from $7.5 million,
or .69% of related average loans and leases in 2003. The determination
of the allowance for loan and lease losses and the related provision
for credit losses is a critical accounting estimate which involves a
number of factors such as net charge-offs, delinquencies in the loan
and lease portfolio, value of collateral, general economic conditions
and management’s assessment of credit risk in the current loan and
lease portfolio. Also see “Consolidated Financial Condition Analysis
– Allowance for Loan and Lease Losses.”
2004 Annual Report
25
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 26
Non-Interest Income Non-interest income is a significant
source of revenue for TCF, representing 49.9% of total revenues
in 2004, and is an important factor in TCF’s results of operations.
Providing a wide range of retail banking services is an integral
component of TCF’s business philosophy and a major strategy for
generating additional non-interest income. Total non-interest
income was $490.5 million for 2004, up $71.2 million from $419.3
million in 2003. Non-interest income totaled $419.8 million in 2002.
Significantly impacting non-interest income during 2003 were losses
on terminations of debt of $44.3 million, which were part of the strat-
egy to restructure the balance sheet and reduce funding costs in
future periods. There were no terminations of debt in either 2004
or 2002. Fees and other revenue increased $37.1 million, or 8.6%,
during 2004. This increase in 2004 was driven by increased fees,
service charges and card revenue generated by TCF’s expanding
branch network and customer base. The increases in fees and service
charges and card revenue primarily reflect an increase in the num-
ber of checking accounts, which totaled 1,535,152 accounts at
December 31, 2004, up from 1,443,821 accounts at December 31,
2003 and 1,338,313 accounts at December 31, 2002. The average
annual fee revenue per retail checking account was $232 for 2004,
compared with $227 for 2003 and $218 for 2002.
The following table presents the components of non-interest income:
Year Ended December 31,
(Dollars in thousands)
2004
2003
2002
2001
Fees and service charges . . . . . . . . . . . . . . . . . . .
$271,664
$247,456
$226,051
$195,162
Card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments and insurance revenue . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . .
Mortgage banking . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees and other revenue . . . . . . . . . . . . .
Gains on sales of:
63,312
42,935
12,558
390,469
50,323
12,960
14,114
467,866
Securities available for sale . . . . . . . . . . . . .
22,600
Branches . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on termination of debt . . . . . . . . .
–
–
Other non-interest income . . . . . . . . . .
Total non-interest income . . . . . . .
22,600
$490,466
Fee revenue per retail checking
52,991
43,623
13,901
357,971
51,088
12,719
9,014
430,792
32,832
–
(44,345)
(11,513)
$419,279
47,190
45,296
15,848
334,385
51,628
6,979
13,272
406,264
11,536
1,962
–
13,498
$419,762
40,525
45,768
11,554
293,009
45,730
12,042
16,526
367,307
863
3,316
–
4,179
$371,486
2000
$166,394
30,613
47,334
12,266
256,607
38,442
10,519
17,895
323,463
–
12,813
–
12,813
$336,276
account (in dollars) . . . . . . . . . . . . . . . . . . .
$
232
$
227
$
218
$
209
$
190
Fees and other revenue as a:
percentage of total revenue . . . . . . . . . . . . .
percentage of average assets . . . . . . . . . . .
47.63%
3.94
47.84%
3.70
44.21%
3.50
43.08%
3.18
41.75%
2.98
Compound Annual Growth Rate
1-Year
2004/2003
5-Year
2004/1999
9.8%
19.5
(1.6)
(9.7)
9.1
(1.5)
1.9
56.6
8.6
14.5%
25.0
(1.5)
(3.3)
12.1
12.0
.3
1.9
11.3
17.0
2.2
9.4
6.7
26
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 27
Fees and Service Charges Fees and service charges increased
$24.2 million, or 9.8%, in 2004 and $21.4 million, or 9.5%, in 2003.
This increase primarily reflects the impact of TCF’s expanding
branch network and customer base, new products and services,
and increased fees.
Card Revenue During 2004, card revenue, primarily interchange
fees, totaled $63.3 million, up 19.5%, from $53 million in 2003. The
increase in card revenue in 2004 was primarily attributed to a 21.4%
increase in sales volumes generated by increases in both active
accounts and the number of transactions per active account, par-
tially offset by a 3 basis point decline in average off-line interchange
rates from 2003. Interchange fees have been impacted as a result of
the settlement of certain merchant litigation against Visa in 2003. As
part of the settlement, interchange rates on debit cards for certain
merchants were reduced from August 2003 through February 2004.
Additionally, as part of the settlement, Visa established new
interchange rates for debit cards, which took effect in February 2004,
and these rates increased from the rate established August 1, 2003;
however, overall these new rates remained below the rates which were
in effect prior to August 2003.
ATM Revenue ATM revenue totaled $42.9 million for 2004, down
1.6% from $43.6 million for 2003. The declines in ATM revenue were
attributable to the continued decline in utilization of non-owned
ATM machines by TCF customers and declines in utilization of TCF’s
ATM machines by non-customers partially offset by the increased
number of TCF customers with cards. These declines resulted from
increased use of debit cards as well as the increased competition
from other ATM machine networks. 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. At
December 31, 2004, TCF had 1,141 EXPRESS TELLER® ATM machines,
compared with 1,166 machines at December 31, 2003.
The following table sets forth information about TCF’s card business:
(Dollars in thousands)
Average number of checking accounts with a TCF card . . . . . . . . . . . .
Active card users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average number of transactions per month . . . . . . . . . . . . . . . . . . . .
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,
2004
1,323,877
710,893
13.5
$4,197,678
537,124
$4,734,802
88.66%
1.40%
2003
1,193,936
647,407
12.5
$3,543,657
355,045
$3,898,702
90.89%
1.43%
2002
1,087,592
578,347
11.8
$2,958,633
257,560
$3,216,193
91.99%
1.55%
Percentage Increase (Decrease)
2004/2003
2003/2002
10.9%
9.8
8.0
18.5
51.3
21.4
(2.5)
(2.1)
9.8%
11.9
5.9
19.8
37.8
21.2
(1.2)
(7.7)
2004 Annual Report
27
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 28
Investments and Insurance Revenue Investments and
insurance revenue, consisting principally of commissions on sales
of annuities and mutual funds, decreased $1.3 million in 2004,
compared with a decrease of $1.9 million in 2003. Annuity and
mutual fund sales volumes totaled $212.2 million for the year
ended December 31, 2004, compared with $239.5 million during
2003. The decreased sales volumes during 2004 were the result of the
continuation of low interest rates which reduced the rate of return
on annuity products offered by insurance companies. Sales of insur-
ance 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 $765 thousand, or 1.5%,
in 2004, following a decrease of $540 thousand or 1%, in 2003. The
decrease in leasing revenues for 2004 was primarily driven by a decline
in operating lease revenues of $6.1 million, partially offset by a
$3.3 million increase in sales-type lease revenues and a $2 million
increase in other leasing revenues during 2004. Sales-type revenues
generally occur at or near the end of the lease term as customers
extend the lease or purchase the underlying equipment. As
Winthrop’s outstanding lease receivables have declined and coupled
with the period new leases take to reach the end of term, it is antici-
pated that sales-type revenues in 2005 will be lower than those
achieved in 2004 and 2003. The decrease in leasing revenues for 2003
was primarily driven by a decline in sales-type revenues of $3 million
in 2003, partially offset by a $2 million increase in operating lease
revenues during 2003. 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 During 2004, TCF restructured its
mortgage banking business by eliminating the wholesale loan origina-
tion activities and downsizing and integrating its retail loan origination
function with TCF’s consumer lending business. TCF’s mortgage banking
business no longer originates any new loans and continues to service
the remaining $4.5 billion portfolio of mortgage loans for third party
investors. As a result, gains on sales of loans declined as origination
volumes declined in 2004, and there will be no gains on sales of loans
in 2005. The increase in mortgage banking revenues during 2003 was
primarily due to increased gains on sales of loans, up $15.4 million
over 2002, partially 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 following table sets forth information about mortgage banking revenues:
(Dollars in thousands)
Servicing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less mortgage servicing:
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net servicing income (loss) . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
$ 17,349
13,091
1,500
14,591
2,758
8,107
2,095
Total mortgage banking revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,960
Year Ended December 31,
2003
$ 20,533
23,680
21,153
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
2001
$ 16,932
2000
$ 12,642
16,564
4,400
20,964
(4,032)
11,795
4,279
5,326
–
5,326
7,316
1,347
1,856
$ 12,042
$ 10,519
The following table sets forth information about the mortgage servicing portfolio:
(Dollars in thousands)
Third party servicing portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average note rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized mortgage servicing rights, net . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights as a percentage of servicing portfolio . . . .
Average servicing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights as a multiple of average servicing fee . . . .
bps = basis points.
2004
$4,503,564
At December 31,
2003
$5,122,741
2002
$5,576,066
5.78%
5.97%
6.64%
$
46,442
$
52,036
$
62,644
1.03%
31.0bps
3.3X
1.02%
31.7bps
3.2 X
1.12%
32.9bps
3.4 X
Percentage Increase (Decrease)
2003/2002
2004/2003
(12.1)%
(3.2)
(10.8)
1.0
(2.2)
3.1
(8.1)%
(10.1)
(16.9)
(8.9)
(3.6)
(5.9)
28
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 29
Mortgage servicing revenues can be significantly impacted by the
amount of amortization and provision for impairment of mortgage
servicing rights. The valuation of mortgage servicing rights is a criti-
cal accounting estimate for TCF. This estimate is based upon loan
types, note rates and prepayment assumptions. Changes in the mix
of loans, interest rates, defaults or prepayment speeds may have a
material effect on the amortization amount and possible impairment
in valuation. In a declining interest rate environment, prepayment
speed assumptions will increase and result in an acceleration in
the amortization of the mortgage servicing rights as the assumed
underlying portfolio declines and also may result in impairment as
the value of the mortgage servicing rights decline. TCF periodically
evaluates its capitalized mortgage servicing rights for impairment.
A key component in determining the fair value of mortgage servicing
rights is the projected cash flows of the underlying loan portfolio.
TCF uses projected cash flows and related prepayment assumptions
based on management’s best estimates. 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 prepayment speed assumptions and the weighted average
remaining life of the loans by interest rate tranche used in the determination of the value and amortization of mortgage servicing rights as of
December 31, 2004 and 2003:
(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 . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2004
Prepayment
Speed
Assumption
Weighted
Average Life
(in Years)
11.3%
16.1
23.2
25.6
27.6
15.8
7.5
5.8
4.0
3.4
3.0
5.8
2003
Prepayment
Speed
Assumption
Weighted
Average Life
(in Years)
13.3%
17.9
25.4
31.8
35.5
19.0
7.2
5.6
3.8
2.7
2.3
5.1
Unpaid
Balance
$1,648,918
1,407,315
830,161
740,675
495,672
$5,122,741
Unpaid
Balance
$1,707,934
1,409,983
691,148
453,017
241,482
$4,503,564
At December 31, 2004 and 2003, the sensitivities 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,
2004
$55.9
5.8
15.8%
7.5%
$(3.1)
$(7.1)
$(1.5)
$(3.4)
2003
$58.0
5.1
19.0%
7.5%
$(3.2)
$(7.4)
$(1.3)
$(3.3)
These sensitivities are theoretical and should be used with cau-
tion. As the figures indicate, changes in fair value based on a given
variation in assumptions generally cannot be extrapolated because
the relationship of the change in assumption to the change in fair
value may not be linear. Also, in the above table, the effect of a
variation in a particular assumption on the fair value of the mortgage
servicing rights is calculated independently without changing any
other assumptions. In reality, changes in one factor may result in
changes in another (for example, changes in prepayment speed
estimates could result in changes in discount rates or market
interest rates), which might either magnify or counteract the
sensitivities. TCF does not use derivatives to hedge its mortgage
servicing rights asset.
2004 Annual Report
29
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 30
Other Non-interest Income Other non-interest income con-
sists of gains on sales of securities available for sale, gains on sales
of education loans, losses on termination of debt and gains on sales
of branches.
Gains on securities available for sale of $22.6 million, $32.8
million and $11.5 million were recognized on the sales of $1.4 billion,
$816.5 million and $473.9 million in mortgage-backed securities in
2004, 2003 and 2002, respectively. Gains of $7.8 million, $3.1 million
and $2.7 million were recognized on the sales of education loans in
2004, 2003 and 2002, 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 prepayments of debt during 2004 or 2002.
There were no branch sales during 2004 or 2003. During 2002,
TCF recognized a gain of $2 million on the sale of a branch with
$17.1 million in deposits. TCF may periodically sell branches that
it considers underperforming or have limited growth potential.
Non-Interest Expense Non-interest expense increased $26.8 million, or 4.8%, in 2004, and $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:
(Dollars in thousands)
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . .
Total compensation and
employee benefits . . . . . . . . . . . . . . . . .
Occupancy and equipment . . . . . . . . . . . . . . . . .
Advertising and promotions . . . . . . . . . . . . . . . .
Deposit account losses . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of goodwill . . . . . . . . . . . . . . . . . . .
2004
$273,083
49,741
322,824
95,617
26,353
22,624
119,516
586,934
–
Year Ended December 31,
2003
$256,447
46,357
302,804
88,423
25,536
18,820
124,526
560,109
–
2002
$254,341
39,954
294,295
83,131
21,894
19,206
120,762
539,288
–
2001
$234,029
32,789
266,818
78,774
20,909
19,236
108,482
494,219
7,777
Total non-interest expense . . . . . . . . . . . . .
$586,934
$560,109
$539,288
$501,996
Compound Annual Growth Rate
1-Year
2004/2003
5-Year
2004/1999
6.5%
7.3
6.6
8.1
3.2
20.2
(4.0)
4.8
–
4.8
5.7%
9.9
6.2
5.4
9.2
5.7
4.9
5.9
–
5.6
2000
$209,479
29,455
238,934
74,938
19,181
19,534
96,909
449,496
7,706
$457,202
Compensation and employee benefits, representing 55%, 54.1%
and 54.6% of total non-interest expense in 2004, 2003 and 2002,
respectively, increased $20 million, or 6.6%, in 2004, $8.5 million, or
2.9%, in 2003 and $27.5 million, or 10.3%, in 2002. The 2004 increase
in compensation expense of 6.5% was driven by a $9.5 million increase
in retail banking operations driven by TCF’s continued new branch
expansion, a $6.7 million increase in incentive compensation result-
ing from improved performance in 2004 and a $2.1 million increase
related to the 2004 acquisition of VGM, partially offset by a $2.9
million decrease in stock compensation expense. Compensation
expense increased $2.1 million, or .8%, in 2003 and was primarily
due to higher levels of mortgage banking production and costs
associated with branches opened during 2003 and 2002, partially
offset by a $1.7 million decline in stock compensation expense.
The 2002 increase of 8.7% in compensation expense was primarily
due to costs associated with new branch expansion and the addition
of lenders and sales representatives. In 2004, employee benefits
totaled $49.7 million, up 7.3%, from 2003, and resulted from an
increase in retirement, payroll taxes and medical expenses of $3.8
million. The 2003 and 2002 increases in employee benefits expense
of $6.4 million, and $7.2 million, respectively, were primarily driven
by increases in retirement and medical expenses. See Note 18 of
Notes to Consolidated Financial Statements for further information
on postretirement plans.
30
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 31
Occupancy and equipment expenses increased $7.2 million in
2004, $5.3 million in 2003 and $4.4 million in 2002. The increases
were primarily due to TCF’s new branch expansion and retail banking
and leasing activities.
Advertising and promotion expenses increased $817 thousand in
2004 following increases of $3.6 million in 2003 and $985 thousand
in 2002. The increases were attributable to additional advertising
and promotions expenses focused on the acquisition and retention
of TCF’s deposit customer base.
Deposit account losses totaled $22.6 million in 2004, up $3.8
million from 2003 as a result of increased customer transaction
activity. Deposit account losses declined in 2003 and 2002 by
$386 thousand and $30 thousand, respectively.
Other non-interest expense decreased $5 million, or 4%, in 2004,
primarily attributable to real estate expense, which decreased
$3.1 million to a negative $175 thousand in 2004 driven by $3.4 mil-
lion of net recoveries on sales and redemptions of properties and
a decrease in mortgage banking expenses of $2 million due to the
decline in refinance activity and the previously discussed restructur-
ing of the mortgage banking business. In 2003, other non-interest
expense increased $3.8 million, or 3.1%, primarily the result of higher
levels of mortgage banking production and prepayment activity. In
2002, other non-interest expense increased $12.3 million, or 11.3%,
primarily the result of increased expenses associated with expanded
retail banking and leasing operations, card processing expense result-
ing from increased utilization and higher levels of production and
prepayment activity in the mortgage banking business. A summary
of other expense is presented in Note 24 of Notes to Consolidated
Financial Statements.
Income Taxes Income tax expense represented 33.68% of income
before income tax expense during 2004, compared with 34.14% and
34.88% in 2003 and 2002, respectively. The lower effective tax rate
in 2004 and 2003 primarily reflects increases in investments in tax-
advantaged affordable housing limited partnerships and lower state
and local income taxes.
TCF has a Real Estate Investment Trust (“REIT”) and a related
foreign operating company 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 and related companies must meet specific
provisions of the Internal Revenue Code (“IRC”) and state tax laws.
If these companies fail to meet any of the required provisions of
Federal and state tax laws, TCF’s tax expense could increase. TCF’s
related companies have included companies that operate under pro-
visions of the laws in certain states in which TCF operates (including
Minnesota and Illinois) that allow deductions for income derived
from foreign operating companies. Use of these companies has been
the subject of administrative audit reviews, and proposed legisla-
tive change. Unfavorable developments in any of these areas could
substantially increase TCF’s state tax liability.
The determination of current and deferred income taxes is a
critical accounting estimate which is based on complex analyses of
many factors including interpretation of Federal and state income
tax laws, the differences between the tax and financial reporting
bases of assets and liabilities (temporary differences), estimates
of amounts due or owed such as the timing of reversal of temporary
differences and current financial accounting standards. Additionally,
there can be no assurances that estimates and interpretations used
in determining income tax liabilities may not be challenged by
Federal and state taxing authorities. Actual results could differ
significantly from the estimates and tax law interpretations used
in determining the current and deferred income tax liabilities. In
addition, under generally accepted accounting principles, deferred
income tax assets and liabilities are recorded at the current prevail-
ing Federal and state income tax rates. If such rates change, deferred
income tax assets and liabilities must be adjusted in the period of
change through a charge or credit to the Consolidated Statements
of Income. Further detail on income taxes is provided in Note 14 of
Notes to Consolidated Financial Statements.
2004 Annual Report
31
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 32
CONSOLIDATED FINANCIAL CONDITION ANALYSIS
Securities Available for Sale Securities available for sale
increased $86.7 million during 2004 to $1.6 billion at December 31,
2004. This increase reflects purchases of $1.9 billion of mortgage-
backed securities during 2004, partially offset by sales of $1.4 billion
of mortgage-backed securities, in which the company recognized
$22.6 million in gains on sales of securities available for sale, and
normal payment and prepayment activity. TCF’s securities available
for sale portfolio included $1.6 billion and $10.2 million of fixed-
rate and adjustable-rate mortgage-backed securities, respectively.
Net unrealized losses on securities available for sale totaled $2.2
million at December 31, 2004, compared with net unrealized gains
of $8.9 million at December 31, 2003. 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 includes education
and residential mortgage loans. Education loans held for sale were
$154.3 million and $234.3 million at December 31, 2004 and 2003,
respectively. Education loans are generally sold when the student
graduates or drops below half-time status. Residential mortgage
loans held for sale were part of TCF’s mortgage banking business
that was restructured in 2004. At December 31, 2004, TCF had no
residential mortgage loans held for sale, compared with $101 mil-
lion in residential mortgage loans held for sale at December 31,
2003. TCF does not anticipate selling residential loans in the
secondary market in the future.
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:
2004
2003
2002
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,418,588
$3,630,341
$3,005,882
Commercial real estate . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . .
2,154,396
424,135
1,375,372
8,372,491
1,014,166
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
2001
$2,509,333
1,622,461
422,381
956,737
5,510,912
2,733,290
2000
$2,234,134
1,371,841
410,422
856,471
4,872,868
3,673,831
Total loans and leases . . . . . . . . . . . . . . . . .
$9,386,657
$8,347,778
$8,121,128
$8,244,202
$8,546,699
Compound Annual Growth Rate
1-Year
2004/2003
5-Year
2004/1999
21.7%
12.4
(.8)
18.5
17.3
(16.4)
12.4
16.5%
14.9
3.8
22.8
16.1
(23.7)
3.5
(In thousands)
At December 31, 2004
Geographic Distribution:
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
$1,789,382
776,654
1,151,067
429,725
227,630
645
9,350
474
4,698
28,963
$4,418,588
Commercial
$ 733,203
770,265
430,477
369,669
33,521
22,794
23,245
1,339
20,488
173,530
$2,578,531
Leasing and
Equipment
Finance
$
63,624
89,694
47,926
35,361
30,284
175,154
94,891
88,919
54,019
695,500
Residential
Real Estate
$ 517,854
261,678
173,103
28,104
6,459
–
744
1,200
5,760
19,264
Total
$3,104,063
1,898,291
1,802,573
862,859
297,894
198,593
128,230
91,932
84,965
917,257
$1,375,372
$1,014,166
$9,386,657
32
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 33
Loans and leases increased $1 billion from year-end 2003 to $9.4
billion at December 31, 2004, reflecting increases of $788.2 million
in consumer loans, $237.7 million in commercial real estate loans
and $215 million in leasing and equipment finance, partially offset
by decreases of $198.5 million in residential real estate loans and
$3.6 million in commercial business loans. The decline in residential
real estate loans during 2004 was due to prepayments. Management
expects that the residential loan portfolio will continue to decline,
which will provide funding for anticipated growth in other loan or
investment categories. At December 31, 2004, TCF’s residential real
estate loan portfolio was comprised of $782.1 million of fixed-rate
loans and $226.9 million of adjustable-rate loans.
Consumer loans increased $788.2 million from year-end 2003 to
$4.4 billion at December 31, 2004, driven by an increase of $794 million
in home equity loans. Approximately 66% of the home equity portfolio
at December 31, 2004 consisted of closed end loans, compared with
70% at December 31, 2003. In addition, at December 31, 2004, 62%
of this portfolio carries a variable interest rate tied to the prime rate,
compared with 60% at December 31, 2003. Outstanding balances on
home equity lines of credit were 49.6% of total lines of credit balances
at December 31, 2004, compared with 45.4% at December 31, 2003.
At December 31, 2004, the weighted average loan-to-value
ratio for the home equity portfolio was 75%, compared with 74% at
December 31, 2003. TCF’s credit standards limit higher loan-to-value
ratio loans to more creditworthy customers, generally based on credit
scoring models. The average FICO (Fair Isaac Company) credit score
for the home equity portfolio was 716 and 711 at December 31, 2004
and 2003, respectively.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance
$
32,825
449,291
1,750,531
2,149,369
$4,382,016
At December 31,
2004
Percent
of Total
.7%
10.3
39.9
49.1
100.0%
Over 30-Day
Delinquency as
a Percentage
of Balance
3.02%
.38
.32
.32
.35%
Balance
$
39,452
361,374
1,370,523
1,816,678
$3,588,027
2003
Percent
of Total
1.1%
10.1
38.2
50.6
100.0%
Over 30-Day
Delinquency as
a Percentage
of Balance
4.81%
.78
.40
.39
.48%
(1) Loan-to-value is based on the loan amount (current outstanding balance on closed-end loans and the total commitment on lines of credit) plus deferred loan origination costs net of fees and refundable
insurance premiums, if any, plus the amount of senior liens, if any. Property values represent the most recent market value or property tax assessment value known to TCF.
(2) Amount reflects the total outstanding loan balance. The portion of the loan balance in excess of 100% of the property value is substantially less than the amount included above.
The following tables summarize 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2004
Construction
and
Development
$
2,795
35,865
28,142
1,729
15,700
9,308
103,181
Permanent
$ 524,253
420,874
382,068
258,561
122,236
44,344
205,340
Total
$ 527,048
456,739
410,210
260,290
137,936
53,652
308,521
$1,957,676
$ 196,720
$2,154,396
2003
Construction
and
Development
$
28,983
33,262
10,139
1,253
19,270
17,664
60,695
$ 171,266
Permanent
$ 519,622
399,112
304,295
189,635
131,367
32,157
169,247
$1,745,435
Total
$ 548,605
432,374
314,434
190,888
150,637
49,821
229,942
$1,916,701
2004 Annual Report
33
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 34
(Dollars in thousands)
Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office buildings . . . . . . . . . . . . . . . . . . . . . . . . .
Retail services . . . . . . . . . . . . . . . . . . . . . . . . .
Warehouse/industrial buildings . . . . . . . . . . . .
Hotels and motels . . . . . . . . . . . . . . . . . . . . . .
Health care facilities . . . . . . . . . . . . . . . . . . . .
Balance
$ 527,048
456,739
410,210
260,290
137,936
53,652
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
308,521
$2,154,396
2004
Number
of Loans
650
241
375
243
35
26
292
1,862
At December 31,
Over 30-Day
Delinquency as a
Percentage
of Balance
Balance
–%
$ 548,605
–
–
–
–
–
432,374
314,434
190,888
150,637
49,821
.01
–%
229,942
$1,916,701
2003
Number
of Loans
730
304
282
172
35
17
200
1,740
Over 30-Day
Delinquency as a
Percentage
of Balance
–%
–
–
–
–
–
.03
–%
Commercial real estate loans increased $237.7 million from year-end 2003 to $2.2 billion at December 31, 2004. Commercial business loans
decreased $3.6 million in 2004 to $424.1 million at December 31, 2004. 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, 2004,
approximately 98% of TCF’s commercial real estate and commercial business loans were secured either by properties or underlying business
assets. At December 31, 2004 and 2003, the construction and development portfolio had no loans over 30-days delinquent. At December 31,
2004, approximately 92% of TCF’s commercial real estate loans outstanding were secured by properties located in its primary markets.
The following tables summarize TCF’s leasing and equipment finance portfolio by marketing segment and by equipment type:
(Dollars in thousands)
Marketing Segment
Middle Market(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small ticket(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Winthrop(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leveraged leases . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance
$ 747,964
258,094
200,819
83,913
18,786
65,796
2004
Percent
of Total
54.3%
18.8
14.6
6.1
1.4
4.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,375,372
100.0%
At December 31,
Over 30-Day
Delinquency as a
Percentage
of Balance
Balance
.51%
$ 595,812
.75
1.10
–
–
1.68
.67%
124,178
229,441
80,983
22,728
107,255
2003
Percent
of Total
51.3%
10.7
19.8
7.0
2.0
9.2
Over 30-Day
Delinquency as a
Percentage
of Balance
.88%
.56
1.14
.37
–
1.78
.93%
$1,160,397
100.0%
(1) Middle market consists primarily of loan and lease financing of construction and manufacturing equipment and speciality vehicles.
(2) Small ticket includes loan and lease financings to small- and mid-size companies through programs with vendors, manufacturers, distributors, buying groups, and franchise organizations,
which as of December 31, 2004 includes the portfolio of VGM. Individual contracts generally range from $25 thousand to $250 thousand.
(3) Winthrop’s portfolio consists primarily of technology and data processing equipment.
(4) Wholesale includes the discounting of lease receivables sourced by third party lessors.
34
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 35
(Dollars in thousands)
Equipment Type
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trucks and trailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Material handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2004
2003
Percent of
Total
Balance
Percent of
Total
18.2%
$ 198,321
17.2
16.7
13.3
11.5
5.4
3.7
3.3
2.5
1.6
6.6
225,073
249,515
133,104
33,462
89,262
54,052
38,977
27,111
23,965
87,555
17.1%
19.4
21.5
11.5
2.9
7.7
4.7
3.3
2.3
2.1
7.5
Balance
$ 251,157
236,582
229,160
182,612
157,745
74,870
51,192
45,394
33,810
22,556
90,294
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,375,372
100.0%
$1,160,397
100.0%
The leasing and equipment finance portfolio increased $215
million from December 31, 2003 to $1.4 billion at December 31, 2004.
This increase in the leasing and equipment finance portfolio was
impacted by TCF Leasing’s acquisition of VGM in 2004 which added
$103.2 million of portfolio balances to the small ticket marketing
segment and the medical equipment type and was net of a $28.6
million decline in the Winthrop lease portfolio. Winthrop primarily
leases technology and data processing equipment to companies
nationwide. Technology spending has slowed during the past few
years due to a variety of issues, including general economic uncer-
tainty. In addition, the low interest rate environment and temporary
tax law changes have led many companies to consider the viability
of purchasing technology versus Winthrop’s value-added lease
alternative. These factors have contributed to reduced levels of
new lease originations at Winthrop. TCF continues to focus attention
on increasing sales efforts at Winthrop to increase overall portfolio
balances. At December 31, 2004 and 2003, $48.5 million, and $66.4
million, respectively, of TCF’s lease portfolio, were discounted on a
non-recourse basis with other third-party financial institutions and
consequently TCF retains no credit risk on such amounts. The leasing
and equipment finance portfolio tables above include lease residu-
als. Lease residuals represent the estimated fair value of the leased
equipment at the expiration of the initial term of the transaction
and are reviewed on an ongoing basis. Any downward revisions are
recorded in the periods in which they become known. At December
31, 2004, lease residuals, excluding leveraged lease residuals,
totaled $35.2 million, up from $34.2 million at December 31, 2003.
The lease residuals on leveraged leases are included in invest-
ments in leveraged leases and represent a 100% equity interest in
a Boeing 767-300 aircraft leased to Delta Airlines, Inc. (“Delta”).
The investment in leveraged leases represents net unpaid rentals
and estimated unguaranteed residual values of the leased assets
less related unearned income. TCF has no obligation for principal
and interest on the notes representing the third-party participation
related to this leveraged lease. However, these noteholders have a
security interest in the aircraft which is superior to TCF’s equity inter-
est. Such notes, which totaled $19.2 million at December 31, 2004,
down from $22.6 million at December 31, 2003, are recorded as an
offset against the related rental receivable. In January 2005, these
notes were further reduced to $15.6 million after Delta made its
scheduled payment. During the second quarter of 2004, TCF completed
its annual review of the lease residual value assumption for this
aircraft and reduced the estimated residual value by $4.4 million.
As required under Statement of Financial Accounting Standards
(“SFAS”) No. 13, “Accounting for Leases,” TCF recognized an impair-
ment charge of $1.6 million which was recorded in other non-interest
expense. The remaining reduction will be amortized through reduced
yield on the investment over the remaining years of the lease as
prescribed by SFAS No. 13. In 2004, TCF downgraded its credit rating
on the aircraft leveraged lease and classified its investment as
substandard and placed the lease on non-accrual status. Although
Delta is current on its payments related to this transaction, if Delta
declares bankruptcy, it would likely result in the charge-off of TCF’s
$18.8 million investment in the leveraged lease and the current
payment of previously deferred income tax obligations. This lease
represents TCF’s only material direct exposure to the commercial
airline industry. Reduced airline travel, higher oil prices, changes in
airline fare structures, and other factors have adversely impacted
the airline industry and could have an adverse impact on Delta’s
ability to meet its lease obligations and on the residual value of
the aircraft.
2004 Annual Report
35
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 36
Total loan and lease originations and purchases for TCF’s leasing
businesses were $717.8 million at December 31, 2004, compared with
$618.3 million during 2003. The backlog of approved transactions
increased to $195.3 million at December 31, 2004, from $155.2 million
at December 31, 2003. TCF’s expanded leasing activity is subject to
risk of cyclical downturns and other adverse economic developments.
TCF’s ability to increase its leasing and equipment finance 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.
Loan and leases outstanding at December 31, 2004 are shown in the following table by maturity:
(In thousands)
Amounts due:
At December 31, 2004 (1)
Consumer
Commercial
Real Estate
Commercial
Business
Leasing and
Equipment
Finance
Residential
Real Estate
Total Loans
and Leases
Within 1 year . . . . . . . . . . . . . . . . . . . . . . . .
$ 218,537
$ 339,974
$ 206,658
$ 548,749
$
44,390
$1,358,308
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 . . . . . . . . . . . . . .
213,561
240,324
451,705
1,105,021
1,007,075
1,181,627
4,199,313
Total . . . . . . . . . . . . . . . . . . . .
$4,417,850
Amounts due after 1 year on:
Fixed-rate loans and leases . . . . . . . . . . . .
Variable and adjustable-rate loans(2) . . . . .
Total after 1 year . . . . . . . . . . . . . . . . .
$1,678,920
2,520,393
$4,199,313
254,168
276,953
498,899
703,562
58,724
24,875
1,817,181
$2,157,155
$ 342,111
1,475,070
$1,817,181
106,279
47,552
33,923
17,971
2,750
8,317
366,559
257,653
250,525
56,604
–
–
216,792
931,341
45,976
46,728
83,857
197,913
163,283
426,873
964,630
986,543
869,210
1,318,909
2,081,071
1,231,832
1,641,692
8,129,257
$ 423,450
$1,480,090
$1,009,020
$9,487,565
$
63,161
$ 931,341
153,631
–
$ 216,792
$ 931,341
$ 743,816
220,814
$ 964,630
$3,759,349
4,369,908
$8,129,257
(1) Gross of deferred fees and costs. 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 $189 million of consumer loans and $13.4 million of commercial real estate and commercial business loans at their interest rate floors.
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 manage-
ment’s judgment on a number of factors such as net charge-offs,
delinquencies in the loan and lease portfolio, general economic con-
ditions and management’s assessment of credit risk in the current
loan and lease portfolio. The Company considers the allowance for
loan and lease losses of $79.9 million appropriate to cover losses
inherent in the loan and lease portfolios as of December 31, 2004.
However, no assurance can be given that TCF will not, in any particular
period, sustain loan and lease losses that are sizable in relation to
the amount reserved, or that subsequent evaluations of the loan and
lease portfolio, in light of factors then prevailing, including economic
conditions and 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 detailed information regarding
TCF’s allowance for loan and lease losses, net charge-offs, non-
performing assets, past due loans and leases and potential problem
loans and leases. Included in this data are numerous portfolio ratios
that must be carefully reviewed and related to the nature of the
underlying loan and lease portfolios before appropriate conclusions
36
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 37
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 2004 include the ratio of net charge-offs to average loans and
leases of .11%, the year-end allowance as a multiple of net charge-
offs of 8.4X, and income before income taxes and provision for loan
losses as a multiple of net charge-offs of 41.7X.
The following table sets forth information detailing the allowance for loan and lease losses and selected key indicators:
(Dollars in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
$ 76,619
2003
$ 77,008
2002
$ 75,028
2001
$ 66,669
2000
$ 55,755
Year Ended December 31,
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,821)
(602)
(235)
(8,508)
(81)
(14,247)
1,589
126
82
2,963
8
4,768
(9,479)
10,947
1,791
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 79,878
Key Indicators:
Ratio of net loan and lease charge-offs to average loans
and leases outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year-end allowance as a multiple of net charge-offs . . . . . . . . . . . . .
Income before income taxes and provision for loan losses
as a multiple of net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . .
.11%
8.4X
41.7X
The allocation of TCF’s allowance for loan and lease losses is as follows:
(5,362)
(1,381)
(920)
(8,620)
(86)
(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
.16%
5.9X
26.3X
2,965
43
54
1,264
9
4,335
(20,026)
22,006
–
$ 77,008
.25%
3.8X
19.0X
(Dollars in thousands)
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . .
Total allowance balance . . . . . . . . . . . . .
N.A. Not Applicable.
2004
$ 9,939
20,742
7,696
24,566
16,139
79,082
796
$79,878
At December 31,
2002
$ 8,532
22,176
15,910
12,881
16,139
75,638
1,370
$77,008
2001
$ 8,355
24,459
12,117
11,774
16,139
72,844
2,184
$75,028
2003
$ 9,084
25,142
11,797
13,515
16,139
75,677
942
$76,619
2000
$ 9,764
20,753
9,668
7,583
16,139
63,907
2,762
$66,669
2004
.22%
.96
1.81
1.79
N.A.
.94
.08
.85
Allocations as a Percentage of Total
Loans and Leases Outstanding by Type
At December 31,
2002
2003
2001
.25%
1.31
2.76
1.16
N.A.
1.06
.08
.92
.28%
1.21
3.62
1.24
N.A.
1.20
.08
.95
.33%
1.51
2.87
1.23
N.A.
1.32
.08
.91
(6,605)
(122)
(429)
(9,794)
(1)
(16,951)
3,487
103
193
649
–
4,432
(12,519)
20,878
–
(7,041)
(76)
(143)
(2,426)
(15)
(9,701)
4,576
295
690
254
28
5,843
(3,858)
14,772
–
$ 75,028
$ 66,669
.15%
6.0X
28.0X
.05%
17.3X
82.3X
2000
.44%
1.51
2.36
.89
N.A.
1.31
.08
.78
2004 Annual Report
37
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 38
The allocated allowance balances for TCF’s residential and con-
sumer loan portfolios, at December 31, 2004, reflect the Company’s
credit quality and related low level of net charge-offs for these
portfolios. The increase in the allocated allowance for leasing and
equipment finance includes coverage related to TCF’s investment in
the Delta leveraged lease. 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, 2004, reflects
the impact of the reduction in commercial and commercial real estate
and leasing and equipment finance charge-offs.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small ticket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Winthrop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 $8.9 million,
$8.5 million and $692 thousand, respectively, in commercial real
estate, consumer and residential real estate non-performing assets,
partially offset by increases of $11.7 million and $1.6 million,
respectively, in leasing and equipment finance and commercial
business non-performing assets.
Year Ended December 31,
2004
2003
Net
Charge-offs
(Recoveries)
$ 3,232
476
153
2,574
2,787
462
(782)
–
504
5,545
73
$ 9,479
% of Average
Loans and
Leases
.08%
.02
.04
.39
1.29
.21
(0.98)
–
.59
.43
.01
.11
Net
Charge-offs
(Recoveries)
$ 3,189
1,336
782
1,883
1,422
(32)
1,677
–
2,587
7,537
77
$12,921
% of Average
Loans and
Leases
.10%
.07
.18
.40
1.28
–
1.85
–
1.79
.69
.01
.16
Approximately 43% of non-performing assets at December 31,
2004 consisted of, or were secured by, residential real estate. Leasing
and equipment finance non-accrual leases at December 31, 2004,
included the previously discussed $18.8 million investment in an
aircraft leveraged lease. 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
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 39
Non-performing assets are summarized in the following table:
(Dollars in thousands)
Non-accrual loans and leases:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-accrual loans and leases . . . . . . . . . . . . . . . . . . .
Other real estate owned:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other real estate owned . . . . . . . . . . . . . . . . . . . . . . . .
Total non-performing assets . . . . . . . . . . . . . . . . . . . . . . . .
Non-performing assets as a percentage of net loans and leases . . . .
Non-performing assets as a percentage of total assets . . . . . . . . . .
2004
2003
2002
2001
2000
At December 31,
$12,187
1,093
4,533
25,678
3,387
46,878
11,726
5,465
17,191
$64,069
.69%
.52
$12,052
2,490
2,931
13,940
3,993
35,406
20,462
12,992
33,454
$68,860
.83%
.61
$11,163
3,213
4,777
18,689
5,798
43,640
16,479
10,093
26,572
$70,212
.87%
.58
$16,473
11,135
3,550
13,857
6,959
51,974
12,830
1,825
14,655
$66,629
.82%
.59
$13,027
5,820
236
11,286
4,829
35,198
10,422
447
10,869
$46,067
.54%
.41
Included in non-performing assets are loans that are considered impaired. Impaired loans totaled $8.1 million and $9.1 million at
December 31, 2004 and December 31, 2003, respectively. The related allowance for credit losses was $3.7 million at December 31, 2004,
compared with $4.5 million at December 31, 2003. All of the impaired loans were on non-accrual status. There were no impaired loans at
December 31, 2004 and 2003 which did not have a related allowance for loan losses. The average balance of impaired loans was $9.8 million
for 2004, compared with $10.8 million for 2003.
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,
2004
2003
Principal
Balances
$20,776
8,659
4,950
$34,385
Percentage of
Loans and
Leases
.23%
.09
.05
.37%
Principal
Balances
$24,187
8,953
5,604
$38,744
Percentage of
Loans and
Leases
.29%
.11
.07
.47%
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,
2004
Percentage of
Portfolio
.35 %
–
.10
.67
.94
.37%
Principal
Balances
$15,436
32
404
8,997
9,516
$34,385
Principal
Balances
$17,673
58
282
10,619
10,112
$38,744
2003
Percentage of
Portfolio
.49%
–
.07
.93
.84
.47%
2004 Annual Report
39
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 40
Potential Problem Loans and Leases In addition to non-
performing assets, there were $71.1 million of loans and leases at
December 31, 2004, for which management has concerns regarding
the ability of the borrowers to meet existing repayment terms, com-
pared with $48.1 million at December 31, 2003. These loans and
leases are primarily classified for regulatory purposes as substandard
and reflect the distinct possibility, but not the 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
Potential problem loans and leases are summarized as follows:
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, 2004, commercial busi-
ness potential problem loans were up $5.4 million from December
31, 2003. Commercial real estate potential problem loans totaled
$34.1 million at December 31, 2004, and were up $13.9 million from
December 31, 2003, primarily due to the addition of two large proper-
ties. Leasing and equipment finance potential problem loans include
$1.2 million and $1.1 million funded on a non-recourse basis at
December 31, 2004 and 2003, respectively.
(Dollars in thousands)
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
Change
2004
$34,138
18,112
18,816
$71,066
2003
$20,279
12,721
15,094
$48,094
$
$13,859
5,391
3,722
$22,972
%
68.3%
42.4
24.7
47.8
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, 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 con-
tinue 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, 2004, TCF had over $2.2 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 (par-
ent 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 divi-
dends or make other capital distributions to TCF is restricted by reg-
ulation and may require regulatory approval. Undistributed earnings
and profits at December 31, 2004 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 distributions 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
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 41
Deposits Checking, savings and money market deposits are an
important source of low cost funds and fee income for TCF. Deposits
totaled $8 billion at December 31, 2004, up $350.4 million from
December 31, 2003. Lower interest-cost checking, savings and
money market deposits totaled $6.5 billion, up $493.9 million from
December 31, 2003, and comprised 81.6% of total deposits at
December 31, 2004, compared with 78.8% of total deposits at
December 31, 2003. The average balance of these deposits for 2004
was $6.3 billion, an increase of $249.4 million over the $6 billion
average balance for 2003. Higher interest-cost certificates of
deposit decreased $143.5 million from December 31, 2003 as other
lower-cost funding sources were available to TCF. TCF had no
brokered deposits at December 31, 2004 or 2003. TCF’s weighted-
average rate for deposits, including non-interest-bearing deposits,
was .69% at December 31, 2004, up from .58% at December 31, 2003.
New Branch Expansion Key to TCF’s growth is its continued
investment in new branch expansion. New branches are an important
source of new customers in both deposit products and consumer
lending products. While supermarket branches continue to play an
important role in TCF’s expansion strategy, the opportunity to add
new supermarket branches within TCF’s markets will slow in future
years. Therefore, TCF will continue new branch expansion by opening
more traditional branches. Although traditional branches require a
higher initial investment than supermarket branches, they ultimately
attract more customers and become more profitable. During 2004,
TCF opened 30 new branches. The focus on opening new branches will
continue in 2005 with the planned opening of 29 branches, including
22 new traditional branches, five new supermarket branches and two
campus branches.
At December 31, 2004, 258, or 60% of TCF’s 430 branches were 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)
2004
2003
2002
2001
2000
At or For the Year Ended December 31,
Compound Annual Growth Rate
1-Year
2004/2003
5-Year
2004/1999
Number of new branches opened during the year:
Traditional and campus . . . . . . . . . . . . . . . .
Supermarket . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of new branches* at year end:
Traditional and campus . . . . . . . . . . . . . . . .
Supermarket . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
11
30
61
197
258
Percent of total branches . . . . . . . .
60.0%
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
46.3%
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 . . . . . . . . . . . . . . .
575,537
495,211
411,456
342,493
252,469
16.2%
24.5%
Deposits:
Checking . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 868,164
$ 616,539
$ 447,914
$ 335,198
$ 236,633
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . .
Total fees and other revenue for the year . . . . . .
423,165
54,542
1,345,871
156,958
$1,502,829
$ 153,788
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
$1,088,133
$ 107,769
$ 744,297
$
85,333
$ 594,302
$
60,750
40.8
8.4
(18.1)
25.4
3.2
22.6
21.9
43.9
53.4
31.8
45.8
2.4
34.3
31.5
N.M. Not Meaningful.
* New branches opened since January 1, 1998.
2004 Annual Report
41
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 42
Borrowings Borrowings totaled $3.1 billion at December 31, 2004,
up $689.8 million from December 31, 2003. The increase was prima-
rily attributable to the loans and leases increasing $1 billion during
2004 while deposit balances grew only $350.5 million which increases
TCF’s reliance on borrowings. During the second quarter of 2004,
TCF National Bank, a subsidiary of TCF Financial Corporation issued
$75 million of subordinated notes due in 2014. These notes qualify
as Tier 2 or supplemental capital for regulatory purposes, subject
to certain limitations. TCF Bank paid the proceeds from the offering
to TCF to be used for general corporate purposes, which may include
repurchases in the open market of TCF common stock. 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, 2004 are $767.5 million of fixed-rate FHLB advances
and repurchase agreements with other financial institutions which
are callable quarterly at par 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 agreements, subject to standard
terms and conditions. The weighted-average rate on borrowings
increased to 3.37% at December 31, 2004, from 3.24% at December 31,
2003. 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, 2004, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,104,603
$2,277,682
$ 327,663
$ 125,049
$ 374,209
Annual rental commitments under non-cancelable
operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170,441
Purchase obligations (construction contracts and
land purchase commitments for future branch sites) . . . . . . . . .
20,315
23,894
20,315
40,631
33,823
72,093
–
–
–
$3,295,359
$2,321,891
$ 368,294
$ 158,872
$ 446,302
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,576,381
$
8,217
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commitments to lend . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans serviced with recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit and guarantees on industrial
684,029
72,614
55,343
2,388,367
97,568
443,267
72,614
55,343
579,441
2,288
$
22,311
204,625
–
–
226,936
4,772
revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,957
46,650
18,677
$
38,240
$1,507,613
25,003
11,134
–
–
63,243
4,329
10,630
–
–
1,518,747
86,179
–
$2,561,892
$ 628,379
$ 250,385
$
78,202
$1,604,926
42
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 43
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
consist of $94.9 million of Veterans Administration (“VA”) loans. As
is typical of a servicer of VA loans, TCF must cover any principal loss
in excess of the VA’s guarantee if the VA elects its “no-bid” option
upon the foreclosure of a loan. Since conditions under which TCF
would be required either to cover any principal loss in excess of the
VA’s guarantee may not materialize, the actual cash requirements
are expected to be significantly less than the amount provided in
the table above.
Standby letters of credit and guarantees on industrial revenue
bonds are conditional commitments issued by TCF guaranteeing
the performance of a customer to a third party. These conditional
commitments expire in various years through the year 2009. Since
the conditions under which TCF is required to fund these commitments
may not materialize, the cash requirements are expected to be less
than the total outstanding commitments. Collateral held on these
commitments primarily consists of commercial real estate mortgages.
Stockholders’ Equity Stockholders’ equity at December 31,
2004 was $958.4 million, or 7.8% of total assets, up from $920.9 mil-
lion, or 8.1% of total assets, at December 31, 2003. The increase in
stockholders’ equity was primarily due to the net income of $255
million partially offset by the repurchase of 4 million shares of TCF’s
common stock at a cost of $116.1 million, the payment of $104 mil-
lion in dividends on common stock and a $7.1 million decrease in
accumulated comprehensive income for the year ended December
31, 2004. On July 21, 2003, TCF’s Board of Directors authorized the
repurchase of up to an additional 5% of TCF’s common stock, or
7.2 million shares. At December 31, 2004, 3.5 million shares remain
available under this authorization from the Board of Directors.
Since January 1, 1998, the Company has repurchased 54.2 million
shares of its common stock at an average cost of $17.58 per share.
For the year ended December 31, 2004, average total equity to
average assets was 7.94% compared with 8.03% for the year ended
December 31, 2003. Dividends paid to common shareholders on
a per share basis totaled 75 cents in 2004, an increase of 15.4%
from 65 cents in 2003. TCF’s dividend payout ratio was 40.3% in
2004 and 42.6% in 2003. The Company’s primary funding sources
for common dividends are dividends received from its subsidiary
bank. At December 31, 2004, TCF and TCF National Bank exceeded
their regulatory capital requirements and are considered “well-
capitalized” under guidelines established by the Federal Reserve
Board 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 to a lim-
ited extent in prior years. At December 31, 2004, the number of
incentive stock options outstanding was 325,864, or.18%, of total
shares outstanding.
Market Risk – Interest-Rate Risk TCF’s results of operations
are dependent to a large degree on its net interest income and its
ability to manage 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 inter-
est rate risk. TCF, like most financial institutions, has material inter-
est 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.
2004 Annual Report
43
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 44
Although the interest rate gap measure (difference between
interest-earning assets and interest-bearing liabilities repricing
within a given period) is subject to a number of assumptions and is
only one of a number of interest rate risk measurements, manage-
ment believes the interest rate gap 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, including no
assumptions regarding future asset or liability production and a
static interest rate assumption (large quarterly changes may occur
related to these items), the interest rate gap represents the net
asset or liability sensitivity at a point in time. In addition to the
interest rate gap analysis, management also utilizes a net interest
income simulation model to measure and manage TCF’s interest
rate risk, relative to a base case scenario.
TCF has positioned its balance sheet to benefit from a rising
interest rate environment. TCF’s one-year interest rate gap was a
positive $585.3 million, or 4.7% of total assets, at December 31,
2004, compared with a positive $161.3 million, or 1% of total assets
at December 31, 2003. A positive interest rate gap position exists
when the amount of interest-earning assets maturing or repricing,
including assumed prepayments, within a particular time period
exceeds the amount of interest-bearing liabilities maturing or
repricing. However, the benefit of a positive interest rate gap in a
rising interest rate environment may be reduced by future asset
and liability mix changes including possibly lower yields on newly
originated fixed-rate assets and higher rates on new deposits and
borrowings. The increase in the one-year interest rate gap is primarily
due to consumer and commercial variable rate loans previously at
their floor rates, and therefore treated as fixed-rate loans for inter-
est rate gap analysis purposes, becoming floating-rate loans due to
the 1.25% increase in the prime interest rate during 2004, partially
offset by the impact of $742 million of borrowings maturing in 2005
moving into the one-year interest rate gap analysis during 2004.
TCF would also likely benefit from an increase in interest rates as
this might signify that economic conditions are improving. The favor-
able impact of an increase in interest rates on net interest income
would be partially diminished by 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, resulting in an
increase in the cost of interest-bearing deposits. Additionally, an
increase in interest rates may affect TCF’s fixed-rate/variable-rate
loan mix and volumes and would also likely result in slower fixed-
rate loan prepayments.
TCF believes this positive interest rate gap to be warranted
because current rates are still below historical averages and, con-
sequently, there is a greater possibility over time of higher interest
rates versus lower interest rates. However, if interest rates fall, TCF
could experience an increase in prepayments of residential loans,
mortgage-backed securities and fixed-rate consumer and commer-
cial real estate loans and could experience compression of its net
interest income.
The one-year interest rate gap could be significantly affected by
external factors such as 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 rela-
tionships. In addition, TCF’s interest-rate risk may increase during
periods of rising interest rates due to slower prepayments on fixed-
rate loans and mortgage-backed securities. TCF estimates that an
immediate 100 basis point increase in current mortgage loan inter-
est rates would reduce prepayments during 2005 on the $4.1 billion
of fixed-rate mortgage-backed securities, residential real estate
loans and consumer first-mortgage loans at December 31, 2004 by
approximately $362 million. A slowing in prepayments would increase
the estimated life of the portfolios and may adversely impact net
interest income or net interest margin in the future.
44
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 45
The following table summarizes TCF’s interest-rate gap position at December 31, 2004:
(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 . . . . . . . . . . . . . . . . . . .
$
154,270
$
–
$
–
$
–
$
–
$
154,270
Securities available for sale (1) . . . . . . . . . .
Real estate loans (1) . . . . . . . . . . . . . . . . . .
Leasing and equipment finance (1) . . . . . . .
17,709
36,767
63,171
Other loans (1) . . . . . . . . . . . . . . . . . . . . . . .
3,788,957
Investments . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing liabilities:
Checking deposits (2) . . . . . . . . . . . . . . . . . .
Savings deposits (2) . . . . . . . . . . . . . . . . . . . .
Money market deposits (2) . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . .
Long-term borrowings (3) . . . . . . . . . . . . . . .
Interest-earning assets over (under)
521
4,061,395
724,031
844,935
293,540
172,694
706,191
353,509
91,190
170,376
252,394
319,189
80,841
913,990
–
–
–
576,976
102,119
412,265
128,065
176,872
252,155
356,208
–
435,015
293,028
567,548
1,164,679
–
913,300
2,460,270
947,963
337,134
240,103
1,368,085
21,865
2,915,150
–
–
–
313,371
–
803,729
1,117,100
–
3,182,115
121,899
–
343,758
4,400
222,583
692,640
960,460
366,145
61,858
76,409
423,393
5,070,380
1,619,942
1,014,177
1,375,371
6,997,118
103,227
11,264,105
3,906,146
1,927,294
659,685
1,468,657
889,119
2,215,479
11,066,380
3,094,900
1,091,360
interest-bearing liabilities . . . . . . . . . . . . .
966,495
(177,370)
(203,800)
1,767,630
(2,155,230)
197,725
Cumulative gap . . . . . . . . . . . . . . . . . . . . . . . . .
$
966,495
$
789,125
$
585,325
$ 2,352,955
$
197,725
$
197,725
Cumulative gap as a percentage
of total assets:
At December 31, 2004 . . . . . . . . . . . . .
At December 31, 2003 . . . . . . . . . . . . .
8 %
(6)%
6 %
(2)%
5%
1%
19%
22%
2%
2%
2%
2%
(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) Includes non-interest bearing deposits. At December 31, 2004, 19% of checking deposits, 44% of savings deposits, and 45% 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, 2003,
6% of checking deposits, 49% of savings deposits, and 48% of money market deposits were included in amounts repricing within one year.
(3) Includes $767.5 million of callable borrowings. At December 31, 2004, the contract rates on all callable borrowings exceeded current market rates.
As previously noted, TCF also utilizes net interest income simula-
tion models to estimate the near-term effects (next twelve months)
of changing interest 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, 2004, net interest income is estimated to increase
by 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 event interest rates were to decline by 100
basis points, net interest income is estimated to decrease by 3.7%,
compared with the base case scenario, over the next twelve months.
Management exercises its best judgment in making assumptions
regarding loan prepayments, early deposit withdrawals, and other
non-controllable events in estimating TCF’s exposure to changes in
interest rates. These assumptions are inherently uncertain and, as a
result, the simulation models cannot precisely estimate net interest
income or precisely predict the impact of a change in interest rates
on net interest income. Actual results will differ from simulated
results due to the timing, magnitude and frequency of interest
rate changes and changes in market conditions and management
strategies, among other factors.
2004 Annual Report
45
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 46
Summary of Critical Accounting Estimates Critical
accounting estimates occur in certain accounting policies and
procedures 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. See Note 1 of Notes to Consolidated Financial
Statements for further discussion of critical accounting estimates.
Recent Accounting Developments In December 2004, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 123R, Share-Based Payment which
revised SFAS No. 123, Accounting for Stock-Based Compensation.
This Statement supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related implementation guidance and
amends SFAS No. 95, Statement of Cashflows. It requires that all
stock-based compensation now be measured at fair value and rec-
ognized as expense in the income statement. This Statement also
clarifies and expands guidance on measuring fair value, requires
estimation of forfeitures when determining expense, and requires
that excess tax benefits be shown as financing cash inflows versus
a reduction of taxes paid in the statement of cashflows. Various
other changes are also required. This statement is effective begin-
ning July 1, 2005. TCF adopted the recognition provisions of SFAS 123
in January 2000. TCF expects no significant effect on TCF’s financial
statements upon adoption of this Statement.
Fourth Quarter Summary In the fourth quarter of 2004, TCF
reported net income of $67.4 million, compared with $59.5 million in
the fourth quarter of 2003. Diluted earnings per common share was
50 cents for the fourth quarter of 2004, compared with 43 cents for
the fourth quarter of 2003. TCF opened 12 new branches in the fourth
quarter of 2004, of which four were supermarket branches.
Net interest income was $126.5 million and $119.1 million for the
quarter ended December 31, 2004 and 2003 respectively. The net
interest margin was 4.56% and 4.68% for the fourth quarter of 2004
and 2003, respectively. TCF’s net interest income increased by $7.4
million, or 6.2% over the fourth quarter of 2003. Of this increase in
net interest income, $10.5 million was due to volume changes, partially
offset by a decrease of $3.1 million due to interest rate changes.
TCF provided $4.1 million for credit losses in the fourth quarter of
2004, compared with $4 million in the fourth quarter of 2003. Net loan
and lease charge-offs were $3.2 million, or .14% of average loans
and leases outstanding, compared with $6.1 million, or .30% of
average loans and leases outstanding during the same 2003 period.
Non-interest income increased $17.7 million, or 15.4%, during the
fourth quarter of 2004 to $132.5 million. Banking fees and other rev-
enue increased $7.9 million, or 8.8%, over the fourth quarter of 2003.
Card revenues, included in banking fees and other revenue, totaled
$17.5 million for the fourth quarter of 2004, up $5.4 million, or
44.7% over the same quarter in 2003. The increase was attributable
to a 21.2% increase in sales volume coupled with an 18 basis point
increase in the average off-line interchange rate. Leasing and
equipment finance revenues were up $5.7 million, or 36.9%, over the
fourth quarter of 2003 due to increases in sales-type lease revenues.
Non-interest expense increased $12.2 million, or 8.5%, in the
fourth quarter of 2004 to $154.4 million. Compensation and employee
benefits increased $9.6 million, or 12.5%, from the fourth quarter of
2003, primarily driven by a $4.2 million increase in incentive compen-
sation resulting from improved performance in 2004 and a $1.9 million
increase related to new branches opened during the past 12 months.
Occupancy and equipment expenses increased $2.1 million, or 9%,
from the fourth quarter of 2003, with $1.4 million relating to costs
associated with new branch expansion.
In the fourth quarter of 2004, the effective income tax rate was
32.96% of income before tax expense compared with 32.14% for the
fourth quarter of 2003.
Earnings Teleconference and Website Information TCF
hosts quarterly conference calls to discuss its financial results.
Additional information regarding TCF’s conference calls can be
obtained from the investor relations section within TCF’s website at
www.tcfexpress.com or by contacting TCF’s Corporate Communications
Department at (952) 745-2760. The website also includes free access
to company news releases, TCF’s annual report, quarterly reports,
investor presentations and Securities and Exchange Commission
(“SEC”) filings. Replays of prior quarterly conference calls discussing
financial results may also be accessed at the investor relations 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 1.25% reserve ratio
($1.25 against $100 of insured deposits), and require certain changes
in the calculation methodology. Although it is too early to predict the
ultimate impact of such proposals, they could, if adopted, result in
the imposition of additional deposit insurance premium costs on TCF.
46
TCF Financial Corporation and Subsidiaries
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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 controls and procedures; and that they have
included information in their quarterly and annual filings about
their evaluation and whether there have been significant changes
in disclosure controls or internal controls over financial reporting
during the most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, internal control over
financial reporting. TCF has filed Chief Executive Officer and Chief
Financial Officer certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 as Exhibit 31 to its 2004 Form 10-K.
TCF has also furnished 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 assess-
ment of the effectiveness of internal control over financial reporting.
The rules are effective in 2004 and a management report is included
in this 2004 Annual Report 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 also
completed 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, as amended in
November 2004, applies to certain companies, including TCF, and will
reduce the annual report filing deadline from 90 days after year-end
to 60 days after year-end for TCF’s 2005 Annual Report. The quarterly
report on Form 10-Q will also be accelerated from 45 days after
quarter-end to 35 days after quarter-end for the quarterly Form 10-Q
filings in 2006. TCF has taken steps to modify its financial reporting
process to meet these accelerated filing deadlines.
Pursuant to Section 303A.12 of the New York Stock Exchange (NYSE)
Listed Company Manual, TCF’s Chief Executive Officer submitted a
certification to the NYSE on May 18, 2004 indicating that he was not
aware of any violation by TCF of the NYSE’s Corporate Governance
listing standards.
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; 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 relationships or any of the
supermarket chains in which TCF maintains supermarket branches;
changes in accounting policies and guidelines, or monetary, fiscal
or tax policies of the federal or state governments; changes in credit
and other risks posed by TCF’s loan, lease and investment portfolios,
including declines in commercial or residential real estate values or
a bankruptcy filing by Delta Airlines, the lessee under a leveraged
lease in which TCF holds an equity interest; denial of insurance
coverage for claims made by TCF; technological, computer-related
or operational difficulties; adverse changes in securities markets;
the risk that TCF could be unable to effectively manage the volatility
of its mortgage servicing portfolio, which could adversely affect
earnings; and results of litigation or other significant uncertainties.
Investors should consult TCF’s Annual Report to Shareholders and
reports on Forms 10-K, 10-Q and 8-K for additional important
information about the Company.
Controls and Procedures
The Company carried out an evaluation, under the supervision and
with the participation of the Company’s management, including the
Company’s Chief Executive Officer, Chief Financial Officer (Principal
Financial Officer) and Controller and Assistant Treasurer (Principal
Accounting Officer), of the effectiveness of the design and operation
of the Company’s disclosure controls and procedures pursuant to
Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange
Act”). Based upon that evaluation, management concluded that
the Company’s disclosure controls and procedures are effective as
of December 31, 2004. Also, there were no significant changes in
the Company’s disclosure controls or internal controls over financial
reporting during 2004. See “Management’s Report on Internal
Control Over Financial Reporting.”
2004 Annual Report
47
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 48
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,
2004
2003
$
359,798
103,226
1,619,941
154,279
4,418,588
2,154,396
424,135
1,375,372
8,372,491
1,014,166
9,386,657
(79,878)
9,306,779
326,667
152,599
4,245
46,442
266,591
$12,340,567
$ 3,905,987
1,927,872
659,686
6,493,545
1,468,650
7,962,195
1,056,111
2,048,492
3,104,603
315,351
11,382,149
$
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
Preferred stock, par value $.01 per share, 30,000,000 shares authorized;
none issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
Common stock, par value $.01 per share, 280,000,000 shares authorized;
184,939,094 and 185,026,710 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings, subject to certain restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 47,752,934 and 44,074,050 shares, and other . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,849
518,741
1,385,760
(1,415)
(946,517)
958,418
$12,340,567
925
518,878
1,234,804
5,652
(839,401)
920,858
$11,319,015
See accompanying notes to consolidated financial statements.
48
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 49
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments and insurance revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2004
2003
2002
$527,178
80,643
11,533
3,455
622,809
42,581
88,337
130,918
491,891
10,947
480,944
271,664
63,312
42,935
12,558
390,469
50,323
12,960
14,114
467,866
22,600
–
–
22,600
490,466
322,824
95,617
26,353
142,140
586,934
384,476
129,483
$254,993
$
$
$
1.87
1.86
.75
$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
$
$
$
1.53
1.53
.65
$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
$
$
$
1.58
1.58
.58
2004 Annual Report
49
132406_TCF AR 04 Guts_F 2/18/05 11:18 AM Page 50
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands)
Balance, December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of 6,216,862 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 122,880 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, 103,312 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 loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of 6,918,980 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 285,474 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, 125,558 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock split . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of 3,984,890 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 150,174 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, 155,832 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to consolidated financial statements.
50
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 51
Number of
Common
Shares Issued
185,439,088
–
–
–
–
–
–
(161,214)
–
–
–
–
185,277,874
–
–
–
–
–
–
(251,164)
–
–
–
185,026,710
–
–
–
–
–
–
–
(87,616)
–
–
–
184,939,094
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock
and Other
Total
$
927
$
520,940
$
965,454
$
6,229
$ (576,517)
$
917,033
–
–
–
–
–
–
(1)
–
–
–
–
926
–
–
–
–
–
–
(1)
–
–
–
925
–
–
–
–
925
–
–
(1)
–
–
–
1,849
$
–
–
–
–
–
1,139
(3,586)
28
1,536
(1,244)
–
518,813
–
–
–
–
–
1,704
(3,598)
–
1,264
695
518,878
–
–
–
–
(925)
–
1,618
(2,055)
–
1,553
(328)
$ 518,741
232,931
–
232,931
(86,430)
–
–
–
–
–
–
–
1,111,955
215,878
–
215,878
(93,029)
–
–
–
–
–
–
1,234,804
254,993
–
254,993
(104,037)
–
–
–
–
–
–
–
$1,385,760
–
39,873
39,873
–
–
–
–
–
–
–
–
46,102
–
(40,450)
(40,450)
–
–
–
–
–
–
–
5,652
–
(7,067)
(7,067)
–
–
–
–
–
–
–
–
(1,415)
$
–
–
–
–
(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)
–
–
–
–
–
(116,134)
(1,618)
835
6,905
2,685
211
$ (946,517)
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
254,993
(7,067)
247,926
(104,037)
–
(116,134)
–
(1,221)
6,905
4,238
(117)
$ 958,418
. . .
. .
. . .
. . .
. .
. .
. .
. . .
. . .
. .
. .
. .
. . .
. .
. .
. . .
. .
. .
. .
. . .
. . .
. .
. .
. . .
. .
. .
. . .
. .
. .
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. . .
2004 Annual Report
51
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 52
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 and purchases 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 . . . . . . . . . . . . . . . . .
Proceeds from sales of real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of deposits, net of cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of loans to deferred compensation plans . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used) provided by investing activities . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net increase (decrease) in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase 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 (decrease) increase 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:
Year Ended December 31,
2004
2003
2002
$
254,993
$
215,878
$
232,931
39,996
14,591
10,947
1,051,276
8,090
(879,450)
(31,265)
(23,306)
–
(3,299)
187,580
442,573
3,833,653
(4,183,611)
–
(703,712)
1,437,066
347,304
(1,911,905)
(30,142)
40,654
(4,326)
(77,788)
–
–
2,278
(1,250,529)
350,446
(629,510)
2,800,614
(1,505,847)
(116,134)
(104,037)
2,168
797,700
(10,256)
370,054
359,798
$
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
26,186
–
(69,782)
–
–
(18,538)
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
$
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
21,926
–
(60,279)
(15,206)
9,783
(21,834)
(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
$
$
$
$
Interest on deposits and borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of loans and leases to other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
126,228
145,716
23,963
$
$
$
157,751
139,120
44,292
See accompanying notes to consolidated financial statements.
52
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 53
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, securities brokerage and investment and insur-
ance sales, and real estate investment trust (“REIT”) subsidiaries.
These subsidiaries 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, includ-
ing the allocated and unallocated elements, is a result of ongoing
review of larger individual loans and leases, the overall risk charac-
teristics 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 segre-
gated 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 estimates of vari-
ables affecting valuation, appraisals of collateral, evaluations of
performance and status, and the amounts and timing of future cash
flows expected to be received on impaired loans. Such estimates,
appraisals, evaluations and cash flows may be subject to frequent
adjustments due to changing economic prospects of borrowers,
lessees or properties. These estimates are reviewed periodically and
adjustments, if necessary, are 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
servicing 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
banking revenues. Permanent impairment is recognized as a reduc-
tion in the capitalized mortgage servicing rights and a charge to the
related valuation allowance.
2004 Annual Report
53
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 54
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 fair value of the leased
equipment at the expiration of the initial term of the transaction.
The estimation of residual values involves judgments regarding
product and technology 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.
Income Taxes Income taxes are accounted for using the asset and
liability method. Under this method, deferred tax assets and liabili-
ties 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 bases of assets and liabilities (temporary differ-
ences), estimates of amounts due or owed, the timing of reversals
of temporary differences and current financial accounting standards.
Actual results could differ significantly from the estimates and tax
law interpretations used in determining the current and deferred
income tax liabilities. Additionally, there can be no assurances that
estimates and interpretations used in determining income tax liabil-
ities may not be challenged by federal and state taxing authorities.
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 education
loans and prior to December 31, 2004 residential mortgage loans.
Education loans held for sale are carried at the lower of cost or
market. Residential mortgage loans held for sale are carried at
the lower of cost or market as adjusted for the effects of fair value
54
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 55
hedges using quoted market prices. See Note 19 for additional
information concerning derivative instruments and hedging activi-
ties. Net fees and costs associated with originating 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 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 determined 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 less 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. Net operating expenses of properties
and recoveries and losses on sales of other real estate owned are
also recorded 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 affordable
housing projects. TCF generally utilizes the effective yield method to
account for these investments with the tax credits net of the amor-
tization 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 contri-
butions 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, 2004, TCF’s investments
in affordable housing limited partnerships were $49 million, com-
pared with $41.8 million at December 31, 2003 and were recorded
in other assets.
Four 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” as revised
(FIN 46). These partnerships are not required to be consolidated
with TCF under FIN 46. As of December 31, 2004, the carrying
amount of these four investments, which were made in May and
October 2002, November 2003 and July 2004, was $46.7 million.
This amount included $13.9 million of unconditional unfunded
equity contributions which are recorded in other liabilities. Thus,
the maximum exposure to loss on these four investments was $46.7
million at December 31, 2004; however, the general partner of these
partnerships provides various guarantees to TCF including guaran-
teed 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. Deposit base intan-
gibles are amortized over 10 years on an accelerated basis. The
Company reviews the recoverability of the carrying values of these
assets whenever an event occurs indicating that they may be
impaired. See Note 9 for additional information concerning intan-
gible 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
2004 Annual Report
55
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 56
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. No compensation expense has been recognized
for any stock option grants made prior to 2000. Had the recognition
provisions of SFAS No. 123 been applied to the pre-2000 stock option
grants, the related pro-forma impact on net income and earnings
per share during 2003 and 2002 would have been immaterial.
Compensation expense for restricted stock is recorded as unearned
compensation in stockholders’ equity and amortized to compensa-
tion expense over the vesting periods. 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 cus-
tomers and used derivatives 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
commitments to extend credit and forward mortgage loan sales
commitments. See Notes 19 and 20 for additional information
concerning these derivative financial instruments.
Note 2. Cash and Due from Banks
At December 31, 2004, TCF was required by Federal Reserve Board
regulations to maintain reserve balances of $70.1 million in cash
on hand or at the Federal Reserve Bank.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The carrying values and yields on investments at December 31, 2004, by contractual maturity, are shown below:
(Dollars in thousands)
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No stated maturity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Balance represents FRB and Federal Home Loan Bank (“FHLB”) stock, required regulatory investments.
At December 31,
2004
$ 80,841
21,865
520
$103,226
Carrying
Value
$
520
102,706
$103,226
2003
$ 50,411
24,045
767
$ 75,223
Yield
1.71%
3.77
3.76
Note 4. Securities Available for Sale
Securities available for sale consist of the following:
(Dollars in thousands)
Mortgage-backed securities:
Federal agencies . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . .
Weighted-average yield . . . . . . . . . . . . . . .
5.13%
At December 31,
2004
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
2003
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Fair
Value
Amortized
Cost
$1,614,513
$2,045
$(4,034)
$1,612,524
6,639
1,000
–
–
(222)
–
6,417
1,000
$1,622,152
$2,045
$(4,256)
$1,619,941
$1,514,400
9,272
750
$1,524,422
5.33%
$13,744
–
–
$13,744
$(4,677) $1,523,467
9,071
750
$(4,878) $1,533,288
(201)
–
Gross gains of $22.6 million, $32.8 million and $11.5 million were recognized on sales of securities available for sale during 2004, 2003 and
2002, respectively. Mortgage-backed securities aggregating $1.4 billion and $1.3 billion were pledged as collateral to secure certain deposits
and borrowings at December 31, 2004 and 2003, respectively. See Notes 12 and 13 for additional information regarding securities pledged as
collateral to secure certain borrowings.
56
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132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 57
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, 2004. TCF has
reviewed these securities and has concluded that the unrealized losses are temporary and no impairment has occurred at December 31, 2004.
Less than 12 months
12 months or more
Total
(In thousands)
Mortgage-backed securities:
Fair Value
Unrealized
Losses
Federal agencies . . . . . . . . . . . . . . . . . . . .
$994,892
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
Total temporarily impaired securities . . . . .
$994,892
$(2,658)
–
$(2,658)
Fair Value
$80,659
5,324
$85,983
Unrealized
Losses
$(1,376)
(222)
$(1,598)
Fair Value
$1,075,551
5,324
$1,080,875
Unrealized
Losses
$(4,034)
(222)
$(4,256)
Note 5. Loans Held for Sale
Loans held for sale consist of the following:
(In thousands)
Education loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
$154,279
–
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$154,279
2003
$234,337
101,035
$335,372
At December 31,
Note 6. Loans and Leases
Loans and leases consist of the following:
(Dollars in thousands)
Consumer:
Real estate secured:
At December 31,
2004
2003
Percentage
Change
First mortgage lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Junior lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,894,538
1,487,478
4,382,016
22,585
13,987
$2,446,841
1,141,186
3,588,027
27,265
15,049
Total consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,418,588
3,630,341
Commercial:
Commercial real estate:
Permanent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,957,676
196,720
2,154,396
424,135
2,578,531
1,745,435
171,266
1,916,701
427,696
2,344,397
Leasing and equipment finance:
Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financings:
334,352
309,740
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,067,845
22,742
35,163
(103,516)
18,786
1,041,020
1,375,372
8,372,491
1,014,166
853,395
33,073
34,171
(92,710)
22,728
850,657
1,160,397
7,135,135
1,212,643
Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,386,657
$8,347,778
18.3%
30.3
22.1
(17.2)
(7.1)
21.7
12.2
14.9
12.4
(.8)
10.0
7.9
25.1
(31.2)
2.9
11.7
(17.3)
22.4
18.5
17.3
(16.4)
12.4
2004 Annual Report
57
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 58
The aggregate amount of loans to non-management directors
of TCF and their related interests was $56.5 million and $60.9 mil-
lion at December 31, 2004 and 2003, respectively. During 2004,
$22.8 million of new loans were made, repayments of loans totaled
$27.1 million and there were no changes due to the composition of
outside directors and their related interests. 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 col-
lateral, as those prevailing at the time for comparable transactions
with unrelated persons. The aggregate amount of loans to executive
officers of TCF was $115 thousand and $25 thousand at December 31,
2004 and 2003, respectively. In the opinion of management the
above mentioned loans to outside directors and their related inter-
ests 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 obligation for principal
and interest on notes representing third-party participation related
to leveraged leases. Such notes, which totaled $19.2 million at
December 31, 2004, down from $30.2 million at December 31, 2003,
are recorded as an offset against the related rental receivable.
At December 31, 2004, lease residuals, excluding leveraged lease
residuals, totaled $35.2 million, up from $34.2 million at December 31,
2003. Included in the investment in leveraged leases, at December 31,
2004 is a 100% equity interest in a Boeing 767-300 aircraft leased
to Delta Airlines, Inc. (“Delta”). The third party noteholders have
a security interest in the aircraft which is superior to TCF’s equity
interest. Such notes, which totaled $19.2 million at December 31,
2004, down from $22.6 million at December 31, 2003, are recorded
as an offset against the related rental receivable. During 2004, TCF
completed its annual review of the lease residual value assumption
for this aircraft and reduced the estimated residual value by $4.4
million. As required under SFAS No. 13, “Accounting for Leases”, TCF
recognized an impairment charge of $1.6 million which was recorded in
other non-interest expense. The remaining reduction will be amortized
through reduced yield on the investment over the remaining years of
the lease as prescribed by SFAS No. 13. In 2004, TCF downgraded its
credit rating on the aircraft leveraged lease and classified its invest-
ment as substandard and placed the lease on non-accrual status.
Although Delta is current on its payments related to this transaction,
if Delta declares bankruptcy, it would likely result in the charge-off
of TCF’s $18.8 million investment in the leveraged lease and the
current payment of previously deferred income tax obligations.
TCF’s net investment in leveraged leases is comprised of the following:
(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 income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2004
$10,064
13,660
(4,938)
18,786
(9,039)
$ 9,747
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, 2004 are as follows:
(In thousands)
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to
be Received
by TCF
$ 379,557
271,260
181,254
106,949
47,138
15,046
$1,001,204
Payments to
be Received by
other Financial
Institutions
29,610
$
15,628
5,313
315
45
–
50,911
$
Total
$ 409,167
286,888
186,567
107,264
47,183
15,046
$1,052,115
58
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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2004
$ 76,619
10,947
(14,247)
4,768
(9,479)
1,791
2003
$ 77,008
12,532
(16,369)
3,448
(12,921)
–
2002
$ 75,028
22,006
(24,361)
4,335
(20,026)
–
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 79,878
$ 76,619
$ 77,008
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 . . . . . . . . . . . .
.11%
.85
.16%
.92
.25%
.95
Information relating to impaired loans and non-accrual loans and leases is as follows:
(In thousands)
Impaired loans:
At or For the Year Ended December 31,
2004
2003
2002
Balance, at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,092
Related allowance for loan losses, at year-end(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average recorded investment in impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income recognized on impaired loans (cash basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-accrual loans and leases:
Balance, at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income recognized on other non-accrual loans and leases (cash basis) . . . . . . . . . . . . . . . . . . . . . .
Contractual interest on non-accrual loans and leases(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,668
9,840
108
38,786
1,409
3,881
$ 9,133
4,456
10,770
27
26,273
756
3,271
$12,090
5,512
14,686
92
31,550
1,133
4,301
(1) There were no impaired loans at December 31, 2004, 2003 and 2002 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, 2004, 2003 and 2002, 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, 2004.
Note 8. Premises and Equipment
Premises and equipment are summarized as follows:
(In thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2004
$ 88,227
201,373
46,062
242,389
578,051
251,384
$326,667
2003
$ 76,902
169,098
40,927
242,958
529,885
247,692
$282,193
TCF leases certain premises and equipment under operating leases. Net lease expense was $25.4 million, $23.5 million and $20.8 million in
2004, 2003 and 2002, respectively.
At December 31, 2004, the total annual minimum lease commitments for operating leases were as follows:
(In thousands)
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,894
20,998
19,633
17,378
16,445
72,093
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$170,441
2004 Annual Report
59
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 60
Note 9. Goodwill and Other Intangible Assets
Goodwill and other intangible assets are summarized as follows:
(In thousands)
Amortizable intangible assets:
Mortgage servicing rights . . . . . . . . . . . . . .
Deposit base intangibles . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortizable intangible assets:
Goodwill included in Banking Segment . . . .
Goodwill included in Leasing Segment . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
Accumulated
Amortization
$ 37,226
16,935
$ 54,161
Gross
Amount
$ 83,668
21,180
$104,848
$145,462
7,137
$152,599
At December 31,
Net
Amount
$ 46,442
4,245
$ 50,687
$145,462
7,137
$152,599
Gross
Amount
$ 76,306
21,180
$ 97,486
$145,462
–
$145,462
2003
Accumulated
Amortization
$ 24,270
15,273
$ 39,543
Net
Amount
$ 52,036
5,907
$ 57,943
$145,462
–
$145,462
Amortization expense for intangible assets was $14.8 million, $25.3 million and $24.5 million for the years ended December 31, 2004, 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, 2004. The Company’s actual amortization expense in any given period may be
significantly different from the estimated amounts depending upon the addition of new intangible assets, changes in mortgage interest rates,
prepayment rates and other market conditions.
(In thousands)
Estimated Amortization Expense for the Year Ended December 31,:
Mortgage
Servicing Rights
Deposit Base
Intangibles
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,693
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,387
7,317
5,687
4,440
$ 1,659
1,631
955
–
–
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2004
$ 54,036
4,038
4,959
(13,091)
–
49,942
(2,000)
(1,500)
–
(3,500)
$ 46,442
2003
$ 71,990
21,385
12,840
(23,679)
(28,500)
54,036
(9,346)
(21,154)
28,500
(2,000)
$ 52,036
Total
$13,352
11,018
8,272
5,687
4,440
2002
$ 63,607
30,781
8,976
(22,874)
(8,500)
71,990
(5,346)
(12,500)
8,500
(9,346)
$ 62,644
60
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 61
The following table represents the components of mortgage banking revenue:
(In thousands)
Servicing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less mortgage servicing:
Year Ended December 31,
2004
$ 17,349
2003
$ 20,533
2002
$ 20,443
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net servicing income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,091
1,500
14,591
2,758
8,107
2,095
23,679
21,154
44,833
(24,300)
33,505
3,514
22,874
12,500
35,374
(14,931)
18,110
3,800
Total mortgage banking revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,960
$ 12,719
$ 6,979
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. At December 31, 2004, there were no residential mortgage loans held for sale or related forward sales contracts.
At December 31, 2004, 2003 and 2002, TCF was servicing real estate loans for others with aggregate unpaid principal balances of approximately
$4.5 billion, $5.1 billion and $5.6 billion, respectively. At December 31, 2004 and 2003, TCF had custodial funds of $106.1 million and $128.5 mil-
lion, 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, 2004
was approximately $55.9 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
2004
Amount
Non-interest bearing . . . . . . . . . . . . . . . . .
–%
$2,378,697
Interest bearing . . . . . . . . . . . . . . . . . . . . .
Total checking . . . . . . . . . . . . . . . . . . .
Savings:
Non-interest bearing . . . . . . . . . . . . . . . . .
Interest bearing . . . . . . . . . . . . . . . . . . . . .
Total savings . . . . . . . . . . . . . . . . . . . .
Money market
Total checking, savings, and
money market . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . .
.55
.22
–
.62
.59
.59
.37
2.11
.69
1,527,290
3,905,987
89,578
1,838,294
1,927,872
659,686
6,493,545
1,468,650
$7,962,195
At December 31,
% of
Total
29.9%
19.2
49.1
1.1
23.1
24.2
8.3
81.6
18.4
100.0%
Rate at
Year End
2003
Amount
–%
$2,113,572
.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
% of
Total
27.8%
14.9
42.7
1.3
23.7
25.0
11.1
78.8
21.2
100.0%
2004 Annual Report
61
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 62
Certificates of deposit had the following remaining maturities at December 31, 2004:
(In thousands)
Maturity
$100,000
Minimum
Other
Total
0-3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 101,399
$ 340,345
$ 441,744
4-6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7-12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13-24 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25-36 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37-48 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49-60 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 60 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,633
41,327
34,964
12,496
1,784
10,211
888
258,289
272,040
230,450
65,848
16,730
27,168
5,078
307,922
313,367
265,414
78,344
18,514
37,379
5,966
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 252,702
$1,215,948
$1,468,650
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, 2004:
(Dollars in thousands)
At December 31,
2004
2003
2002
Amount
Rate
Amount
Rate
Amount
Rate
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . .
$ 219,000
Securities sold under repurchase agreements . . . . . . . .
Treasury, tax and loan note payable . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
568,319
4,792
250,000
14,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,056,111
Year ended December 31,
Average daily balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under repurchase agreements . . . . . . . .
Treasury, tax and loan note payable . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 203,216
528,942
4,119
57,513
15,316
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 809,106
Maximum month-end balance
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . .
$ 336,000
Securities sold under repurchase agreements . . . . . . . .
Treasury, tax and loan note payable . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . .
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
614,641
30,438
300,000
43,000
N.A. Not Applicable.
2.29%
2.38
1.92
2.41
3.18
2.37
1.45%
1.53
1.02
2.02
2.78
1.57
N.A.
N.A.
N.A.
N.A.
N.A.
$219,000
607,631
14,781
–
37,000
$878,412
$231,060
504,328
5,103
–
16,637
$757,128
$321,000
896,752
31,903
–
47,000
.95%
1.30
.73
–
1.95
1.23
1.12%
1.26
.86
–
2.63
1.25
N.A.
N.A.
N.A.
N.A.
N.A.
$265,000
547,743
15,808
–
13,500
$842,051
$188,559
340,311
29,348
–
15,717
$573,935
$271,000
766,511
200,000
–
42,500
1.20%
1.37
1.12
–
2.20
1.32
1.67%
1.70
1.50
–
3.23
1.72
N.A.
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, 2004, all of the securities sold under repurchase agreements provided for the
repurchase of identical securities and were collateralized by mortgage-backed securities having a fair value of $584.8 million.
TCF Financial Corporation (parent company only) has a $105 million line of credit maturing in April 2005 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
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Note 13. Long-term Borrowings
Long-term borrowings consist of the following:
(Dollars in thousands)
Federal Home Loan Bank advances and securities sold
under repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Federal Home Loan Bank advances and securities sold
under repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year of
Maturity
2004
2005
2006
2009
2010
2011
2004
2005
2006
2007
2008
2009
2014
2005
2006
2007
2008
Amount
$
–
1,191,500
303,000
122,500
100,000
200,000
1,917,000
–
27,871
15,080
5,183
305
44
48,483
74,209
2,200
2,200
2,200
2,200
8,800
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,048,492
At December 31,
2004
2003
Weighted-
Average
Rate
Weighted-
Average
Rate
Amount
–%
$
3,000
4.76%
3.04
4.64
5.25
6.02
4.86
3.78
–
5.63
5.75
5.91
6.41
6.59
5.70
5.27
4.50
4.50
4.50
4.50
4.50
3.88
741,500
303,000
122,500
100,000
200,000
1,470,000
43,607
18,097
4,134
522
53
–
66,413
–
–
–
–
–
–
3.82
4.20
5.25
6.02
4.85
4.31
6.24
5.68
5.55
5.30
5.54
–
6.04
–
–
–
–
–
–
$1,536,413
4.38
At December 31, 2004, $599.5 million of securities sold under repurchase agreements maturing in 2005 were collateralized by mortgage-
backed securities having a fair value of $634.5 million.
For certain equipment leases, TCF utilizes its lease rentals and underlying equipment as collateral to borrow from other financial institutions
at fixed rates on either a partial recourse or non-recourse basis. In the event of a default by the customer on these financings, the other financial
institution has a first lien on the underlying leased equipment. In the case of non-recourse financings, the other financial institution has no
further recourse against TCF.
At December 31, 2004, TCF has pledged residential real estate loans, consumer loans, commercial real estate loans, mortgage-backed
securities and FHLB stock with an aggregate carrying value of $4.4 billion as collateral for FHLB advances. Included in FHLB advances and
repurchase agreements at December 31, 2004 are $767.5 million of fixed-rate FHLB advances and repurchase agreements with other financial
institutions which are callable quarterly at par until maturity. If called, replacement funding will be provided by the counterparties at the then-
prevailing short-term 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. The stated maturity dates for the callable advances and repurchase agreements
outstanding at December 31, 2004 were as follows (dollars in thousands):
Year
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stated Maturity
$342,000
3,000
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122,500
100,000
200,000
$767,500
Weighted-
Average
Rate
6.20%
5.46
5.25
6.02
4.85
5.67
2004 Annual Report
63
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 64
In 2004, TCF National Bank (“TCF Bank”), a wholly-owned subsidiary of TCF, issued $75 million of subordinated notes due 2014. The notes bear
interest at a fixed rate of 5.00% for the first five years and will reprice quarterly thereafter at the three-month LIBOR rate plus 1.63%. The notes
may be redeemed by TCF Bank at par after five years. These notes qualify as Tier 2 or supplemental capital for regulatory purposes, subject to
certain limitations. TCF Bank paid the proceeds from the offering to TCF to be used for general corporate purposes, which may include repurchases
in the open market of TCF common stock.
Note 14. Income Taxes
Income tax expense consists of:
(In thousands)
Year ended December 31, 2004:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2003:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2002:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$148,043
3,918
$151,961
$ 111,922
4,830
$ 116,752
$ 31,830
1,810
$ 33,640
$ (21,765)
(713)
$ (22,478)
$ (4,649)
(198)
$ (4,847)
$ 86,288
4,834
$ 91,122
$126,278
3,205
$129,483
$ 107,273
4,632
$ 111,905
$ 118,118
6,644
$ 124,762
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:
(In thousands)
Computed income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in income tax expense resulting from:
State income tax, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductible stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in affordable housing limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2004
$134,567
2,083
(3,897)
(2,518)
(752)
$129,483
33.68%
2003
$114,724
3,011
(3,291)
(1,419)
(1,120)
$111,905
34.14%
2002
$125,192
4,319
(3,682)
(489)
(578)
$124,762
34.88%
The significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:
(In thousands)
Deferred tax assets:
Restricted stock and deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary tax year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan fees and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2004
2003
$ 37,819
35,265
796
9,427
83,307
122,528
–
19,339
14,090
9,464
8,188
–
10,901
184,510
$101,203
$ 34,325
35,820
–
11,136
81,281
117,991
28,931
18,428
15,061
9,066
6,249
3,214
10,032
208,972
$127,691
The company has determined that a valuation allowance for deferred tax assets is not necessary.
64
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Note 15. Stockholders’ Equity
Restricted Retained Earnings Retained earnings at
December 31, 2004 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 avail-
able for payment of cash dividends or other distributions to share-
holders. 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 Each share of TCF common stock out-
standing includes one preferred share purchase right. 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 $200. In addition, upon
the occurrence of certain events, holders of the rights will be enti-
tled to purchase either TCF’s common stock or shares in an “acquir-
ing 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.
Stock Split During the third quarter of 2004, TCF announced and
completed a two-for-one stock split of its common stock in the form
of a 100% stock dividend. The stock split resulted in an increase in
issued common stock of 92,485,601 shares and was accounted for by
a transfer of $925 thousand to common stock from additional paid-
in capital. All prior period common shares and per share disclosures
have been restated to reflect the split.
Treasury Stock and Other Treasury stock and other consists of the following:
(In thousands)
At December 31,
2004
2003
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(862,543)
$(751,586)
Shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(70,775)
(13,199)
(71,103)
(16,712)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(946,517)
$(839,401)
TCF purchased 3,984,890; 6,918,980 and 6,216,862 shares of
its common stock during the years ended December 31, 2004, 2003
and 2002 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 7.2 million shares. At December 31, 2004, TCF
had 3.5 million shares remaining in its stock repurchase program
authorized by the Board of Directors.
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, 2004 the fair value of the assets in the plans
totaled $253.3 million and included $246.3 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 recognized)
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”).
2004 Annual Report
65
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 66
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:
(Dollars in thousands)
As of December 31, 2004:
Tier 1 leverage capital
Actual
Minimum
Capital Requirement
Excess
Amount
Ratio
Amount
Ratio
Amount
Ratio
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . . .
$803,870
775,100
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, 2003:
Tier 1 leverage capital
803,870
775,100
958,900
930,130
6.63%
6.41
9.12
8.81
10.88
10.57
$363,940
362,911
352,592
351,865
705,185
703,730
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . .
$ 765,271
754,599
6.87%
6.83
$ 334,402
331,649
Tier 1 risk-based capital
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . .
Total risk-based capital
TCF Financial Corporation . . . . . . . . . . . . . .
TCF National Bank . . . . . . . . . . . . . . . . . . .
765,271
754,599
841,982
831,310
9.75
9.64
10.73
10.62
313,825
313,143
627,650
626,286
3.00%
3.00
4.00
4.00
8.00
8.00
3.00%
3.00
4.00
4.00
8.00
8.00
$439,930
412,189
451,278
423,235
253,715
226,400
$ 430,869
422,950
451,446
441,456
214,332
205,024
3.63%
3.41
5.12
4.81
2.88
2.57
3.87%
3.83
5.75
5.64
2.73
2.62
At December 31, 2004, 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, 2004, there were 5,173,282 shares
reserved for issuance under the Program, including 325,864 shares
related to outstanding stock options.
At December 31, 2004, there were 2,142,246 shares of
performance-based restricted stock that will vest only if certain
earnings per share goals are achieved by 2008. On January 6, 2005,
1,085,570 shares of performance-based restricted stock vested
due to the achievement of an earnings per share goal in 2004.
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 seven years. The weighted-average grant date
fair value of restricted stock was $28.14, $22.50 and $24.46 in 2004,
2003 and 2002, respectively. Compensation expense for restricted
stock totaled $6.9 million, $9.7 million and $11.6 million in 2004,
2003 and 2002, respectively.
TCF has also issued stock options under the Program that gener-
ally 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. As of December 31, 2004, all outstanding
stock options are vested.
66
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The following table reflects TCF’s stock option and restricted stock transactions under the Program since December 31, 2001:
Restricted Stock
Stock Options
Exercise Price
Range
Weighted-
Average
$ 2.66-16.64
$
12.33
Shares
740,250
–
(103,596)
(28,900)
–
–
2.66-16.64
11.78-16.09
–
Price Range
$ 9.87-24.10
20.71-26.39
–
11.05-26.39
10.44-25.17
9.87-26.39
18.73-25.32
Outstanding at December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
4,918,822
122,800
–
(46,490)
(1,724,500)
3,270,632
255,900
–
(214,480)
(250,898)
3,061,154
149,120
–
(62,980)
(115,068)
607,754
3.44-16.64
–
–
–
(125,558)
10.91-16.09
9.87-26.39
11.05-20.38
9.87-20.38
24.33-30.28
(500)
–
10.91
–
481,696
3.44-16.64
–
–
–
(155,832)
3.44-16.64
11.05-30.13
11.05-24.10
–
–
–
–
Outstanding at December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,032,226
9.87-30.28
N.A.
N.A.
325,864
325,864
3.44-16.64
3.44-16.64
N.A. Not Applicable.
The following table summarizes information about stock options outstanding at December 31, 2004:
–
9.86
12.95
–
12.72
–
12.11
10.91
–
12.88
–
12.81
–
–
12.91
12.91
Exercise Price Range
$ 3.44 to $10.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10.01 to $12.50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12.51 to $15.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.01 to $16.64 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Options Outstanding and Exercisable
Weighted-
Average
Exercise Price
$ 5.71
11.80
14.47
16.12
12.91
Shares
31,064
122,800
116,000
56,000
325,864
Weighted-
Average
Remaining
Contractual
Life in Years
.8
4.0
4.4
3.0
3.7
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 in TCF common
stock 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 graduated vesting schedule based on an employee’s
years of vesting service over five years. In December 2004, TCF modi-
fied this plan to allow all employees the opportunity to diversify and
invest their vested account balance in various mutual funds or TCF
common stock. At December 31, 2004, the fair value of the assets in
the plan totaled $267.8 million and included $262.2 million invested
in TCF common stock. The Company’s matching contributions are
expensed when made. TCF’s contributions to the plan were $4 million,
$3.9 million and $3.6 million in 2004, 2003 and 2002, respectively.
Pension Plan The TCF Cash Balance Pension Plan (the “Pension
Plan”) is a qualified defined benefit plan covering eligible employees
who are at least 21 years old and have completed a year of eligibility
service with TCF. Employees hired after June 30, 2004 are not eligible
to participate in the Pension Plan. TCF makes a monthly allocation to
the participant’s account based on a percentage of the participant’s
compensation. The percentage is based on the sum of the partici-
pant’s age and years of employment with TCF and includes interest
on the account balance based on the five-year Treasury rate plus
25 basis points for 2004 and based on the ten-year Treasury rate
for 2003 and 2002. Participants are fully vested after five years of
qualifying service.
2004 Annual Report
67
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 68
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:
(In thousands)
Benefit obligation:
Accrued participant balance – vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued participant balance – unvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of future service and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in benefit obligation:
Pension Plan
Postretirement Plan
Year Ended December 31,
Year Ended December 31,
2004
2003
$ 47,646
5,217
52,863
2,351
$ 55,214
$ 48,296
$ 42,958
3,621
46,579
4,251
$ 50,830
$ 43,230
2004
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
2003
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 50,830
$ 42,324
$ 12,386
$ 11,837
Service cost – benefits earned during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
4,632
3,164
(451)
258
(3,219)
55,214
53,855
5,350
(3,219)
2,575
58,561
3,347
–
(670)
24,207
$ 26,884
3,950
2,950
–
3,907
(2,301)
50,830
49,486
6,670
(2,301)
–
53,855
3,025
–
(452)
23,344
53
672
(629)
(1,793)
(1,014)
9,675
–
–
(1,014)
1,014
–
(9,675)
1,044
–
2,732
60
740
–
891
(1,142)
12,386
–
–
(1,142)
1,142
–
(12,386)
1,883
–
4,742
$ 25,917
$ (5,899)
$ (5,761)
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 with qualifying prescription drug benefits,
beginning in 2006. TCF offers prescription drug benefits to retirees in the Postretirement Plan. In the second quarter of 2004, TCF re-measured its
postretirement benefit obligation as of December 31, 2003 to include the effects of the federal subsidy provided under the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003. As a result of this remeasurement, TCF’s postretirement benefit obligation decreased $989
thousand and the postretirement benefit cost decreased $103 thousand in 2004.
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, 2004 and 2003. The discount rate and rate of increase in future
compensation used to measure the benefit obligation were as follows:
Assumptions used to
determine benefit obligations
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . .
N.A. Not Applicable.
Pension Plan
Year Ended December 31,
Postretirement Plan
Year Ended December 31,
2004
6.0%
4.0
2003
6.0%
4.5
2002
6.5%
4.5
2004
6.0%
N.A.
2003
6.0%
N.A.
2002
6.5%
N.A.
68
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 69
Net periodic benefit cost (credit) included in compensation and employee benefits expense consists of the following:
Pension Plan
Year Ended December 31,
Postretirement Plan
Year Ended December 31,
(In thousands)
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Amortization of transition obligation . . . . . . . .
Amortization of prior service cost . . . . . . . . . . .
Recognized actuarial (gain) loss . . . . . . . . . . .
2004
$ 4,632
3,164
(5,955)
–
(233)
–
2003
$ 3,950
2,950
(6,374)
–
(361)
–
Net periodic benefit cost (credit) . . . . . . .
$ 1,608
$
165
2002
$ 3,547
2,857
(7,683)
–
(1,056)
(387)
$(2,722)
$
2004
53
672
–
210
–
215
$
2003
60
740
–
210
–
226
$
2002
48
685
–
210
–
38
$ 1,150
$ 1,236
$
981
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 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,
2004
6.0%
8.5
4.5
2003
6.5%
8.5
4.5
2002
7.5%
10.0
4.5
2004
6.0%
N.A.
N.A.
2003
6.5%
N.A.
N.A.
2002
7.5%
N.A.
N.A.
TCF’s pension plan asset allocation is summarized as follows:
Pension Plan
Percentage of Plan Assets
at December 31,
Asset Category
Equity securities, excluding TCF Financial Corporation common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TCF Financial Corporation common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
100%
–
–
–
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
2003
75%
2
21
2
100%
Beginning in December 2004, the assets of TCF’s pension plan are invested in passively managed index mutual funds that are designed to
track the performance of the Standard and Poor’s 500 and the Morgan Stanley Capital International U.S. Mid-Cap 450 indexes, at targeted
weightings of 75% and 25% respectively. Prior to this, the assets were managed by external investment managers on a discretionary basis
subject to certain restrictions and limitations.
The actuarial assumptions used in the pension plan valuation are reviewed annually. The expected long-term rate of return on plan assets is
determined by reference to historical market returns and future expectations. The weighted average 10-year return of the indexes underlying the
Plan’s current investment strategy was 12.7%. Although past performance is no guarantee of the future results, TCF is not aware of any reasons why
it should not be able to achieve the assumed future average annual returns of 8.5% on plan assets over complete market cycles. A 1% difference in
the expected return on plan assets would result in a $655 thousand change in net periodic pension expense.
TCF currently does not expect to contribute to the Pension Plan in 2005. TCF expects to contribute approximately $1 million to the Postretirement
Plan in 2005. TCF currently has no plans to pre-fund the Postretirement Plan in 2005.
The following are expected future benefit payments used to determine projected benefit obligations:
(In thousands)
Pension
Plan
Postretirement
Plan
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,721
$ 1,004
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,431
5,787
6,105
6,356
2010-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,325
934
934
926
911
4,078
2004 Annual Report
69
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 70
The following table presents assumed health care cost trend rates for the Postretirement Plan at December 31, 2004 and 2003:
Health care cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Final health care cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year that final health care trend rate is reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
10%
5%
2009
2003
11%
5%
2009
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
$ 26
551
$ (39)
(338)
Note 19. Derivative Instruments and Hedging Activities
All derivative instruments as defined, including derivatives embed-
ded 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 had no
derivatives outstanding as of December 31, 2004.
Prior to the restructuring of the residential mortgage banking
operation in 2004, TCF’s pipeline of locked residential mortgage loan
commitments, adjusted for loans not expected to close, and forward
sales contracts were considered derivatives and 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 also utilized 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 residential loans held for sale. Residential mortgage loans held
for sale were 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 were hedged with
forward sales contracts of the same loan types, or substantially the
same loan types, the hedges were highly effective at managing the
risk of changing fair values of such loans. Any differences between
the changes in fair value of the hedged residential loans held for
sale and in the fair value of the forward sales contracts were not
material due to the nature of the hedging instruments and were
recorded in gains on sales of loans. Forward mortgage loan sales
commitments totaled $149.1 million at December 31, 2003.
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,
2004
2003
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,576,381
684,029
72,614
55,343
Total commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,388,367
Loans serviced with recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit and guarantees on industrial revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97,568
75,957
$1,382,348
624,664
57,485
56,007
2,120,504
130,765
40,796
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,561,892
$2,292,065
70
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132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 71
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 $94.9 million of Veterans
Administration (“VA”) loans and $2.7 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, 2004 and 2003,
respectively, which was recorded in other liabilities. No significant
claims have been made under the “no-bid” option during 2004 or
2003. Loans sold with recourse to FNMA represent residential real
estate loans sold to FNMA prior to 1982. 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 2034.
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 2009. 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 realiza-
tion. 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 experienced
no significant change in credit risk, fair values are based on carrying
values. The fair values of other loans are estimated by discounting
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.
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.
2004 Annual Report
71
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 72
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.
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,
2004
2003
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
154,279
$
155,611
$
335,372
$
340,189
Forward mortgage loan sales commitments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–
–
(1,105)
(1,105)
Loans:
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,418,588
2,154,396
424,135
334,352
1,014,166
(58,966)
4,415,340
2,171,409
424,354
332,734
1,022,328
–
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
–
Total financial instrument assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,440,950
$ 8,521,776
$ 7,763,734
$ 7,926,446
Financial instrument liabilities:
Checking, savings and money market deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,493,545
$ 6,493,545
$ 5,999,626
$ 5,999,626
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,468,650
1,056,111
2,048,492
1,483,190
1,056,111
2,091,412
1,612,123
878,412
1,536,413
1,630,511
878,412
1,627,253
Total financial instrument liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,066,798
$11,124,258
$10,026,574
$10,135,802
Financial instruments with off-balance-sheet risk:(3)
Commitments to extend credit (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans serviced with recourse (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total financial instruments with off-balance-sheet risk . . . . . . . . . . . . . .
$
$
28,551
8
(100)
28,459
$
$
28,551
8
(100)
28,459
$
$
22,773
43
(100)
22,716
$
$
22,773
43
(100)
22,716
(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.
72
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 73
Note 22. 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)
Year Ended December 31,
2004
2003
2002
Basic Earnings Per Common Share
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
254,993
$
215,878
$
232,931
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
139,656,829
Unvested restricted stock grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,040,397)
Weighted average common shares outstanding for basic earnings per common share . . . . . . . . . . . . . . . . . .
136,616,432
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:
$
$
1.87
254,993
$
$
144,028,040
(3,041,506)
140,986,534
1.53
215,878
150,480,642
(3,289,758)
147,190,884
1.58
232,931
$
$
Weighted average common shares outstanding used in basic earnings per common share calculation . . . . .
136,616,432
140,986,534
147,190,884
Net dilutive effect of:
Stock option plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
182,577
375,631
187,346
366,848
248,444
442,560
Weighted average common shares outstanding for diluted earnings per common share . . . . . . . . . .
137,174,640
141,540,728
147,881,888
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.86
$
1.53
$
1.58
All shares of restricted stock are deducted from weighted average shares outstanding used for the computation of basic earnings per com-
mon share. All shares of restricted stock which vest over specified time periods are included in the calculation of diluted earnings per common
share using the treasury stock method. Shares of performance-based restricted stock are included in the calculation of diluted earnings per
common share, using the treasury stock method, at the beginning of the quarter in which the performance goals have been achieved.
During the third quarter of 2004, TCF announced and completed a two-for-one stock split of its common stock in the form of a 100% stock
dividend. As a result of the two-for-one stock split, all prior period share and per share data have been restated.
Note 23. 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)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income:
Unrealized holding gains (losses) arising during the period on securities available for sale . . . . . . . . . . . . .
Reclassification adjustment for gains included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 24. Other Expense
Other expense consists of the following:
(In thousands)
Deposit account losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage and courier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telecommunication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card processing and issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal deposit insurance and OCC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit base intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing liquidation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2003
$215,878
(30,619)
(32,832)
(23,001)
(40,450)
$175,428
Year Ended December 31,
2003
$ 18,820
14,358
12,634
12,213
9,316
9,545
2,796
1,666
4,352
57,646
$143,346
2004
$254,993
11,522
(22,600)
(4,011)
(7,067)
$247,926
2004
$ 22,624
14,002
12,459
12,446
9,891
9,171
2,682
1,662
1,460
55,743
$142,140
2002
$232,931
74,044
(11,536)
22,635
39,873
$272,804
2002
$ 19,206
13,579
12,738
11,095
9,023
10,071
2,761
1,671
2,394
57,431
$139,969
2004 Annual Report
73
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 74
Note 25. 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 represent the mortgage servicing business and previously
included 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, 2004:
Revenues from external customers:
Interest income . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Banking
529,281
426,867
956,148
427,483
4,141
426,867
516,629
113,644
$
219,936
$11,903,232
$
$
$
545,764
355,088
900,852
415,163
4,361
355,088
489,212
96,449
$
180,229
$ 10,915,010
$
$
$
632,804
359,895
992,699
437,049
12,778
359,895
473,467
109,959
$
200,740
$ 11,784,981
Leasing and
Equipment
Finance
$
$
$
$
89,364
50,697
140,061
55,699
6,806
50,697
43,718
20,000
35,872
$ 1,449,424
$
$
$
81,912
51,088
133,000
45,358
8,171
51,088
41,977
17,031
$
29,267
$ 1,216,854
$
$
$
$
85,447
51,806
137,253
41,374
9,228
51,806
40,983
15,497
27,472
$ 1,100,744
Mortgage
Banking
Eliminations
and
Reclassifications
Other
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,164
12,946
17,110
8,204
–
14,282
27,371
(1,727)
(3,158)
76,468
13,843
12,761
26,604
21,357
–
13,102
29,963
1,590
2,906
173,867
15,112
6,980
22,092
20,676
–
8,316
24,796
1,511
2,685
447,840
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
–
(44)
(44)
(831)
–
95,682
94,942
(2,434)
2,343
$
$
$
$
–
–
–
1,336
–
(97,062)
(95,726)
–
–
135,615
$(1,224,172)
–
342
342
(1,074)
–
89,059
87,674
(3,165)
3,476
126,478
–
1,081
1,081
(1,210)
–
95,272
94,233
(2,205)
2,034
96,300
$
$
$
–
–
–
341
–
(89,058)
(88,717)
-
$
-
$ (1,113,194)
$
$
$
$
–
–
–
1,336
–
(95,527)
(94,191)
–
–
$ (1,227,796)
Consolidated
$
622,809
490,466
$ 1,113,275
$
491,891
10,947
490,466
586,934
129,483
$
254,993
$12,340,567
$
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
74
TCF Financial Corporation and Subsidiaries
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Note 26. Parent Company Financial Information
TCF Financial Corporation’s (parent company only) condensed statements of financial condition as of December 31, 2004 and 2003,
and the condensed statements of income and cash flows for the years ended December 31, 2004, 2003 and 2002 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Stockholders’ Equity:
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At December 31,
2004
2003
$
370
2,587
929,648
266
4,591
26,923
21,931
$
397
2,457
910,186
228
11,400
21,867
20,179
$986,316
$966,714
$ 14,000
13,898
27,898
958,418
$986,316
$ 37,000
8,856
45,856
920,858
$966,714
Condensed Statements of Income
(In thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2004
87
426
(339)
$
2003
40
438
(398)
$
2002
323
508
(185)
Dividends from TCF National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,955
219,653
206,566
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,859
69
11,928
10,742
1,137
1,578
13,457
159,087
3,382
162,469
92,524
$254,993
8,643
1,338
9,981
7,184
631
2,158
9,973
219,263
907
220,170
(4,292)
$215,878
14,342
(322)
14,020
12,965
847
1,935
15,747
204,654
1,852
206,506
26,425
$232,931
2004 Annual Report
75
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 76
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Year Ended December 31,
2004
2003
2002
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 254,993
$ 215,878
$ 232,931
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital distribution from TCF National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan to deferred compensation plans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(92,524)
3,964
(88,560)
166,433
(130)
75,000
–
(155)
74,715
(104,037)
(116,134)
(23,000)
1,996
(241,175)
(27)
397
370
4,292
(1,102)
3,190
219,068
(661)
–
–
–
(661)
(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
(218,362)
(222,046)
45
352
397
$
315
37
352
$
Note 27. 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 lending and leasing collection activities. From time to
time, borrowers and other customers have also brought actions against TCF, in some cases claiming substantial amounts of damages. Financial
services companies are subject to the risk of class action litigation, and TCF has had such actions brought against it from time to time.
Litigation is often unpredictable and the actual results of litigation cannot be determined with certainty.
In April 2004, TCF was served with a complaint in the United States District Court, District of Minnesota, by John Matthew Saxe, individually
and on behalf of other similarly situated employees. The plaintiff, a former consumer loan officer for TCF National Bank, alleges that he and
other consumer lender employees were not paid overtime compensation in violation of the Federal Fair Labor Standards Act and the Minnesota
Fair Labor Standards Act, and seeks as damages unpaid back wages, an additional amount equal to unpaid back wages as liquidated damages,
costs and attorneys’ fees. TCF has filed an answer to the complaint denying that the plaintiff or any similarly situated employee is entitled to
any relief or that the plaintiff is similarly situated to other employees. Discovery in this case is pending.
76
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 77
Management’s Report on Internal Control
Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting for TCF Financial Corporation
(“TCF Financial” or “the Company”). Internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with
generally accepted accounting principles.
Internal control over financial reporting includes those policies
and procedures that pertain to the maintenance of records that
in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company; provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
of the Company are only being made in accordance with authoriza-
tions of management and directors of the company; and provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements.
Management completed an assessment of TCF Financial’s inter-
nal control over financial reporting as of December 31, 2004. This
assessment was based on criteria for evaluating internal control
over financial reporting established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on this assessment, TCF Financial’s
internal control over financial reporting was effective as of
December 31, 2004.
KPMG LLP, TCF Financial’s registered public accounting firm
that audited the consolidated financial statements included in
this annual report, has issued an unqualified attestation report
on management’s assessment of the Company’s internal controls
over financial reporting.
Any control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. The design of a control
system inherently has limitations, and the benefits of controls must
be weighed against their costs. Additionally, controls can be circum-
vented by the individual acts of some persons, by collusion of two or
more people, or by management override of the control. Therefore,
no assessment of a cost-effective system of internal controls can
provide absolute assurance that all control issues and instances of
fraud, if any, will be detected.
William A. Cooper
Chairman of the Board
and Chief Executive Officer
Neil W. Brown
Executive Vice President
and Chief Financial Officer
David M. Stautz
Senior Vice President, Controller
and Assistant Treasurer
February 17, 2005
2004 Annual Report
77
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 78
Reports of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
TCF Financial Corporation:
We have audited the accompanying consolidated statements of
financial condition of TCF Financial Corporation and subsidiaries as
of December 31, 2004 and 2003, and the related consolidated state-
ments of income, stockholders’ equity, and cash flows for each of
the years in the three-year period ended December 31, 2004. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain rea-
sonable 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, 2004
and 2003, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2004,
in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of TCF Financial Corporation’s internal control over
financial reporting as of December 31, 2004, based on Internal Control
– Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated February 17, 2005 expressed an unqualified opinion on man-
agement’s assessment of, and the effective operation of, internal
control over financial reporting.
Minneapolis, Minnesota
February 17, 2005
78
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 79
The Board of Directors and Stockholders
TCF Financial Corporation:
We have audited management’s assessment, included in the
accompanying Management Report, that TCF Financial Corporation
maintained effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control
– Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). TCF Financial
Corporation’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment
and an opinion on the effectiveness of the Company’s internal con-
trol over financial reporting based on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal con-
trol over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we con-
sidered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management’s assessment that TCF Financial
Corporation maintained effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all material
respects based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Also, in our opinion, TCF Financial
Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based
on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of TCF Financial
Corporation and subsidiaries as of December 31, 2004 and 2003, 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, 2004, and our report dated February 17, 2005 expressed
an unqualified opinion on those consolidated financial statements.
Minneapolis, Minnesota
February 17, 2005
2004 Annual Report
79
132406_TCF AR 04 Guts_F 2/18/05 11:19 AM Page 80
Other Financial Data
Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands,
except per-share data)
Selected Financial Condition Data:
Securities available for sale . . . . . . . . . . . .
Dec. 31,
2004
Sept. 30,
2004
June 30,
2004
At
March 31,
2004
Dec. 31,
2003
Sept. 30,
2003
June 30,
2003
March 31,
2003
$ 1,619,941
$ 1,330,708
$ 1,588,372
$ 1,269,293
$ 1,533,288
$ 1,604,282
$ 1,980,830
$ 2,442,724
Residential real estate loans . . . . . . . . . . .
1,014,166
1,047,079
Subtotal . . . . . . . . . . . . . . . . . . . . . . .
2,634,107
2,377,787
1,091,678
2,680,050
1,152,357
2,421,650
1,212,643
2,745,931
1,283,640
2,887,922
1,393,183
3,374,013
1,568,430
4,011,154
Loans and leases excluding
residential real estate loans . . . . . . . .
8,372,491
8,025,804
7,776,921
7,470,428
7,135,135
6,863,683
6,705,169
6,485,179
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . .
152,599
46,442
152,599
51,474
152,599
51,290
152,599
50,726
145,462
52,036
145,462
49,119
145,462
41,379
145,462
52,953
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
12,340,567
11,997,949
11,942,863
11,724,319
11,319,015
11,253,906
11,807,764
12,127,272
Checking, savings and money
market deposits . . . . . . . . . . . . . . . . . . .
6,493,545
6,323,659
Certificates of deposit . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . .
1,468,650
7,962,195
1,056,111
2,048,492
958,418
1,471,164
7,794,823
845,499
6,321,761
1,439,896
7,761,657
869,576
6,328,757
1,540,371
7,869,128
469,663
5,999,626
1,612,123
7,611,749
878,412
6,115,863
1,596,740
7,712,603
900,835
6,234,447
1,745,290
7,979,737
546,118
6,068,095
1,897,243
7,965,338
774,603
2,057,608
2,065,870
2,037,424
1,536,413
1,342,890
1,959,921
1,993,287
965,266
939,152
965,950
920,858
931,968
952,069
971,413
(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
Dec. 31,
2004
Sept. 30,
2004
June 30,
2004
March 31,
2004
Dec. 31,
2003
Sept. 30,
2003
June 30,
2003
March 31,
2003
Three Months Ended
$
163,388
$
157,413
$
152,789
$
149,219
$
148,919
$
156,482
$
164,004
$
172,114
36,899
126,489
4,073
32,923
124,490
2,644
30,370
122,419
3,070
30,726
118,493
1,160
29,827
119,092
4,037
36,605
119,877
2,658
44,240
119,764
3,127
49,702
122,412
2,710
for credit losses . . . . . . . . . . . . . .
122,416
121,846
119,349
117,333
115,055
117,219
116,637
119,702
Non-interest income:
Fees and other revenues . . . . . . . . . . .
126,311
115,803
123,293
102,459
114,865
118,089
101,003
96,835
$
$
$
$
$
$
$
$
6,204
–
132,515
154,396
100,535
33,133
67,402
.50
.50
.1875
2.22%
28.35
4.56
.14
7.81
$
$
$
$
3,679
–
119,482
147,926
93,402
31,690
61,712
.45
.45
.1875
2.06%
25.96
4.56
.17
7.94
$
$
$
$
–
–
123,293
143,906
98,736
33,518
65,218
.47
.47
.1875
2.20%
27.68
4.53
.10
7.95
$
$
$
$
12,717
–
115,176
140,706
91,803
31,142
60,661
.44
.44
.1875
2.11%
25.90
4.52
.02
8.13
$
$
$
$
–
–
114,865
142,244
87,676
28,180
59,496
.43
.43
.1625
2.13%
26.18
4.68
.30
8.13
–
11,695
$
$
$
$
(37,769)
80,320
142,382
55,157
19,193
35,964
.26
.26
.1625
1.24%
15.77
4.57
.08
7.89
$
$
$
$
–
112,698
136,733
92,602
32,311
60,291
.43
.42
.1625
2.04%
25.17
4.45
.16
8.11
21,137
(6,576)
111,396
138,750
92,348
32,221
60,127
.42
.42
.1625
1.99%
24.70
4.45
.09
8.06
Gains on sales of securities
available for sale . . . . . . . . . . . . .
Gains (losses) on termination of debt
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) . . . . . . . . . . . . . . . . .
Net charge-offs as a percentage of
average loans and leases (1) . . . . . . . . .
Average total equity to average assets . . .
(1) Annualized.
80
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 81
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
and Chief Financial Officer
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
CAROL B. SCHIRMERS
BARBARA E. SHAW
DAVID M. STAUTZ
DIANE O. STOCKMAN
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
BRIAN J. HURD
JAMES C. LAPLANTE
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 M. MATHEIS
DAVID B. MCCULLOUGH
ANTON J. NEGRINI
ELIZABETH A. ROCHON
ROGER W. STARR
LEONARD D. STEELE
Senior Vice Presidents
ROBERT J. BRUEGGEMAN
LUIGI COSENTINO
DAVID R. CREEL
PETER R. DAUGHERTY
JEFFREY T. DOERING
SUSAN T. DOYLE
GINA L. GALANTE
R. ELIZABETH TOPOLUK
EDWARD J. GALLAGHER
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
KURT D. EGERTSON
SCOTT A. FEDIE
MARK L. FOSTER
CLAIRE M. GRAUPMANN
KATHERINE L. LANDON
MICHAEL J. OLSON
DANIEL M. REYELTS
STEVEN E. RYKKELI
STEPHEN D. STEEN
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
Executive Vice Presidents
MARK B. DILLON
JOSEPH W. DOYLE
MICHAEL B. JOHNSTONE
MICHAEL R. KLEMZ
JAMES L. KOON
MARK W. ROHDE
DAVID J. VEURINK
C. HUNTER WESTBROOK
MARK W. GAULT
THOMAS R. GOINS
JAMES D. HUGHES
EILEEN P. KOWALSKI
RUSSELL P. MCMINN
LUKE K. OOSTEROUSE
DOUGLAS A. ORTYN
TODD A. PALMER
MARY POTTER
MICHAEL ROIDT
WENDY D. RYEE-SMITH
STEPHEN W. SINNER
SUZANNE M. STUEBE
DENNIS J. VENA
KATHLEEN M. WACKER
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
ROBERT H. SCOTT*
Executive Vice Presidents
LUIS J. CAMPOS
CHARLES L. HAYNE
Senior Vice Presidents
JERRY E. COVIAK
LARRY M. CZEKAJ
GARY L. FINEMAN
DENNIS J. GISTINGER
NATALIE A. GLASS
DONALD J. HAWKINS
LANCE N. KRAJACIC
JOHN J. OWENS
TERRENCE B. PRYOR
ERSKINE J. UNDERWOOD
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
JAMES W. HAGEN
MATTHEW G. LAMB
T C F I N V E S T M E N T S
A N D I N S U R A N C E
Chief Executive Officer
PETER O. TORVIK
President
MARY E. SARLES
Executive Vice President
STEPHEN M. MAGISTAD
Senior Vice Presidents
BUFFIE A. BLESI
DAMON J. BRINSON
SZABLIS M. KRUGER
TIMOTHY J. O’KEEFE
JAMES R. SCATTERGOOD
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
JAMES L. PHILLIPS
CHARLES A. SELL, JR.
ROBERT J. STARK
MARK H. VALENTINE
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
RICHARD J. PIEPER
DEAN J. STINCHFIELD
T C F M O R T G A G E
C O R P O R A T I O N
President
DOUGLAS L. DINNDORF
* Effective 2005
2004 Annual Report
81
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 82
Board of Directors
Offices
WILLIAM A. COOPER 5
Chairman of the Board
LYNN A. NAGORSKE
President and
and Chief Executive Officer
Chief Operating Officer
PETER L. SCHERER 1,4
President and
Chief Executive Officer,
Scherer Bros. Lumber Co.
GERALD A. SCHWALBACH 1,2,3,4
Chairman,
Superior Storage LLC
DOUGLAS A. SCOVANNER 1,4
Executive Vice President
and Chief Financial Officer
Target Corporation
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
E X E C U T I V E O F F I C E S
C O L O R A D O
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 (45)
GREATER MINNESOTA (5)
Supermarket Branches
MINNEAPOLIS/ST. PAUL AREA (47)
GREATER MINNESOTA (4)
Traditional Branches
METRO DENVER AREA (15)
COLORADO SPRINGS (5)
Supermarket Branches
METRO DENVER AREA (10)
COLORADO SPRINGS (2)
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 (40)
MILWAUKEE AREA (11)
KENOSHA/RACINE AREA (7)
Supermarket Branches
CHICAGOLAND (157)
MILWAUKEE AREA (8)
KENOSHA/RACINE AREA (8)
INDIANA (6)
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 (44)
GREATER MICHIGAN (10)
Supermarket Branches
METRO DETROIT AREA (4)
GREATER MICHIGAN (2)
82
TCF Financial Corporation and Subsidiaries
132406_TCF AR 04 Guts_B 2/14/05 10:31 AM Page 83
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
2004
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
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
$32.14
30.29
29.03
25.54
$25.68
23.98
19.92
20.02
$21.85
21.17
24.55
26.31
$23.99
23.03
23.16
18.90
$22.28
18.81
12.85
11.91
$32.36
32.62
29.03
26.37
$27.13
24.86
21.27
22.89
$22.38
25.15
27.04
27.30
$24.13
25.56
23.28
22.19
$22.78
18.94
14.53
12.44
$29.46
28.01
24.35
23.92
$23.91
19.76
18.45
18.25
$17.55
19.95
23.33
23.44
$19.70
19.73
17.45
16.41
$16.91
12.88
11.00
9.00
Dividends
Paid
Per Share
$ .1875
.1875
.1875
.1875
$ .1625
.1625
.1625
.1625
$.14375
.14375
.14375
.14375
$ .125
.125
.125
.125
$.10625
.10625
.10625
.09375
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, 2004, TCF had
approximately 137.2 million shares of common stock outstanding.
2 0 0 5 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 4
May 6
August 5
November 4
Expected Payment:
February 28
May 31
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.
250 Royall Street
Canton, MA 02021
(800) 730-4001
www.equiserve.com
Approximately 60% of TCF’s 9,893 registered 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 27, 2005 at 10:00 a.m. at the Sheraton Minneapolis West,
12201 Ridgedale Drive, Minnetonka, Minnesota.
2004 Annual Report
83
132406_TCF AR 04 Guts_B 2/14/05 10:32 AM Page 84
T O T A L R E T U R N P E R F O R M A N C E
TCF Financial Corporation
SNL All Bank & Thrift Index
S&P 500*
(In Dollars)
$900
800
700
600
500
400
300
200
100
0
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
12/31/04
* Source: CRSP, Center for Research in Security Prices, Graduate School of Business, The University of Chicago 2005. Used with permission. All rights reserved. crsp.com.
C R E D I T R A T I N G S
Last Rating Action
Moody’s
TCF National Bank:
Outlook
Issuer
Long-term deposits
Short-term deposits
Bank financial strength
Last Review
September 2004
Last Rating Action
Last Review
August 2004
Last Rating Action
Last Review
January 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
FITCH
Outlook
Issuer rating
TCF Financial Corporation:
Long-term senior
Short-term
TCF National Bank:
Long-term deposits
Short-term deposits
S T O C K P R I C E P E R F O R M A N C E
(In Dollars)
$35
Stock Price
Dividend
30
25
20
15
10
5
0
7
9
/
8
2
/
1
1
t
i
l
p
S
k
c
o
t
S
5
9
/
0
3
/
1
1
t
i
l
p
S
k
c
o
t
S
Year
Ending
Stock
Price
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
12-04
$1.50 $1.52
$0.86
$1.11
$1.69
$0.96
$2.42
$3.63
$4.25
$5.16
$8.28
$10.88
$16.97
$12.09
$12.44
$22.28
$23.99
$21.85
$25.68
$32.14
Dividend
Paid
N/A
N/A
N/A
$0.03
$0.05
$0.05
$0.05
$0.06
$0.09
$0.13
$0.15
$0.18
$0.23
$0.31
$0.36
$0.41
$0.50
$0.58
$0.65
$0.75
84
TCF Financial Corporation and Subsidiaries
Stable
B
A-
F1
A
F1
$1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
4
0
/
3
/
9
t
i
l
p
S
k
c
o
t
S
132406_TCF AR 04 Cover_F 2/18/05 8:48 AM Page 2
TCF Financial Corporation and Subsidiaries – 2004 Annual Report
At or For the Year Ended December 31,
2004
2003
% Change
Financial Highlights
(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 revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) on termination of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs as a percentage of average loans and leases . . . . . . . . . . . . . . . . . .
Total equity to total assets at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in thousands)
Selected Balance Sheet Data:
Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and leases excluding residential real estate loans . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Checking, savings and money market deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TCF Financial Corporation and Subsidiaries
$
$
622,809
130,918
491,891
10,947
480,944
467,866
22,600
–
490,466
586,934
384,476
129,483
254,993
1.87
1.86
.75
32.62
23.92
32.14
6.99
4.60X
2.15%
27.02
4.54
.11
7.77
2004
1,014,166
2,634,107
8,372,491
152,599
46,442
6,493,545
1,468,650
7,962,195
1,056,111
2,048,492
958,418
$
$
$
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
1.53
1.53
.65
27.13
18.25
25.68
6.53
3.93X
1.85%
23.05
4.54
.16
8.14
1,212,643
2,745,931
7,135,135
145,462
52,036
5,999,626
1,612,123
7,611,749
878,412
1,536,413
920,858
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,340,567
11,319,015
Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
137,186,160
140,952,660
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,619,941
$
1,533,288
At December 31,
2003
% Change
(2.9)%
(18.4)
2.2
(12.6)
2.6
8.6
(31.2)
100.0
17.0
4.8
17.3
15.7
18.1
22.2
21.6
15.4
25.2
7.0
17.0
16.2
17.2
–
(31.3)
(4.5)
5.7%
(16.4)
(4.1)
17.3
4.9
(10.8)
9.0
8.2
(8.9)
4.6
20.2
33.3
4.1
(2.7)
Corporate Philosophy
• TCF banks a large and diverse customer base. TCF emphasizes con-
venience 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 supermarket
branches, TCF EXPRESS TELLER® ATMs, debit cards, phone banking,
and Internet banking.
• TCF operates like a partnership. We’re organized geographically and by
function, with profit center goals and objectives. TCF emphasizes return
on average assets, return on average equity and earnings per share
growth. We know which products are profitable and contribute to these
goals. Local geographic managers are responsible for local 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 a significant portion 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 busi-
ness, we can minimize credit risk on the asset side.
• TCF strives to place The Customer First. We believe providing great
service to our many customers creates value for shareholders.
• TCF utilizes conservative accounting and reporting principles that
accurately and honestly report our financial condition and results
of operations.
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• 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.
• TCF believes interest-rate risk should be minimized. Interest-rate
speculation does not generate consistent profits and is high risk.
• 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.
• TCF believes in community participation, both financially and through
volunteerism. We feel a responsibility to help those less fortunate.
• 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.
132406_TCF AR 04 Cover_C 2/15/05 4:27 PM Page 1
TCF Financial Corporation
200 Lake Street East
Wayzata, MN 55391-1693
www.TCFExpress.com
High Performance Banking
TCF Financial Corporation 2004 Annual Report
2690-AR-05
TCFIR9328