<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of
1934
For the quarterly period ended
September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------
Commission File
No. 001-10253
------------------
TCF FINANCIAL CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 41-1591444
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 MARQUETTE AVENUE, MAIL CODE EX0-03-A, MINNEAPOLIS, MINNESOTA 55402
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (612) 661-6500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class October 31, 2000
---------------------------- 80,374,433 shares
Common Stock, $.01 par value
1
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TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 2000 and December 31, 1999.....................................................3
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999...............................................4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999...................................................5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1999 and for the Nine
Months Ended September 30, 2000.................................................................6
Notes to Consolidated Financial Statements..........................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999.................................11-25
Supplementary Information.......................................................................26-27
Part II. Other Information
Items 1-6...........................................................................................28-29
Signatures......................................................................................................30
Index to Exhibits...............................................................................................31
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------- -------------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 364,016 $ 429,262
INVESTMENTS 132,173 148,154
SECURITIES AVAILABLE FOR SALE 1,413,218 1,521,661
LOANS HELD FOR SALE 226,587 198,928
LOANS AND LEASES:
RESIDENTIAL REAL ESTATE 3,797,023 3,919,678
CONSUMER 2,189,615 2,058,584
COMMERCIAL REAL ESTATE 1,250,532 1,073,472
COMMERCIAL BUSINESS 379,222 351,353
LEASING AND EQUIPMENT FINANCE 743,275 492,656
-------------------- --------------------
TOTAL LOANS AND LEASES 8,359,667 7,895,743
ALLOWANCE FOR LOAN AND LEASE LOSSES (63,985) (55,755)
-------------------- --------------------
NET LOANS AND LEASES 8,295,682 7,839,988
GOODWILL 154,495 158,468
DEPOSIT BASE INTANGIBLES 11,762 13,262
OTHER ASSETS 382,067 351,993
-------------------- --------------------
$ 10,980,000 $ 10,661,716
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
CHECKING $ 2,116,397 $ 1,913,279
PASSBOOK AND STATEMENT 1,094,303 1,091,292
MONEY MARKET 796,471 708,417
CERTIFICATES 2,803,750 2,871,847
-------------------- --------------------
TOTAL DEPOSITS 6,810,921 6,584,835
-------------------- --------------------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS 858,379 1,010,000
FEDERAL HOME LOAN BANK ADVANCES 1,863,871 1,759,787
DISCOUNTED LEASE RENTALS 162,448 178,369
OTHER BORROWINGS 230,368 135,732
-------------------- --------------------
TOTAL BORROWINGS 3,115,066 3,083,888
ACCRUED INTEREST PAYABLE 28,715 40,352
ACCRUED EXPENSES AND OTHER LIABILITIES 165,854 143,659
-------------------- --------------------
TOTAL LIABILITIES 10,120,556 9,852,734
-------------------- --------------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, PAR VALUE $.01 PER SHARE, 30,000,000
SHARES AUTHORIZED; NONE ISSUED AND OUTSTANDING - -
COMMON STOCK, PAR VALUE $.01 PER SHARE, 280,000,000 SHARES
AUTHORIZED; 92,756,917 AND 92,804,205 SHARES ISSUED 928 928
ADDITIONAL PAID-IN CAPITAL 505,826 500,797
RETAINED EARNINGS, SUBJECT TO CERTAIN RESTRICTIONS 800,361 715,461
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (31,119) (47,382)
TREASURY STOCK AT COST, 12,311,114 AND 10,863,017 SHARES, AND OTHER (416,552) (360,822)
-------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 859,444 808,982
-------------------- --------------------
$ 10,980,000 $ 10,661,716
==================== ====================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. ANNUAL FINANCIAL
STATEMENTS ARE SUBJECT TO AUDIT.
3
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------------
2000 1999 2000 1999
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
LOANS AND LEASES $179,243 $155,361 $516,931 $457,779
SECURITIES AVAILABLE FOR SALE 24,436 27,741 75,456 84,512
LOANS HELD FOR SALE 4,529 3,063 12,624 9,855
INVESTMENTS 2,501 2,491 7,262 6,912
------------- --------------- --------------- ---------------
TOTAL INTEREST INCOME 210,709 188,656 612,273 559,058
------------- --------------- --------------- ---------------
INTEREST EXPENSE:
DEPOSITS 51,178 44,316 143,582 131,171
BORROWINGS 48,857 37,800 140,979 109,786
------------- --------------- --------------- ---------------
TOTAL INTEREST EXPENSE 100,035 82,116 284,561 240,957
------------- --------------- --------------- ---------------
NET INTEREST INCOME 110,674 106,540 327,712 318,101
PROVISION FOR CREDIT LOSSES 3,688 2,845 10,061 13,552
------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES 106,986 103,695 317,651 304,549
------------- --------------- --------------- ---------------
NON-INTEREST INCOME:
FEE AND SERVICE CHARGE REVENUES 46,780 39,515 130,473 110,825
ELECTRONIC FUNDS TRANSFER REVENUES 20,853 18,016 58,127 49,303
LEASING REVENUES 7,791 7,106 26,953 20,089
COMMISSIONS ON SALES OF ANNUITIES 1,848 2,499 5,892 7,150
COMMISSIONS ON SALES OF MUTUAL FUNDS 1,282 1,498 4,359 4,756
GAIN ON SALES OF LOANS HELD FOR SALE 1,234 1,119 2,741 3,749
OTHER 5,488 2,384 12,122 8,569
------------- --------------- --------------- ---------------
85,276 72,137 240,667 204,441
------------- --------------- --------------- ---------------
GAIN ON SALES OF SECURITIES AVAILABLE FOR SALE - - - 3,194
GAIN ON SALES OF LOAN SERVICING - - - 3,076
GAIN ON SALES OF BRANCHES - 6,429 3,866 8,811
TITLE INSURANCE REVENUES - 3,953 - 12,931
------------- --------------- --------------- ---------------
- 10,382 3,866 28,012
------------- --------------- --------------- ---------------
TOTAL NON-INTEREST INCOME 85,276 82,519 244,533 232,453
------------- --------------- --------------- ---------------
NON-INTEREST EXPENSE:
COMPENSATION AND EMPLOYEE BENEFITS 59,980 60,989 178,167 179,193
OCCUPANCY AND EQUIPMENT 18,774 18,781 56,451 55,021
ADVERTISING AND PROMOTIONS 5,101 4,297 14,236 13,681
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES 2,515 2,676 7,482 8,024
OTHER 29,963 29,994 87,832 81,922
------------- --------------- --------------- ---------------
TOTAL NON-INTEREST EXPENSE 116,333 116,737 344,168 337,841
------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAX EXPENSE 75,929 69,477 218,016 199,161
INCOME TAX EXPENSE 29,232 26,717 83,936 78,072
------------- --------------- --------------- ---------------
NET INCOME $ 46,697 $ 42,760 $134,080 $121,089
============= =============== =============== ===============
NET INCOME PER COMMON SHARE:
BASIC $ .60 $ .52 $ 1.70 $ 1.46
============= =============== =============== ===============
DILUTED $ .59 $ .52 $ 1.69 $ 1.45
============= =============== =============== ===============
DIVIDENDS DECLARED PER COMMON SHARE $ .2125 $ .1875 $ .6125 $ .5375
============= =============== =============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. ANNUAL FINANCIAL
STATEMENTS ARE SUBJECT TO AUDIT.
4
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------------
2000 1999
-------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 134,080 $ 121,089
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 22,666 21,731
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES 7,482 8,024
PROVISION FOR CREDIT LOSSES 10,061 13,552
PROCEEDS FROM SALES OF LOANS HELD FOR SALE 385,128 479,711
PRINCIPAL COLLECTED ON LOANS HELD FOR SALE 7,623 8,066
ORIGINATIONS AND PURCHASES OF LOANS HELD FOR SALE (420,329) (354,604)
NET (INCREASE) DECREASE IN OTHER ASSETS AND LIABILITIES,
AND ACCRUED INTEREST (4,177) 41,425
GAINS ON SALES OF ASSETS (3,866) (15,081)
OTHER, NET 1,870 13,853
-------------------- -------------------
TOTAL ADJUSTMENTS 6,458 216,677
-------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 140,538 337,766
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PRINCIPAL COLLECTED ON LOANS AND LEASES 1,576,329 1,791,174
ORIGINATIONS AND PURCHASES OF LOANS (1,721,566) (2,343,780)
PURCHASES OF EQUIPMENT FOR LEASE FINANCING (391,229) (165,366)
NET DECREASE IN INTEREST-BEARING DEPOSITS WITH BANKS 19,989 115,360
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE - 288,718
PROCEEDS FROM MATURITIES OF AND PRINCIPAL COLLECTED ON
SECURITIES AVAILABLE FOR SALE 135,247 521,482
PURCHASES OF SECURITIES AVAILABLE FOR SALE (264) (791,495)
NET DECREASE IN FEDERAL FUNDS SOLD - 41,000
SALES OF DEPOSITS, NET OF CASH PAID (27,212) (74,580)
OTHER, NET (41,633) (7,237)
-------------------- -------------------
NET CASH USED BY INVESTING ACTIVITIES (450,339) (624,724)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 257,093 1,671
NET INCREASE (DECREASE) IN SECURITIES SOLD UNDER REPURCHASE
AGREEMENTS AND FEDERAL FUNDS PURCHASED (151,621) 167,720
PROCEEDS FROM BORROWINGS 4,535,376 3,127,641
PAYMENTS ON BORROWINGS (4,278,469) (2,960,481)
PURCHASES OF COMMON STOCK TO BE HELD IN TREASURY (63,143) (76,709)
PAYMENTS OF DIVIDENDS ON COMMON STOCK (49,180) (45,201)
OTHER, NET (5,501) (2,748)
-------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 244,555 211,893
-------------------- -------------------
NET DECREASE IN CASH AND DUE FROM BANKS (65,246) (75,065)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 429,262 420,477
-------------------- -------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 364,016 $ 345,412
==================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS AND BORROWINGS $ 286,046 $ 233,344
==================== ===================
INCOME TAXES $ 66,859 $ 44,239
==================== ===================
TRANSFER OF LOANS TO OTHER REAL ESTATE OWNED
AND OTHER ASSETS $ 12,167 $ 29,139
==================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. ANNUAL FINANCIAL
STATEMENTS ARE SUBJECT TO AUDIT.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF OTHER
COMMON ADDITIONAL COMPREHENSIVE
SHARES COMMON PAID-IN RETAINED INCOME TREASURY STOCK
ISSUED STOCK CAPITAL EARNINGS (LOSS) AND OTHER TOTAL
--------------- ------------ ------------- ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 92,912,246 $ 929 $ 507,534 $ 610,177 $ 7,591 $ (280,729) $ 845,502
NET INCOME - - - 166,039 - - 166,039
UNREALIZED LOSS ON
SECURITIES AVAILABLE FOR
SALE, NET OF TAX AND
RECLASSIFICATION
ADJUSTMENT - - - - (54,973) - (54,973)
DIVIDENDS ON COMMON STOCK - - - (60,755) - - (60,755)
PURCHASE OF 4,091,611 SHARES
TO BE HELD IN TREASURY - - - - - (106,106) (106,106)
ISSUANCE OF 21,050 SHARES
FROM TREASURY - - (30) - - (30) (60)
CANCELLATION OF SHARES (108,041) (1) (2,569) - - 392 (2,178)
AMORTIZATION OF DEFERRED
COMPENSATION - - - - - 9,543 9,543
EXERCISE OF STOCK OPTIONS,
550,661 SHARES FROM TREASURY - - (4,464) - - 15,044 10,580
SHARES HELD IN TRUST FOR
DEFERRED COMPENSATION
PLANS - - 326 - - (326) -
LOAN PAYMENTS BY EXECUTIVE
DEFERRED COMPENSATION
PLAN - - - - - 1,390 1,390
--------------- ------------ ------------- ------------- ------------- --------------- --------------
BALANCE, DECEMBER 31, 1999 92,804,205 928 500,797 715,461 (47,382) (360,822) 808,982
NET INCOME - - - 134,080 - - 134,080
UNREALIZED GAIN ON
SECURITIES AVAILABLE
FOR SALE, NET OF TAX
AND RECLASSIFICATION
ADJUSTMENT - - - - 16,263 - 16,263
DIVIDENDS ON COMMON STOCK - - - (49,180) - - (49,180)
PURCHASE OF 2,966,300
SHARES TO BE HELD IN
TO BE HELD IN TREASURY - - - - - (63,143) (63,143)
ISSUANCE OF 1,236,014
SHARES FROM TREASURY - - (8,405) - - (8,405) -
CANCELLATION OF SHARES (47,288) - (1,230) - - 375 (855)
AMORTIZATION OF DEFERRED
COMPENSATION - - - - - 6,898 6,898
ISSUANCE OF STOCK OPTIONS - - 1 - - - 1
EXERCISE OF STOCK OPTIONS,
282,189 SHARES FROM
TREASURY - - (82) - - 7,314 7,232
SHARES HELD IN TRUST FOR
DEFERRED COMPENSATION
PLANS - - 14,396 - - (14,396) -
PURCHASE OF TCF STOCK TO
PREFUND THE 401(K) PLAN,
NET - - 349 - - (338) 11
LOAN TO EXECUTIVE DEFERRED
COMPENSATION PLAN, NET
OF PAYMENTS - - - - - (845) (845)
--------------- ------------ ------------- ------------- ------------- --------------- --------------
BALANCE, SEPTEMBER 30, 2000 92,756,917 $ 928 $ 505,826 $ 800,361 $ (31,119) $ (416,552) $ 859,444
=============== ============ ============= ============= ============= =============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. ANNUAL FINANCIAL
STATEMENTS ARE SUBJECT TO AUDIT.
6
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. The
results of operations for interim periods are not necessarily indicative of
the results to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and notes necessary for complete financial
statements in conformity with generally accepted accounting principles. The
material under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is written with the
presumption that the users of the interim financial statements have read or
have access to the most recent Annual Report on Form 10-K of TCF Financial
Corporation ("TCF" or the "Company"), which contains the latest audited
financial statements and notes thereto, together with Management's
Discussion and Analysis of Financial Condition and Results of Operations as
of December 31, 1999 and for the year then ended. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior period
financial statements to conform to the current period presentation. For
consolidated statements of cash flows purposes, cash and cash equivalents
include cash and due from banks.
(2) ACCOUNTING FOR STOCK-BASED COMPENSATION
Effective January 1, 2000, TCF adopted the recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," for stock-based transactions beginning in
2000. Under SFAS No. 123, the fair value of an option or similar equity
instrument on the date of grant is amortized to expense over the vesting
period of the grant. The recognition provisions of SFAS No. 123 are applied
prospectively upon adoption. TCF applied the intrinsic value based method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," for stock-based
transactions through December 31, 1999.
TCF believes the fair value method of accounting more appropriately
reflects the substance of the transaction between an entity that issues
stock options, or other stock-based instruments, and its employees; that
is, an entity has granted something of value to an employee generally in
return for their continued employment and services. TCF believes the value
of the instrument granted to the employees should be recognized in the
financial statements because nonrecognition implies that either the
instruments have no value or that they are free to employees, neither of
which is an accurate reflection of the substance of the transaction. The
fair value based method is designated as the preferred method of accounting
by SFAS No. 123.
On a pro forma basis, adopting the recognition provisions of SFAS No. 123
as of the beginning of the periods presented in the accompanying
consolidated financial statements did not have a material effect on TCF's
results of operations for the three or nine months ended September 30,
1999.
(3) UNEARNED ESOP SHARES
During the first quarter of 2000, TCF contributed $1.5 million to the TCF
Employees Stock Purchase Plan (the "Plan") in order to prefund a portion of
TCF's employer match of employee contributions for 2000. The Plan used the
proceeds to purchase 74,919 shares of TCF common stock which are held as
unallocated shares until released to employee accounts as employer matching
contributions. TCF anticipates that all shares will be allocated to
employee accounts by the end of the year. The unallocated shares of TCF
common stock held by the Plan at September 30, 2000
7
<PAGE>
are reflected as a reduction of stockholders' equity as required by
generally accepted accounting principles, and are included in treasury
stock and other in the consolidated statements of financial condition.
(4) COMPREHENSIVE INCOME
The following table summarizes the components of comprehensive income for
the periods noted. Comprehensive income is the total of net income and
other comprehensive income (loss), which for TCF is comprised entirely of
unrealized gains and losses on securities available for sale. Such
unrealized gains or losses only pertain to a portion of TCF's balance sheet
and do not reflect the increased economic value of TCF's demand deposit
accounts.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In thousands) September 30, September 30,
------------------------------------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 46,697 $ 42,760 $134,080 $121,089
Other comprehensive income (loss) before tax:
Unrealized holding gains (losses) arising during the
period on securities available for sale 24,973 (11,710) 26,080 (62,842)
Reclassification adjustment for gains
included in net income - - - (3,194)
------------- ------------- ------------- -------------
Other comprehensive income (loss), before tax 24,973 (11,710) 26,080 (66,036)
Income tax expense (benefit) 9,201 (4,069) 9,817 (24,687)
------------- ------------- ------------- -------------
Total other comprehensive income (loss), net of tax 15,772 (7,641) 16,263 (41,349)
------------- ------------- ------------- -------------
Comprehensive income $ 62,469 $ 35,119 $150,343 $ 79,740
============= ============= ============= =============
</TABLE>
(5) EARNINGS PER COMMON SHARE
The weighted average number of common shares outstanding used to compute
basic earnings per common share were 78,212,563 and 82,069,575 for the
three months ended September 30, 2000 and 1999, respectively, and
78,844,075 and 82,766,220 for the nine months ended September 30, 2000 and
1999, respectively. The weighted average number of common and common
equivalent shares outstanding used to compute diluted earnings per common
share were 79,041,223 and 82,751,447 for the three months ended September
30, 2000 and 1999, respectively, and 79,513,927 and 83,361,762 for the
nine months ended September 30, 2000 and 1999, respectively.
8
<PAGE>
(6) SEGMENTS
Prior to April 1, 2000, TCF's wholly owned bank subsidiaries located in
Minnesota, Illinois, Wisconsin and Michigan had been identified as
reportable segments. During the fourth quarter of 1999, TCF received the
approval of the Office of the Comptroller of the Currency to merge these
four bank charters into one national bank charter based in Minnesota. The
merger of the bank charters was completed in April 2000 and segment
reporting by individual bank is no longer available.
With the bank charter merger, certain management responsibilities were
realigned within the organization. Management reporting was revised to
reflect this change in responsibilities. Following the bank charter merger,
banking, leasing and equipment finance, and mortgage banking have been
identified as reportable operating segments. Management of TCF's banking
area, which includes commercial lending, consumer lending, residential
lending, treasury services and retail branches, is organized by geographic
region. These separate geographic operations have been aggregated for
purposes of segment disclosures.
The following table sets forth certain information about the reported
profit or loss and assets for each of TCF's reportable segments, including
reconciliations to TCF's consolidated totals. The results of TCF's parent
bank holding company and other administrative areas comprise the "other"
category in the table below. Prior period data has been restated to reflect
the change in composition of TCF's operating segments.
<TABLE>
<CAPTION>
Leasing and Eliminations
Equipment Mortgage and
(In thousands) Banking Finance Banking Other Reclassifications Consolidated
---------------- ------------- ------------- -------------- ---------------- ----------------
At or For the Three Months Ended
September 30, 2000
-----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from External Customers:
Interest Income $ 191,007 $ 19,234 $ 352 $ 116 $ - $ 210,709
Non-Interest Income 73,496 7,795 3,957 28 - 85,276
---------------- ------------- ------------- -------------- ---------------- ----------------
Total $ 264,503 $ 27,029 $ 4,309 $ 144 $ - $ 295,985
================ ============= ============= ============== ================ ================
Net Interest Income $ 99,129 $ 8,555 $ 1,598 $ 212 $ 1,180 $ 110,674
Provision for Credit Losses 2,522 1,166 - - - 3,688
Non-Interest Income 73,496 7,795 6,355 22,431 (24,801) 85,276
Amortization of Goodwill and
Other Intangibles 2,416 99 - - - 2,515
Other Non-Interest Expense 100,727 6,177 7,062 23,473 (23,621) 113,818
Income Tax Expense (Benefit) 25,812 3,418 337 (335) - 29,232
---------------- ------------- ------------- -------------- ---------------- ----------------
Net Income (Loss) $ 41,148 $ 5,490 $ 554 $ (495) $ - $ 46,697
================ ============= ============= ============== ================ ================
Total Assets $ 10,624,159 $ 760,043 $ 124,054 $ 67,349 $ (595,605) $ 10,980,000
================ ============= ============= ============== ================ ================
At or For the Three Months Ended
September 30, 1999
-----------------------------------
Revenues from External Customers:
Interest Income $ 175,859 $ 11,649 $ 1,041 $ 107 $ - $ 188,656
Non-Interest Income 71,321 7,106 4,087 5 - 82,519
---------------- ------------- ------------- -------------- ---------------- ----------------
Total $ 247,180 $ 18,755 $ 5,128 $ 112 $ - $ 271,175
================ ============= ============= ============== ================ ================
Net Interest Income $ 98,557 $ 6,288 $ 1,523 $ (870) $ 1,042 $ 106,540
Provision for Credit Losses 2,496 349 - - - 2,845
Non-Interest Income 71,321 7,106 5,124 20,485 (21,517) 82,519
Amortization of Goodwill and
Other Intangibles 2,577 99 - - - 2,676
Other Non-Interest Expense 101,719 4,630 6,578 21,609 (20,475) 114,061
Income Tax Expense (Benefit) 24,474 3,275 24 (1,056) - 26,717
---------------- ------------- ------------- -------------- ---------------- ----------------
Net Income (Loss) $ 38,612 $ 5,041 $ 45 $ (938) $ - $ 42,760
================ ============= ============= ============== ================ ================
Total Assets $ 9,962,651 $ 438,389 $ 141,366 $ 54,909 $ (255,067) $ 10,342,248
================ ============= ============= ============== ================ ================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Leasing and Eliminations
Equipment Mortgage and
(In thousands) Banking Finance Banking Other Reclassifications Consolidated
---------------- ------------- ------------- --------------- --------------- ---------------
For the Nine Months Ended
September 30, 2000
-----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from External Customers:
Interest Income $ 563,076 $ 48,655 $ 220 $ 322 $ - $ 612,273
Non-Interest Income 206,606 26,959 10,907 61 - 244,533
---------------- ------------- ------------- --------------- --------------- ---------------
Total $ 769,682 $ 75,614 $ 11,127 $ 383 $ - $ 856,806
================ ============= ============= =============== =============== ===============
Net Interest Income $ 299,475 $ 21,192 $ 4,309 $ (1,112) $ 3,848 $ 327,712
Provision for Credit Losses 6,821 3,240 - - - 10,061
Non-Interest Income 206,606 26,959 18,185 66,182 (73,399) 244,533
Amortization of Goodwill and
Other Intangibles 7,187 295 - - - 7,482
Other Non-Interest Expense 295,769 18,876 21,682 69,910 (69,551) 336,686
Income Tax Expense (Benefit) 75,552 9,907 307 (1,830) - 83,936
---------------- ------------- ------------- --------------- --------------- ---------------
Net Income (Loss) $ 120,752 $ 15,833 $ 505 $ (3,010) $ - $ 134,080
================ ============= ============= =============== =============== ===============
For the Nine Months Ended
September 30, 1999
-----------------------------------
Revenues from External Customers:
Interest Income $ 521,040 $ 34,336 $ 3,353 $ 329 $ - $ 559,058
Non-Interest Income 195,116 20,082 17,271 (16) - 232,453
---------------- ------------- ------------- --------------- --------------- ---------------
Total $ 716,156 $ 54,418 $ 20,624 $ 313 $ - $ 791,511
================ ============= ============= =============== =============== ===============
Net Interest Income $ 294,793 $ 18,099 $ 4,852 $ (2,781) $ 3,138 $ 318,101
Provision for Credit Losses 12,531 1,021 - - - 13,552
Non-Interest Income 195,116 20,082 20,401 60,685 (63,831) 232,453
Amortization of Goodwill and
Other Intangibles 7,729 295 - - - 8,024
Other Non-Interest Expense 294,276 14,029 20,139 62,066 (60,693) 329,817
Income Tax Expense (Benefit) 68,287 9,191 2,096 (1,502) - 78,072
---------------- ------------- ------------- --------------- --------------- ---------------
Net Income (Loss) $ 107,086 $ 13,645 $ 3,018 $ (2,660) $ - $ 121,089
================ ============= ============= =============== =============== ===============
</TABLE>
10
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
TCF reported net income of $46.7 million and $134.1 million for the third
quarter and first nine months of 2000, respectively, compared with $42.8 million
and $121.1 million for the same 1999 periods. Diluted earnings per common share
were 59 cents and $1.69 for the third quarter and first nine months of 2000,
respectively, compared with 52 cents and $1.45 for the same 1999 periods. Return
on average assets was 1.71% and 1.66% for the third quarter and first nine
months of 2000, respectively, compared with 1.66% and 1.58% for the same 1999
periods. Return on average realized common equity was 21.52% and 20.94% for the
third quarter and first nine months of 2000, respectively, compared with 20.37%
and 19.42% for the same 1999 periods. Diluted cash earnings per common share,
which excludes amortization and reduction of goodwill, net of income tax
benefit, was 61 cents and $1.76 for the third quarter and first nine months of
2000, respectively, compared with 54 cents and $1.52 for the same 1999 periods.
On the same basis, cash return on average assets was 1.78% and 1.73% for the
third quarter and first nine months of 2000, respectively, compared with 1.73%
and 1.65% for the same 1999 periods, and cash return on average realized equity
was 22.39% and 21.83% for the third quarter and first nine months of 2000,
compared with 21.27% and 20.33% for the same 1999 periods.
TCF has significantly expanded its retail banking franchise in recent periods
and had 351 retail banking branches at September 30, 2000. Since July 1, 1997,
TCF has opened 173 new branches, of which 162 were supermarket branches. TCF
continued to expand its supermarket franchise by opening six new branches during
the 2000 third quarter. TCF anticipates opening approximately six more new
branches in the remainder of 2000, which will bring the total branch openings,
including one branch acquisition, during 2000 to 27 branches. Management
currently anticipates opening between 25 and 35 more new branches during 2001.
NET INTEREST INCOME
Net interest income for the third quarter of 2000 was $110.7 million,
compared with $106.5 million for the third quarter of 1999 and $110.2 million
for the 2000 second quarter. The net interest margin for the third quarter of
2000 was 4.38%, compared with 4.46% for the same 1999 period and 4.38% for
the second quarter of 2000. Net interest income for the first nine months of
2000 was $327.7 million, compared with $318.1 million for the same 1999
period. The net interest margin for the first nine months of 2000 was 4.36%,
compared with 4.50% for the same period of 1999. Changes in net interest
income are dependent upon the movement of interest rates, the volume and mix
of interest-earning assets and interest-bearing liabilities, and the level of
non-performing assets. Achieving net interest margin growth is dependent on
TCF's ability to generate higher-yielding assets and lower interest-cost
retail deposits. If variable index rates (e.g., prime) were to decline, TCF
may experience compression of its net interest margin depending on the timing
and amount of any reductions, as it is possible that interest rates paid on
retail deposits will not decline as quickly, or to the same extent, as the
decline in the yield on interest-rate-sensitive assets such as variable-rate
home equity loans. Competition for checking, savings and money market
deposits, important sources of lower cost funds for TCF, is intense. TCF may
also experience compression in its net interest margin if the rates paid on
deposits increase or as a result of new pricing strategies and lower rates
offered on loan and lease products in order to respond to competitive
conditions. See "Market Risk - Interest-Rate Risk" and "Financial Condition -
Deposits."
11
<PAGE>
The following rate/volume analysis details the increases (decreases) in net
interest income resulting from interest rate and volume changes during the third
quarter and first nine months of 2000 as compared with the same periods last
year. Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September September
30, 2000 30, 2000
Versus Same Period in 1999 Versus Same Period in 1999
---------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------------------------------------------------------------------
(In thousands) Volume Rate Total Volume Rate Total
------------- ---------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investments $ (306) $ 316 $ 10 $ (294) $ 644 $ 350
------------- ---------- ------------ ------------- ----------- -------------
Securities available for sale (3,555) 250 (3,305) (9,566) 510 (9,056)
------------- ---------- ------------ ------------- ----------- -------------
Loans held for sale 818 648 1,466 931 1,838 2,769
------------- ---------- ------------ ------------- ----------- -------------
Loans and leases:
Residential real estate 991 1,522 2,513 6,075 3,163 9,238
Commercial real estate 5,364 1,235 6,599 16,795 1,800 18,595
Commercial business 350 1,199 1,549 1,984 3,046 5,030
Consumer direct 6,219 2,742 8,961 23,604 4,841 28,445
Consumer finance automobile (3,392) 42 (3,350) (16,745) 245 (16,500)
Leasing and equipment finance 7,999 (389) 7,610 16,436 (2,092) 14,344
------------- ---------- ------------ ------------- ----------- -------------
Total loans and leases 17,531 6,351 23,882 48,149 11,003 59,152
------------- ---------- ------------ ------------- ----------- -------------
Total interest income 14,488 7,565 22,053 39,220 13,995 53,215
------------- ---------- ------------ ------------- ----------- -------------
Deposits:
Checking 30 38 68 128 107 235
Passbook and statement (247) - (247) (585) - (585)
Money market 283 1,840 2,123 139 2,943 3,082
Certificates (1,419) 6,337 4,918 (2,483) 12,162 9,679
------------- ---------- ------------ ------------- ----------- -------------
Total deposits (1,353) 8,215 6,862 (2,801) 15,212 12,411
------------- ---------- ------------ ------------- ----------- -------------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased 8,999 1,166 10,165 21,254 3,856 25,110
FHLB advances (595) 1,623 1,028 1,322 4,340 5,662
Discounted lease rentals (152) 283 131 (534) 512 (22)
Other borrowings (676) 409 (267) (819) 1,262 443
------------- ---------- ------------ ------------- ----------- -------------
Total borrowings 7,576 3,481 11,057 21,223 9,970 31,193
------------- ---------- ------------ ------------- ----------- -------------
Total interest expense 6,223 11,696 17,919 18,422 25,182 43,604
------------- ---------- ------------ ------------- ----------- -------------
Net interest income $ 8,265 $ (4,131) $ 4,134 $ 20,798 $ (11,187) $ 9,611
============= ========== ============ ============= =========== =============
</TABLE>
PROVISION FOR CREDIT LOSSES
TCF provided $3.7 million for credit losses in the third quarter of 2000,
compared with $2.8 million for the same prior-year period. TCF provided $10.1
million for credit losses for the first nine months of 2000, compared with $13.6
million for the same period in 1999. Net loan and lease charge-offs were
$700,000 and $1.8 million during the third quarter and first nine months of
2000, respectively, compared with $7.4 million and $23.4 million during the same
1999 periods. The decrease in provisions and net loan and lease charge-offs from
1999 reflect the significant provisions and charge-offs recognized in 1999
related to TCF's discontinued consumer finance automobile loan portfolio. At
September 30, 2000, the allowance for loan and lease losses totaled $64 million,
compared with $55.8 million at December 31, 1999. See "Financial Condition -
Allowance for Loan and Lease Losses."
NON-INTEREST INCOME
Non-interest income is a significant source of revenues for TCF and an important
factor in TCF's results of operations. Providing a wide range of retail banking
services is an integral component of TCF's business philosophy and a major
strategy for generating additional non-interest income. Excluding gain on sales
of securities available for sale, gain on sales of loan servicing, gain on sales
of branches and title insurance revenues, non-interest income increased $13.1
million, or
12
<PAGE>
18.2%, to $85.3 million for the third quarter of 2000, compared with $72.1
million for the same period in 1999. On the same basis, non-interest income
increased $36.2 million, or 17.7%, to $240.7 million for the first nine months
of 2000, compared with $204.4 million for the same period in 1999. The increases
were primarily due to increased fee and service charge, electronic funds
transfer and leasing revenues, and reflect TCF's expanded retail banking and
leasing operations and customer base. Title insurance revenues totaled $4
million and $12.9 million for the third quarter and first nine months of 1999.
During the fourth quarter of 1999, TCF sold its title insurance and appraisal
operations. Title insurance revenues are no longer recognized by TCF as the
result of the sale of these operations.
Fee and service charge revenues totaled $46.8 million and $130.5 million for the
third quarter and first nine months of 2000, respectively, representing
increases of 18.4% and 17.7% from $39.5 million and $110.8 million for the same
1999 periods. These increases were primarily due to expanded retail banking
activities.
Electronic funds transfer revenues totaled $20.9 million and $58.1 million
for the third quarter and first nine months of 2000, respectively,
representing increases of 15.7% and 17.9% from $18 million and $49.3 million
for the same 1999 periods. Included in electronic funds transfer revenues are
debit card interchange fees of $7.5 million and $20.6 million for the third
quarter and first nine months of 2000, respectively, representing increases
of 42.1% and 50.7% from $5.3 million and $13.6 million for the same 1999
periods. The significant increases in these fees reflect an increase in the
distribution of debit cards, and a significant increase in their utilization
by TCF's customers. TCF had 1.2 million ATM cards outstanding at September
30, 2000, of which 1.1 million were debit cards. This compares with 1.1
million ATM cards, of which 911,000 were debit cards, outstanding at
September 30, 1999. TCF's network of automated teller machines ("ATMs")
totaled 1,393 machines at September 30, 2000.
Leasing revenues totaled $7.8 million and $27 million for the third quarter and
first nine months of 2000, respectively, compared with $7.1 million and $20.1
million for the same 1999 periods. The year-to-year fluctuations in leasing
revenues and the allocation between types of leasing revenues result primarily
from the manner and timing in which leasing revenues are recognized over the
term of each particular lease. The allocation of revenues is a function of the
lease classification as determined in accordance with generally accepted
accounting principles. In addition, the volume and type of new lease
transactions and the resulting revenues may fluctuate from period to period
based upon factors not within the control of TCF, such as economic conditions.
TCF's ability to grow its lease portfolio is dependent upon its ability to place
new equipment in service. In an adverse economic environment, there may be a
decline in the demand for some types of equipment which TCF leases, resulting in
a decline in the amount of new equipment being placed into service.
Gains on sales of loans held for sale totaled $1.2 million and $2.7 million for
the third quarter and first nine months of 2000, respectively, an increase of
$115,000 from the 1999 third quarter amount and a decrease of $1 million from
the amount recognized during the first nine months of 1999. Sales of securities
available for sale produced a $3.2 million gain for the first nine months of
1999. No comparable gain was recorded for the first nine months of 2000. Gains
or losses on sales of loans held for sale and securities available for sale may
fluctuate significantly from period to period due to changes in interest rates
and volumes, and results in any period related to these transactions may not be
indicative of results which will be obtained in future periods.
Gains on the sale of third-party loan servicing rights totaled $3.1 million for
the first nine months of 1999. No similar activity was recognized during the
same period of 2000. TCF periodically sells and purchases loan servicing rights
depending on market conditions. During the first nine months of 2000, TCF
purchased the loan servicing rights to $943 million of residential loans at a
weighted average price of 1.49%, or $14 million. TCF's third-party residential
loan servicing portfolio totaled $3.9 billion at September 30, 2000, compared
with $2.9 billion at December 31, 1999.
During the first nine months of 2000, TCF recognized gains of $3.9 million on
the sales of three underperforming Michigan branches with $31 million in
deposits. No branch sales occurred in the third quarter of 2000. Results for the
first nine months of 1999 included gains of $8.8 million on the sales of five
branches with $83.1 million in deposits, of which gains of $6.4 million on the
sale of four branches were recognized in the third quarter of 1999.
13
<PAGE>
Other non-interest income totaled $5.5 million and $12.1 million for the third
quarter and first nine months of 2000, respectively, compared with $2.4 million
and $8.6 million for the same 1999 periods. These increases reflect gains on
sales of fixed and other assets.
NON-INTEREST EXPENSE
Non-interest expense totaled $116.3 million for the third quarter of 2000,
compared with $116.7 million for the same 1999 period. For the first nine
months of 2000, non-interest expense totaled $344.2 million, up 1.9% from
$337.8 million for the same 1999 period. Compensation and employee benefits
expense totaled $60 million and $178.2 million for the third quarter and
first nine months of 2000, respectively, compared with $61 million and $179.2
million for the comparable periods in 1999. Occupancy and equipment expenses
totaled $18.8 million and $56.5 million for the third quarter and first nine
months of 2000, respectively, compared with $18.8 million and $55 million for
the same 1999 periods. The increased occupancy and equipment expenses in 2000
are primarily due to the costs associated with expanded retail banking
activities, partially offset by the discontinuation of TCF's indirect
automobile lending business and the sale of TCF's title insurance and
appraisal operations.
Other non-interest expense totaled $30 million for the third quarter of 2000,
virtually unchanged from the same 1999 period. Other non-interest expense
totaled $87.8 million for the first nine months of 2000, reflecting an increase
of 7.2% from $81.9 million for the same 1999 periods. This increase is primarily
due to the costs associated with expanded retail banking activities, and
included an increase of $1.9 million in deposit account losses over the amount
recorded in the first nine months of 1999. These increased losses reflect the
growth in the number of checking accounts to 1,133,000 at September 30, 2000, up
from 1,033,000 at September 30, 1999.
As disclosed in Note 2 of Notes to Consolidated Financial Statements, effective
January 1, 2000 TCF adopted SFAS No. 123 for stock-based compensation
transactions beginning in 2000. During the first quarter of 2000, TCF granted
1,095,000 shares of restricted stock to certain executive officers. Fifty
percent of the shares will vest after TCF achieves a 75 percent increase in
annual earnings per share over 1999 earnings per share. The remaining shares
will vest after TCF achieves a 100 percent increase over 1999 earnings per
share. The shares will be forfeited if not earned based on performance by
year-end 2007. The total grant-date fair value of these shares was $21.6
million. In accordance with SFAS No. 123, the value of the shares expected to be
earned will be recognized as compensation expense ratably over the vesting
period. TCF will periodically assess the performance estimates and adjust the
related compensation expense in accordance with SFAS No. 123.
INCOME TAXES
TCF recorded income tax expense of $29.2 million and $83.9 million for the third
quarter and first nine months of 2000, or 38.5% of income before income tax
expense, compared with $26.7 million and $78.1 million, or 38.5% and 39.2% of
income before income tax expense, respectively, for the comparable 1999 periods.
The lower tax rates in 2000 reflect lower state income taxes, and the impact of
relatively lower non-deductible expenses in 2000.
MARKET RISK - INTEREST-RATE RISK
TCF's results of operations are dependent to a large degree on its net interest
income, which is the difference between interest income and interest expense,
and the Company's ability to manage its interest-rate risk. Although TCF manages
other risks, such as credit and liquidity risk, in the normal course of its
business, the Company considers interest-rate risk to be its most significant
market risk. TCF, like most financial institutions, has a material interest-rate
risk exposure to changes in both short-term and long-term interest rates as well
as variable index interest rates (e.g., prime). Since TCF does not hold a
trading portfolio, the Company is not exposed to market risk from trading
activities.
14
<PAGE>
Like most financial institutions, TCF's interest income and cost of funds are
significantly affected by general economic conditions and by policies of
regulatory authorities. The mismatch between maturities and interest-rate
sensitivities of assets and liabilities results in interest-rate risk. Although
the measure is subject to a number of assumptions and is only one of a number of
measurements, management believes the interest-rate gap (difference between
interest-earnings assets and interest-bearing liabilities repricing within a
given period) is an important indication of TCF's exposure to interest-rate risk
and the related volatility of net interest income in a changing interest rate
environment. In addition to the interest-rate gap analysis, management also
utilizes a simulation model to measure and manage TCF's interest-rate risk.
For an institution with a negative interest-rate gap for a given period, the
amount of its interest-bearing liabilities maturing or otherwise repricing
within such period exceeds the amount of its interest-earning assets repricing
within the same period. In a rising interest-rate environment, institutions with
negative interest-rate gaps will generally experience more immediate increases
in the cost of their liabilities than in the yield on their assets. Conversely,
the yield on assets of institutions with negative interest-rate gaps will
generally decrease more slowly than the cost of their funds in a falling
interest-rate environment.
TCF's Asset/Liability Management Committee manages TCF's interest-rate risk
based on interest rate expectations and other factors. The principal objective
of TCF's asset/liability management activities is to provide maximum levels of
net interest income while maintaining acceptable levels of interest-rate risk
and liquidity risk and facilitating the funding needs of the Company.
Management's estimates and assumptions could be significantly affected by
external factors such as prepayment rates other than those assumed, early
withdrawals of deposits, changes in the correlation of various interest-bearing
instruments, competition and a general rise in interest rates. Decisions by
management to purchase or sell assets, or retire debt could change the
maturity/repricing and spread relationships. In addition, TCF's interest-rate
risk will increase during periods of rising interest rates due to resulting
slower prepayments on loans and mortgage-backed securities, and the increased
likelihood that the Federal Home Loan Bank ("FHLB") will exercise its option to
call certain of TCF's longer-term FHLB advances. See "Financial Condition -
Borrowings." TCF's one-year adjusted interest-rate gap was a negative $805
million, or (7)% of total assets, at September 30, 2000, compared with a
negative $1 billion, or (10)% of total assets, at December 31, 1999.
15
<PAGE>
FINANCIAL CONDITION
INVESTMENTS
Total investments decreased $16 million from year-end 1999 to $132.2 million at
September 30, 2000. The decrease is primarily due to a decrease of $20 million
in interest-bearing deposits with banks, partially offset by an increase of $3.9
million in Federal Home Loan Bank stock. The carrying values of investments,
which approximate their fair values, consist of the following:
<TABLE>
<CAPTION>
At At
September 30, December 31,
(In thousands) 2000 1999
------------------ -----------------
<S> <C> <C>
Interest-bearing deposits with banks $ 330 $ 20,319
Federal Home Loan Bank stock, at cost 108,557 104,611
Federal Reserve Bank stock, at cost 23,286 23,224
------------------ -----------------
$ 132,173 $ 148,154
================== =================
</TABLE>
SECURITIES AVAILABLE FOR SALE
Securities available for sale are carried at fair value with the unrealized
gains or losses, net of deferred income taxes, reported as accumulated other
comprehensive income (loss), which is a separate component of stockholders'
equity. Securities available for sale decreased $108.4 million from year-end
1999 to $1.4 billion at September 30, 2000. The decrease reflects payment and
prepayment activity, partially offset by purchases of $264,000 of securities
available for sale. At September 30, 2000, TCF's securities available-for-sale
portfolio included $1.3 billion and $91.5 million of fixed-rate and
adjustable-rate mortgage-backed securities, respectively. The following table
summarizes securities available for sale:
<TABLE>
<CAPTION>
At September 30, 2000 At December 31, 1999
-------------------------------------- ------------------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. Government and other marketable
securities $ 1,652 $ 1,652 $ 500 $ 500
Mortgage-backed securities:
FHLMC 853,553 822,590 928,034 880,869
FNMA 541,676 524,411 589,206 561,951
GNMA 23,596 23,608 26,850 26,855
Private issuer 41,513 40,460 51,796 50,862
Collateralized mortgage obligations 497 497 624 624
---------------- ---------------- --------------- ---------------
$ 1,462,487 $ 1,413,218 $ 1,597,010 $ 1,521,661
================ ================ =============== ===============
</TABLE>
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or market. Education loans
held for sale increased $13.4 million and residential real estate loans held for
sale increased $14.2 million from year-end 1999, and totaled $157.3 million and
$69.2 million at September 30, 2000, respectively.
16
<PAGE>
LOANS AND LEASES
The following table sets forth information about loans and leases held in TCF's
portfolio, excluding loans held for sale:
<TABLE>
<CAPTION>
At At
September 30, December 31,
(In thousands) 2000 1999
---------------- ----------------
<S> <C> <C>
Residential real estate $ 3,789,377 $ 3,911,184
Unearned premiums and deferred loan fees 7,646 8,494
---------------- ----------------
3,797,023 3,919,678
---------------- ----------------
Consumer:
Home equity 2,120,296 1,974,924
Automobile 42,127 55,271
Loans secured by deposits 6,704 6,859
Other secured 10,912 11,148
Unsecured 26,302 26,634
Unearned discounts and deferred loan fees (16,726) (16,252)
---------------- ----------------
2,189,615 2,058,584
---------------- ----------------
Commercial real estate:
Apartments 294,003 276,045
Other permanent 793,837 637,980
Construction and development 165,485 162,570
Unearned discounts and deferred loan fees (2,793) (3,123)
---------------- ----------------
1,250,532 1,073,472
---------------- ----------------
Commercial business 378,748 350,816
Deferred loan costs 474 537
---------------- ----------------
379,222 351,353
---------------- ----------------
Leasing and equipment finance:
Loans:
Equipment finance loans 164,790 43,647
Deferred loan costs 2,176 513
---------------- ----------------
166,966 44,160
---------------- ----------------
Lease financings:
Direct financing leases 577,961 446,351
Sales-type leases 34,326 30,387
Lease residuals 28,140 24,384
Unearned income and deferred lease costs (80,894) (52,626)
Investment in leveraged leases 16,776 -
---------------- ----------------
576,309 448,496
---------------- ----------------
743,275 492,656
---------------- ----------------
$ 8,359,667 $ 7,895,743
================ ================
</TABLE>
Loans and leases increased $463.9 million from year-end 1999 to $8.4 billion at
September 30, 2000, reflecting increases of $250.6 million in leasing and
equipment finance, $177.1 million in commercial real estate loans, $131 million
in consumer loans and $27.9 million in commercial business loans, partially
offset by a decrease of $122.7 million in residential real estate loans.
Unearned discounts and deferred fees totaled $90.1 million at September 30, 2000
and $62.5 million at December 31, 1999.
Consumer loans increased $131 million from year-end 1999 to $2.2 billion at
September 30, 2000, reflecting an increase of $145.4 million in home equity
loans, partially offset by a decrease of $13.1 million in automobile loans.
Approximately 68% of the home equity loan portfolio at September 30, 2000
consists of closed-end loans. In addition, 48% of this portfolio carries a
variable interest rate.
17
<PAGE>
TCF changed its home equity loan origination programs in early 1999. Under the
new programs and in response to intensifying price competition, TCF implemented
a tiered pricing structure for its home equity loans. TCF also experienced an
increase in the loan-to-value ratios on new home equity loans originated
beginning in 1999. Many of these loans are secured by a first lien on the home
and include an advance to pay-off an existing first lien mortgage loan, and many
have balances exceeding $100,000. These loans may carry a higher level of credit
risk than loans with a lower loan-to-value ratio.
The following table sets forth additional information about the loan-to-value
ratios for TCF's home equity loan portfolio:
<TABLE>
<CAPTION>
(Dollars in thousands) At September 30, 2000 At December 31, 1999
------------------------------- ------------------------------------
Percent Percent
Loan-to-Value Ratios (1): Balance of Total Balance of Total
--------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Over 100% (2) $ 42,605 2.0 % $ 56,530 2.9 %
Over 90% to 100% 472,566 22.3 398,871 20.2
Over 80% to 90% 627,569 29.6 570,567 28.9
80% or less 977,556 46.1 948,956 48.0
--------------- ------------- -------------- ------------
Total $ 2,120,296 100.0 % $1,974,924 100.0 %
=============== ============= ============== ============
</TABLE>
-----------------------------------------
(1) Loan-to-value is based on the loan amount (current outstanding balance on
closed-end loans and the total commitment on lines of credit) plus
deferred loan origination costs net of fees and refundable insurance
premiums, if any, plus the original amount of senior liens, if any.
Property values represent the most recent appraised value or property tax
assessment value known to TCF. In most cases, this value was obtained at
the loan origination date and does not reflect subsequent appreciation or
depreciation in property values, if any.
(2) Amount reflects the outstanding loan balance. The portion of the loan
balance in excess of 100% of the property value is substantially less.
Commercial real estate loans increased $177.1 million from year-end 1999 to $1.3
billion at September 30, 2000. Commercial business loans increased $27.9 million
in the first nine months of 2000 to $379.2 million at September 30, 2000. At
September 30, 2000, approximately 96% of TCF's commercial business and
commercial real estate loans outstanding are secured either by properties or
underlying business assets. TCF is seeking to expand its commercial business
lending activity and its commercial real estate lending activity to borrowers
located in its primary midwestern markets. At September 30, 2000, approximately
88% of TCF's commercial real estate loans outstanding were secured by properties
located in its primary markets. Included in commercial real estate loans at
September 30, 2000 are $133.7 million of loans secured by hotel or motel
properties, up from $112.7 million at December 31, 1999. At September 30, 2000
and December 31, 1999, there were no commercial real estate loans with terms
that have been modified in troubled debt restructurings included in performing
loans.
At September 30, 2000, the recorded investment in loans that are considered to
be impaired was $6.4 million for which the related allowance for credit losses
was $1.4 million. All of the impaired loans were on non-accrual status. The
average recorded investment in impaired loans during nine months ended September
30, 2000 was $3.7 million.
Leasing and equipment finance increased $250.6 million from year-end 1999 to
$743.3 million at September 30, 2000. Total loan and lease originations for
TCF's leasing business were $448.8 million for the first nine months of 2000,
compared with $173.7 million during the same 1999 period. At September 30,
2000, the backlog of approved transactions related to TCF's leasing business
totaled $201.5 million, compared with $125.2 million at December 31, 1999.
The significant increase in leasing and equipment finance activity is due to
TCF Leasing, Inc., TCF's newly formed subsidiary which commenced operations
during the third quarter of 1999. TCF Leasing, Inc. specializes in the
leasing and financing of industrial and transportation equipment, and
discounting leases in key markets in various regions of the United States.
TCF's expanded leasing activity is subject to the risk of cyclical downturns
or other adverse economic developments affecting these industries and
markets. TCF Leasing, Inc. has originated most of its portfolio during 2000.
TCF's investment in leveraged leases of $16.8 million at September 30, 2000
includes residual values of $18.1 million, and is net of unearned income of
$12.3 million and principal and interest payments on non-recourse debt.
18
<PAGE>
Loan and lease originations, including loans held for sale, for the first nine
months of 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------
(In thousands) 2000 1999
----------------- -----------------
<S> <C> <C>
Consumer $ 807,563 $ 1,078,013
Commercial 540,070 568,123
Leasing and equipment finance 448,814 173,743
Residential real estate 652,342 1,047,037
----------------- -----------------
Total $ 2,448,789 $ 2,866,916
================= =================
</TABLE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
A summary of the activity of the allowance for loan and lease losses and
selected statistics follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------- ---------------------------------
(Dollars in thousands) 2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 60,997 $ 71,346 $ 55,755 $ 80,013
Provision for credit losses 3,688 2,845 10,061 13,552
Charge-offs (1,850) (9,643) (6,750) (29,885)
Recoveries 1,150 2,289 4,919 6,507
------------ ------------ ------------ -------------
Net charge-offs (700) (7,354) (1,831) (23,378)
Transfers to loans held for sale - (11,174) - (14,524)
------------ ------------ ------------ -------------
Balance at end of period $ 63,985 $ 55,663 $ 63,985 $ 55,663
============ ============ ============ =============
Ratio of annualized net loan and lease
charge-offs to average loans and
leases outstanding .03 % .39 % .03 % .42 %
Allowance for loan and lease losses
as a percentage of total loans and
leases at period end .77 % .73 % .77 % .73 %
</TABLE>
19
<PAGE>
Additional information on the allowance for loan and lease losses follows:
<TABLE>
<CAPTION>
At or For the Nine Months Ended September 30, 2000 At or For the Year Ended December 31, 1999
-------------------------------------------------------- ----------------------------------------------------
Net Net
Allowance for Allowance Charge Allowance for Allowance Charge
Loan and Total Loans as a % of Offs Loan and Total Loans as a % of Offs
(Dollars in thousands) Lease Losses and Leases Portfolio (Recoveries)(1) Lease Losses and Leases Portfolio (Recoveries)
------------ -------------- ---------- --------------- --------------------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real
estate $18,877 $ 1,250,532 1.51% (.02)% $ 12,708 $1,073,472 1.18% (.08)
Commercial business 9,327 379,222 2.46 (.17) 8,256 351,353 2.35 (.08)
Consumer 10,082 2,189,615 .46 .06 10,701 2,058,584 .52 1.30
Leasing and
equipment finance 6,242 743,275 .84 .34 4,237 492,656 .86 .39
Unallocated 16,639 - .20 N/A 16,839 - .21 N.A.
-------- -------------- ------------ -------------
Subtotal 61,167 4,562,644 1.34 .06 52,741 3,976,065 1.33 .72
Residential real
estate 2,818 3,797,023 .07 - 3,014 3,919,678 .08 -
-------- -------------- ------------ -------------
Total $63,985 $ 8,359,667 .77 .03 $ 55,755 $7,895,743 .71 .35
======== ============== ============ =============
</TABLE>
-----------------------
(1) Annualized.
N.A. Not applicable.
TCF has experienced a significant decrease in the level of net loan charge-offs
related to its consumer finance automobile portfolio, a large portion of which
was sold or liquidated during 1999. As a result, the ratio of annualized net
loan charge-offs to average loans outstanding for TCF's consumer portfolio were
.10% and .06% for the three and nine months ended September 30, 2000,
respectively, compared with 1.42% and 1.57% for the same periods of 1999.
Included in the net loan and lease charge-offs for the third quarter and first
nine months of 2000 were $274,000 and $1.4 million of net recoveries related to
the consumer finance automobile loans, respectively, compared with net
charge-offs of $6.1 million and $20 million for the same periods of 1999.
As previously noted, TCF provided $3.7 million for credit losses in the third
quarter of 2000, compared with $2.8 million for the third quarter of 1999 and
$5.4 million for the second quarter of 2000. At September 30, 2000, the
allowance for loan and lease losses totaled $64 million, compared with $55.8
million at December 31, 1999 and $61 million at June 30, 2000. The increase in
the provision for credit losses and the allowance for loan and lease losses
during the third quarter of 2000 reflects the growth in TCF's portfolio of
commercial loans and leases, and an increase in the average size of individual
loans and leases within these portfolios. Commercial loan and lease portfolios
have a greater inherent risk of loss than loans secured by residential real
estate.
On an ongoing basis, TCF's loan and lease portfolios are reviewed and analyzed
as to credit risk, performance, collateral value and quality. The allowance for
loan and lease losses is maintained at a level believed to be adequate by
management to provide for probable loan and lease losses inherent in the
portfolio. Management's judgment as to the adequacy of the allowance, including
the allocated and unallocated elements, is a result of ongoing review of larger
individual loans and leases, the overall risk characteristics of the portfolios,
changes in the character or size of the portfolios, the level of non-performing
assets, historical net charge-off amounts, geographic location and prevailing
economic conditions. The allowance for loan and lease losses is established for
probable losses inherent in TCF's loan and lease portfolios as of the balance
sheet date, including known or anticipated problem loans and leases, as well as
for loans and leases which are not currently known to require specific
allowances. Loans and leases are charged off to the extent they are deemed to be
uncollectible.
The adequacy of the allowance for loan and lease losses is highly dependent upon
management's estimates of variables affecting valuation, appraisals of
collateral, evaluations of performance and status, and the amounts and timing of
future cash flows expected to be received on impaired loans. Such estimates,
appraisals, evaluations and cash flows may be subject to frequent adjustments
due to changing economic prospects of borrowers, lessees or properties. These
estimates are reviewed periodically and adjustments, if necessary, are reported
in the provision for credit losses in the periods in which they become known.
Management believes the allowance for loan and lease losses is adequate.
20
<PAGE>
NON-PERFORMING ASSETS
Non-performing assets (principally non-accrual loans and leases and other real
estate owned) totaled $42.9 million at September 30, 2000, compared with $35.4
million at December 31, 1999. Included in non-accrual loans and leases at
September 30, 2000 are $3.5 million of leases that have been funded on a
non-recourse basis by third-party financial institutions. Approximately 70% of
non-performing assets at September 30, 2000 consist of, or are secured by,
residential real estate. The accrual of interest income is generally
discontinued when loans and leases become 90 days or more past due with respect
to either principal or interest (150 days for loans secured by residential real
estate, including residential real estate secured consumer loans) unless such
loans and leases are adequately secured and in the process of collection.
Non-performing assets are summarized in the following table:
<TABLE>
<CAPTION>
At At
September 30, December 31,
(Dollars in thousands) 2000 1999
---------------- ----------------
<S> <C> <C>
Non-accrual loans and leases:
Consumer $ 14,648 $ 12,178
Residential real estate 5,030 5,431
Commercial real estate 5,669 1,576
Commercial business 694 2,960
Leasing and equipment finance 5,149 1,929
---------------- ----------------
31,190 24,074
Other real estate owned and other assets 11,717 11,348
---------------- ----------------
Total non-performing assets $ 42,907 $ 35,422
================ ================
Non-performing assets as a percentage
of net loans and leases .52 % .45 %
Non-performing assets as a percentage
of total assets .39 % .33 %
</TABLE>
TCF had $3.3 million of accruing loans and leases 90 days or more past due at
September 30, 2000, compared with $5.8 million at December 31, 1999. The over
30-day delinquency rate on TCF's loans and leases (excluding loans held for sale
and non-accrual loans and leases) was .46% of loans and leases outstanding at
September 30, 2000, compared with .42% at year-end 1999. TCF's delinquency rates
are determined using the contractual method. The following table sets forth
information regarding TCF's over 30-day delinquent loan and lease portfolio,
excluding loans held for sale and non-accrual loans and leases:
<TABLE>
<CAPTION>
At September 30, 2000 At December 31, 1999
---------------------------------- ----------------------------------
Principal Percentage of Principal Percentage of
(Dollars in thousands) Balances Portfolio Balances Portfolio
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Consumer $ 16,721 .77 % $ 19,076 .93%
Residential real estate 9,526 .25 11,552 .30
Commercial real estate 434 .03 493 .05
Commercial business 4,216 1.11 1,595 .41
Leasing and equipment finance 7,683 1.04 386 .09
--------------- ---------------
Total $ 38,580 .46 $ 33,102 .42
=============== ===============
</TABLE>
21
<PAGE>
In addition to the non-accrual loans and leases, there were commercial loans and
leases with an aggregate principal balance of $20.9 million outstanding at
September 30, 2000 for which management has concerns regarding the ability of
the borrowers to meet existing repayment terms. This amount consists of loans
that were classified for regulatory purposes as substandard, doubtful or loss,
or were to borrowers that currently are experiencing financial difficulties or
that management believes may experience financial difficulties in the future.
This compares with $33 million of such loans at December 31, 1999. Although
these loans are secured by commercial real estate or other corporate assets,
they may be subject to future modifications of their terms or may become
non-performing. Management monitors the performance and classification of such
loans and the financial condition of these borrowers.
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
At At
September 30, December 31,
(In thousands) 2000 1999
----------------- ----------------
<S> <C> <C>
Premises and equipment $ 189,425 $ 176,108
Accrued interest receivable 60,766 54,550
Mortgage servicing rights 38,443 22,614
Other real estate owned 11,573 10,912
Other 81,860 87,809
----------------- ----------------
$ 382,067 $ 351,993
================= ================
</TABLE>
DEPOSITS
Checking, savings and money market deposits are an important source of lower
cost funds and fee income for TCF. Deposits totaled $6.8 billion at September
30, 2000, up $226.1 million from December 31, 1999. The increase in deposits
includes the impact of the previously noted sales of three underperforming
branches during the first nine months of 2000 with $31 million in deposits.
Lower interest-cost checking, savings and money market deposits totaled $4
billion, up $294.2 million from December 31, 1999, and comprised 58.8% of total
deposits at September 30, 2000. The average annualized fee revenue per retail
checking account for the first nine months of 2000 was $180, compared with $164
for the comparable 1999 period. Higher interest-cost certificates of deposit
decreased $68.1 million from December 31, 1999. TCF's weighted-average rate for
deposits, including non-interest bearing deposits, was 3.05% at September 30,
2000, compared with 2.71% at December 31, 1999.
22
<PAGE>
As previously noted, TCF continued to expand its supermarket banking franchise
by opening six new branches during the 2000 third quarter. TCF now has 212
supermarket branches, up from 188 such branches a year ago. During the past
year, the number of deposit accounts in TCF's supermarket branches increased
19.2% to 638,580 accounts and the balances increased 31.1% to $1 billion. The
average rate on these deposits increased from 2.10% at September 30, 1999 to
2.54% at September 30, 2000. Additional information regarding TCF's supermarket
branches is as follows:
<TABLE>
<CAPTION>
Supermarket Banking Summary: At September 30,
---------------------------------- Increase
(Dollars in thousands) 2000 1999 (Decrease) % Change
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Number of branches 212 188 24 12.8 %
Number of deposit accounts 638,580 535,940 102,640 19.2
Deposits:
Checking $ 457,783 $333,925 $123,858 37.1
Passbook and statement 140,681 122,242 18,439 15.1
Money market 101,238 61,957 39,281 63.4
Certificates 324,903 263,481 61,422 23.3
-------------- ------------ -------------
Total deposits $ 1,024,605 $781,605 $243,000 31.1
============== ============ =============
Average rate on deposits 2.54 % 2.10 % .44 % 21.0
============== ============ =============
Total fees and other revenues (quarter ended) $ 29,952 $ 23,081 $ 6,871 29.8
============== ============ =============
Total fees and other revenues (year-to-date) $ 81,763 $ 62,090 $ 19,673 31.7
============== ============ =============
Consumer loans outstanding $ 223,608 $177,628 $ 45,980 25.9
============== ============ =============
</TABLE>
BORROWINGS
Borrowings totaled $3.1 billion as of September 30, 2000, up $31.2 million from
year-end 1999. The increase was primarily due to increases of $159 million in
treasury, tax and loan notes and $104.1 million in FHLB advances, partially
offset by decreases of $151.6 million in securities sold under repurchase
agreements, $42 million in TCF's bank line of credit and $22.4 million in
commercial paper. At September 30, 2000, TCF had no commercial paper outstanding
and no outstanding balance on its bank line of credit. Included in FHLB advances
at September 30, 2000 are $1.2 billion of fixed-rate advances, which are
callable at par on certain anniversary dates and quarterly thereafter until
maturity. If called, the FHLB will provide replacement funding at the
then-prevailing market rate of interest for the remaining term-to-maturity of
the advances, subject to standard terms and conditions. Due to recent increases
in interest rates, the market rates exceeded the contract rates for TCF's entire
portfolio of callable FHLB advances at September 30, 2000. The weighted-average
rate on borrowings increased to 6.26% at September 30, 2000, from 5.91% at
December 31, 1999. At September 30, 2000, borrowings with a maturity of one year
or less totaled $1.5 billion. In addition, included in FHLB advances at
September 30, 2000 are $488 million of long-term FHLB advances that have call
dates within one year.
STOCKHOLDERS' EQUITY
Stockholders' equity at September 30, 2000 was $859.4 million, or 7.8% of total
assets, up from $809 million, or 7.6% of total assets, at December 31, 1999. The
increase in stockholders' equity is primarily due to net income of $134.1
million for the first nine months of 2000 and a decrease of $16.3 million in
accumulated other comprehensive loss, partially offset by the repurchase of
2,966,300 shares of TCF's common stock at a cost of $63.1 million and the
payment of $49.2 million in dividends on common stock. On October 23, 2000, TCF
declared a quarterly dividend of 21.25 cents per common share, payable on
November 30, 2000 to shareholders of record as of November 3, 2000.
23
<PAGE>
Treasury stock and other consists of the following:
<TABLE>
<CAPTION>
At At
September 30, December 31,
(In thousands) 2000 1999
----------------- ----------------
<S> <C> <C>
Treasury stock, at cost $ (317,509) $ (295,148)
Shares held in trust for deferred
compensation plans, at cost (60,462) (46,066)
Unamortized deferred compensation (32,677) (14,887)
Loan to Executive Deferred Compensation Plan (5,566) (4,721)
Unearned ESOP shares (338) -
----------------- ----------------
$ (416,552) $ (360,822)
================= ================
</TABLE>
On June 22, 2000, TCF announced that the Company had entered into an agreement
with a third party that provides TCF with an option to purchase up to $50
million of TCF's common stock under a forward share repurchase contract. The
forward transactions can be settled from time to time, at the Company's
election, on a physical, net cash or net share basis. The final maturity date of
the agreement is June 24, 2002. At September 30, 2000, there were no open
forward purchases under this contract.
At September 30, 2000, TCF and its bank subsidiaries exceeded their regulatory
capital requirements and are considered "well-capitalized" under guidelines
established by the Federal Reserve Board and the Office of the Comptroller of
the Currency pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities (an amendment of FASB Statement No. 133),"
requires recognition of all derivative instruments as either assets or
liabilities in the statement of financial condition and measurement of those
instruments at fair value. A derivative may be designated as a hedge of an
exposure to changes in the fair value of a recognized asset or liability, an
exposure to variable cash flows of a forecasted transaction, or a foreign
currency exposure. The accounting for gains and losses associated with changes
in the fair value of a derivative and the impact on TCF's consolidated financial
statements will depend on its hedge designation and whether the hedge is highly
effective in offsetting changes in the fair value or cash flows of the
underlying hedged item. The statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. TCF has not used derivatives to
hedge exposures other than the use of forward contracts in its mortgage banking
secondary marketing operations. The impact of SFAS No. 133 on the Company's
financial position and results of operations will not be material.
EARNINGS TELECONFERENCE
TCF hosts quarterly conference calls to discuss its financial results.
Additional information regarding TCF's conference calls can be obtained from the
investor relations section within TCF's web site at www.tcfbank.com or by
contacting TCF's Corporate Communications Department at (952) 745-2760.
24
<PAGE>
FORWARD-LOOKING INFORMATION
This report and other reports issued by the Company, including reports filed
with the Securities and Exchange Commission, may contain "forward-looking"
statements that deal with future results, plans or performance. In addition,
TCF's management may make such statements orally to the media, or to securities
analysts, investors or others. Forward-looking statements deal with matters that
do not relate strictly to historical facts. TCF's future results may differ
materially from historical performance and forward-looking statements about
TCF's expected financial results or other plans are subject to a number of risks
and uncertainties. These include but are not limited to possible legislative
changes and adverse economic, business and competitive developments such as
shrinking interest margins; deposit outflows; reduced demand for financial
services and loan and lease products; changes in accounting policies or
guidelines, or monetary and fiscal policies of the federal government; changes
in credit and other risks posed by TCF's loan, lease and investment portfolios;
technological, computer-related or operational difficulties; adverse changes in
securities markets; results of litigation or other significant uncertainties.
25
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
At At At At At At At
(DOLLARS IN THOUSANDS, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
EXCEPT PER-SHARE DATA) 2000 2000 2000 1999 1999 1999 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $10,980,000 $10,905,705 $10,761,821 $10,661,716 $10,342,248 $10,338,341 $10,200,744
Investments 132,173 131,635 155,265 148,154 127,701 194,781 158,222
Securities available for sale 1,413,218 1,436,836 1,470,532 1,521,661 1,599,438 1,701,063 1,569,406
Loans and leases 8,359,667 8,231,150 8,091,793 7,895,743 7,602,130 7,431,171 7,293,329
Deposits 6,810,921 6,719,962 6,823,248 6,584,835 6,633,738 6,648,283 6,632,481
Borrowings 3,115,066 3,205,732 2,975,080 3,083,888 2,721,200 2,734,652 2,579,789
Stockholders' equity 859,444 807,382 780,311 808,982 815,304 810,448 824,442
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
------------------------------------------------------------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2000 2000 2000 1999 1999 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income $ 210,709 $ 204,407 $ 197,157 $ 193,043 $ 188,656 $ 186,359 $ 184,043
Interest expense 100,035 94,209 90,317 86,931 82,116 79,637 79,204
------------- ------------ ------------ ------------ ------------ ------------- -------------
Net interest income 110,674 110,198 106,840 106,112 106,540 106,722 104,839
Provision for credit losses 3,688 5,383 990 3,371 2,845 2,947 7,760
------------- ------------ ------------ ------------ ------------ ------------- -------------
Net interest income after
provision for credit losses 106,986 104,815 105,850 102,741 103,695 103,775 97,079
------------- ------------ ------------ ------------ ------------ ------------- -------------
Non-interest income:
Gain (loss) on sales of
securities available for sale - - - - - (5) 3,199
Gain on sales of loan servicing - - - - - 743 2,333
Gain on sales of branches - 3,866 - 3,349 6,429 2,382 -
Gain on sale of subsidiaries - - - 5,522 - - -
Title insurance revenues - - - 2,490 3,953 4,512 4,466
Other non-interest income 85,276 82,438 72,953 74,785 72,137 68,385 63,919
------------- ------------ ------------ ------------ ------------ ------------- ------------
Total non-interest income 85,276 86,304 72,953 86,146 82,519 76,017 73,917
------------- ------------ ------------ ------------ ------------ ------------- ------------
Non-interest expense:
Amortization of goodwill and
other intangibles 2,515 2,484 2,483 2,665 2,676 2,673 2,675
Other non-interest expense 113,818 112,761 110,107 112,292 114,061 110,106 105,650
------------- ------------ ------------ ------------ ------------ ------------- ------------
Total non-interest expense 116,333 115,245 112,590 114,957 116,737 112,779 108,325
------------- ------------ ------------ ------------ ------------ ------------- ------------
Income before income tax 75,929 75,874 66,213 73,930 69,477 67,013 62,671
Income tax expense 29,232 29,212 25,492 28,980 26,717 26,024 25,331
------------- ------------ ------------ ------------ ------------ ------------- ------------
Net income $ 46,697 $ 46,662 $ 40,721 $ 44,950 $ 42,760 $ 40,989 $ 37,340
============= ============ ============ ============ ============ ============= ============
Per common share:
Basic earnings $ .60 $ .60 $ .51 $ .55 $ .52 $ .50 $ .45
============= ============ ============ ============ ============ ============= ============
Diluted earnings $ .59 $ .59 $ .51 $ .55 $ .52 .49 .44
============= ============ ============ ============ ============ ============= ============
Diluted cash earnings (1) $ .61 $ .61 $ .53 $ .58 $ .54 $ .52 $ .47
============= ============ ============ ============ ============ ============= ============
Dividends declared $ .2125 $ .2125 $ .1875 $ .1875 $ .1875 $ .1875 $ .1625
============= ============ ============ ============ ============ ============= ============
FINANCIAL RATIOS (2):
Return on average assets 1.71 % 1.73 % 1.53 % 1.72 % 1.66 % 1.60 % 1.48 %
Cash return on average assets (1) 1.78 1.80 1.60 1.80 1.73 1.67 1.55
Return on average realized common
equity 21.52 22.19 19.24 21.04 20.37 19.81 18.06
Return on average common equity 22.55 23.72 20.55 22.03 21.29 20.11 17.99
Cash return on average realized
common equity (1) 22.39 23.09 20.12 22.14 21.27 20.73 18.97
Average total equity to average
assets 7.60 7.28 7.44 7.78 7.79 7.95 8.22
Average realized tangible equity to
average assets 6.43 6.23 6.35 6.50 6.44 6.33 6.39
Average tangible equity to average
assets 6.06 5.72 5.84 6.13 6.08 6.21 6.42
Net interest margin (3) 4.38 4.38 4.32 4.38 4.46 4.52 4.52
--------------------------------------------------------------------------------
</TABLE>
(1) Excludes amortization and reduction of goodwill, net of income tax benefit.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
26
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- -------------------------------------
Interest Interest
Yields Yields
Average and Average and
(Dollars in thousands) Balance Interest (1) Rates (2) Balance Interest (1) Rates (2)
-------------- ------------- --------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments $ 136,367 $ 7,262 7.10 % $ 142,261 $ 6,912 6.48 %
-------------- ------------- -------------- -------------
Securities available for sale (3) 1,522,904 75,456 6.61 1,715,104 84,512 6.57
-------------- ------------- -------------- -------------
Loans held for sale 217,144 12,624 7.75 199,362 9,855 6.59
-------------- ------------- -------------- -------------
Loans and leases:
Residential real estate 3,899,990 207,688 7.10 3,785,587 198,450 6.99
Commercial real estate 1,161,679 74,889 8.60 899,809 56,294 8.34
Commercial business 362,377 24,579 9.04 330,661 19,549 7.88
Consumer 2,116,285 161,120 10.15 1,954,330 149,175 10.18
Leasing and equipment finance 605,008 48,655 10.72 402,040 34,311 11.38
-------------- ------------- -------------- -------------
Total loans and leases (4) 8,145,339 516,931 8.46 7,372,427 457,779 8.28
-------------- ------------- -------------- -------------
Total interest-
earning assets 10,021,754 612,273 8.15 9,429,154 559,058 7.91
------------- --------- ------------- --------
Other assets (5) 760,904 796,561
-------------- --------------
Total assets $10,782,658 $10,225,715
============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Non-interest bearing deposits $1,309,823 $1,169,600
-------------- --------------
Interest-bearing deposits:
Checking 740,270 3,282 .59 710,476 3,047 .57
Passbook and statement 1,052,867 8,793 1.11 1,122,881 9,378 1.11
Money market 738,536 17,361 3.13 731,527 14,279 2.60
Certificates 2,832,672 114,146 5.37 2,900,377 104,467 4.80
-------------- ------------- -------------- -------------
Total interest-bearing
deposits 5,364,345 143,582 3.57 5,465,261 131,171 3.20
-------------- ------------- -------------- -------------
Total deposits 6,674,168 143,582 2.87 6,634,861 131,171 2.64
-------------- ------------- -------------- -------------
Borrowings:
Securities sold under
repurchase agreements
and federal funds
purchased 879,472 41,169 6.24 413,312 16,059 5.18
FHLB advances 1,883,448 81,470 5.77 1,851,435 75,808 5.46
Discounted lease rentals 164,912 10,429 8.43 173,622 10,451 8.03
Other borrowings 145,925 7,911 7.23 162,638 7,468 6.12
-------------- ------------- -------------- -------------
Total borrowings 3,073,757 140,979 6.12 2,601,007 109,786 5.63
-------------- ------------- -------------- -------------
Total interest-bearing
liabilities 8,438,102 284,561 4.50 8,066,268 240,957 3.98
------------- --------- ------------- --------
Other liabilities (5) 230,432 173,669
-------------- --------------
Total liabilities 9,978,357 9,409,537
Stockholders' equity (5) 804,301 816,178
-------------- --------------
Total liabilities
and stockholders' equity $10,782,658 $10,225,715
============== ==============
Net interest income $ 327,712 $ 318,101
============= ==============
Net interest-rate spread 3.65 % 3.93 %
========= =========
Net interest margin 4.36 % 4.50 %
========= =========
</TABLE>
------------------------------------
(1) Tax-exempt income was not significant and thus has not been presented on
a tax equivalent basis. Tax-exempt income of $137,000 and $132,000 was
recognized during the nine months ended September 30, 2000 and 1999,
respectively.
(2) Annualized.
(3) Average balance and yield of securities available for sale is based upon
the historical amortized cost.
(4) Average balance of loans and leases includes non-accrual loans and leases,
and is presented net of unearned income.
(5) Average balance is based upon month-end balances.
27
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, TCF is a party to legal proceedings arising out of its
general lending and operating activities. Management, after review with its
legal counsel, believes that the ultimate disposition of its current litigation
will not have a material effect on TCF's financial condition. TCF is and expects
to become engaged in a number of foreclosure proceedings and other collection
actions as part of its loan collection activities. From time to time, borrowers
have also brought actions against TCF, in some cases claiming substantial
amounts of damages. There have been a considerable number of consumer class
actions brought against banks and financial services companies and TCF is
subject to the risk of such actions.
On November 2, 1993, TCF Minnesota filed a complaint in the United States Court
of Federal Claims seeking monetary damages from the United States for breach of
contract, taking of property without just compensation and deprivation of
property without due process. TCF Minnesota's claim is based on the government's
breach of contract in connection with TCF Minnesota's acquisitions of certain
savings institutions prior to the enactment of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), which contracts allowed
TCF Minnesota to treat the "supervisory goodwill" created by the acquisitions as
an asset that could be counted toward regulatory capital, and provided for other
favorable regulatory accounting treatment. The United States has not yet
answered TCF Minnesota's complaint. TCF Minnesota's complaint involves
approximately $80.3 million in supervisory goodwill.
In August 1995, TCF Michigan filed with the United States Court of Federal
Claims a complaint seeking monetary damages from the United States for breach of
contract, taking of property without just compensation and deprivation of
property without due process. TCF Michigan's claim is based on the government's
breach of contract in connection with TCF Michigan's acquisitions of certain
savings institutions prior to the enactment of FIRREA in 1989, which contracts
allowed TCF Michigan to treat the "supervisory goodwill" created by the
acquisitions as an asset that could be counted toward regulatory capital, and
provided for other favorable regulatory accounting treatment. The United States
has not yet answered TCF Michigan's complaint. TCF Michigan's complaint involves
approximately $87.3 million in supervisory goodwill.
On July 1, 1996, the United States Supreme Court issued a decision affirming the
August 30, 1995 decision of the United States Court of Appeals for the Federal
Circuit, which decision had affirmed the Court of Federal Claims' liability
determinations in three other "supervisory goodwill" cases, consolidated for
review under the title WINSTAR CORP. V. UNITED STATES, 116 S.Ct. 2432 (1996). In
rejecting the United States' consolidated appeal from the Court of Federal
Claims' decisions, the Supreme Court held in WINSTAR that the United States had
breached contracts it had entered into with the plaintiffs which provided for
the treatment of supervisory goodwill, created through the plaintiffs'
acquisitions of failed or failing savings institutions, as an asset that could
be counted toward regulatory capital. Two of the three cases consolidated in the
Supreme Court proceedings have since been tried before the Court of Federal
Claims on the issue of damages, and the third was settled without trial. In one
of the cases that proceeded to a damages trial, GLENDALE FEDERAL BANK, FSB V.
UNITED STATES, 43 Fed. Cl. 390 (1999), the Court of Federal Claims issued a
decision on April 9, 1999, awarding the plaintiff in that case $908,948,000 in
restitution and non-overlapping reliance damages. The GLENDALE damages decision
has been appealed to the United States Court of Appeals for the Federal Circuit.
The other case which went to trial was settled in June 1998.
On December 22, 1997, the Court of Federal Claims issued a decision finding the
existence of contracts and governmental breaches of those contracts in four
other "supervisory goodwill" cases, consolidated for purposes of that decision
only under the title CALIFORNIA FEDERAL BANK V. UNITED STATES, 39 Fed. Cl. 753
(1997). In reaching its decision, the Court of Federal Claims rejected a number
of "common issue" defenses that the government has raised in a number of
"supervisory goodwill" cases. In November 1998, the Court of Federal Claims
issued another decision in the CALIFORNIA FEDERAL case prohibiting the plaintiff
in that case from offering evidence as to a lost profits theory of damages. A
two-month trial
28
<PAGE>
regarding the plaintiff's other damages theories in that case was concluded in
early March 1999. On April 21, 1999, the Court of Federal Claims entered
judgment for the plaintiff in CALIFORNIA FEDERAL, and awarded the plaintiff
$22,966,523.42 in damages under a cost of replacement capital theory. CALIFORNIA
FEDERAL BANK V. UNITED STATES, 43 Fed Cl. 445 (1999). On May 6, 1999, the Court
denied plaintiff's motion for reconsideration of its damages decision in the
CALIFORNIA FEDERAL case. The CALIFORNIA FEDERAL decision has been appealed to
the United States Court of Appeals for the Federal Circuit.
The Court of Federal Claims has also issued damages decisions in several other
"supervisory goodwill" cases. While the Court awarded the plaintiffs in some of
these cases damages for the government's breach of "supervisory goodwill"
contracts, the Court rejected certain of the plaintiffs' claims for damages, and
awarded the plaintiffs only a portion of the damages they sought. Certain of
these decisions are currently on appeal to the United States Court of Appeals
for the Federal Circuit, and the Company expects the remaining decisions to be
appealed as well. As noted, the Court of Federal Claims has held or is soon to
hold trials in several other "supervisory goodwill" cases, and it is expected
both that the Court will continue to issue additional decisions on both
liability and damages issues and that most, if not all, of the Court's decisions
in these cases will be appealed.
The government has indicated that it will have a number of affirmative defenses
against goodwill litigation filed against it. The TCF Minnesota and TCF Michigan
actions involve a variety of different types of transactions, contracts and
contract provisions. There can be no assurance that the U.S. Supreme Court
decision in WINSTAR or the Court of Federal Claims' recent decisions in
GLENDALE, CALIFORNIA FEDERAL and other cases will mean that a similar result
would be obtained in the actions filed by TCF Minnesota and TCF Michigan. There
also can be no assurance that the government will be determined liable in
connection with the loss of supervisory goodwill by either TCF Minnesota or TCF
Michigan or, even if a determination favorable to TCF Minnesota or TCF Michigan
is made on the issue of the government's liability, that a measure of damages
will be employed that will permit any recovery on TCF Minnesota's or TCF
Michigan's claim. Because of the complexity of the issues involved in both the
liability and damages phases of this litigation, and the usual risks associated
with litigation, the Company cannot predict the outcome of TCF Minnesota's or
TCF Michigan's cases, and investors should not anticipate any recovery.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits on page 31 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated November 3, 2000, was filed
furnishing certain investor presentation materials under Item 9 of Form
8-K.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TCF FINANCIAL CORPORATION
/s/ Neil W. Brown
-----------------------------
Neil W. Brown, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ David M. Stautz
------------------------------
David M. Stautz, Senior Vice President,
Controller and Assistant Treasurer
(Principal Accounting Officer)
Dated: November 13, 2000
30
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
------- ----------- -------------
<S> <C> <C>
4(a) Copies of instruments with respect to long-term debt will be
furnished to the Securities and Exchange Commission upon request. N/A
10(g) Change in Control Agreement dated September 12, 2000 as executed by (filed electronically)
Thomas A. Cusick, Lynn A. Nagorske, Gregory J. Pulles, Barry N.
Winslow, Neil W. Brown, Earl D. Stratton, Mark L. Jeter, Michael B.
Johnstone and Timothy P. Bailey.
10(i) Nonsolicitation and Confidentiality Agreement dated September 12, (filed electronically)
2000 as executed by Thomas A. Cusick, Lynn A. Nagorske, Gregory J.
Pulles, Barry N. Winslow, Neil W. Brown, Earl D. Stratton, Mark L.
Jeter, Michael B. Johnstone and Timothy P. Bailey.
11 Computation of Earnings Per Common Share
27 Financial Data Schedules (filed electronically)
</TABLE>
31
