UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
ý
Quarterly
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the
quarterly period ended
June 30, 2001
or
o
Transition Report Pursuant to Section 13
or 15(d)
of the Securities Exchange Act of 1934
Commission
File
No. 001-10253
Registrants 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 ý No o
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class | Outstanding at |
|
July 31, 2001 |
Common Stock, $.01 par value | 78,194,843 shares |
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements
of Financial Condition
(Dollars in thousands, except per-share data)
(Unaudited)
At | At | |||||||||
June 30, | December 31, | |||||||||
2001 | 2000 | |||||||||
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ASSETS | ||||||||||
Cash and due from banks | $ | 369,722 | $ | 392,007 | ||||||
Investments | 162,681 | 134,059 | ||||||||
Securities available for sale | 1,843,871 | 1,403,888 | ||||||||
Loans held for sale | 316,273 | 227,779 | ||||||||
Loans and leases: | ||||||||||
Residential real estate | 3,251,813 | 3,673,831 | ||||||||
Consumer | 2,348,993 | 2,234,134 | ||||||||
Commercial real estate | 1,484,234 | 1,371,841 | ||||||||
Commercial business | 418,798 | 410,422 | ||||||||
Leasing and equipment finance | 929,235 | 856,471 | ||||||||
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Total loans and leases | 8,433,073 | 8,546,699 | ||||||||
Allowance for loan and lease losses | (69,667 | ) | (66,669 | ) | ||||||
|
|
|||||||||
Net loans and leases | 8,363,406 | 8,480,030 | ||||||||
Premises and equipment, net | 202,600 | 197,525 | ||||||||
Goodwill | 149,350 | 153,239 | ||||||||
Deposit base intangibles | 10,214 | 11,183 | ||||||||
Other assets | 210,546 | 197,752 | ||||||||
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$ | 11,628,663 | $ | 11,197,462 | |||||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||||
Deposits: | ||||||||||
Checking | $ | 2,295,110 | $ | 2,203,943 | ||||||
Savings | 1,141,893 | 1,045,388 | ||||||||
Money market | 895,743 | 836,888 | ||||||||
Certificates | 2,583,399 | 2,805,605 | ||||||||
|
|
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Total deposits | 6,916,145 | 6,891,824 | ||||||||
|
|
|||||||||
Securities sold under repurchase agreements and federal funds purchased | 1,230,564 | 1,085,320 | ||||||||
Federal Home Loan Bank advances | 2,041,019 | 1,891,037 | ||||||||
Discounted lease rentals | 147,663 | 165,763 | ||||||||
Other borrowings | 152,255 | 42,125 | ||||||||
|
|
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Total borrowings | 3,571,501 | 3,184,245 | ||||||||
Accrued interest payable | 20,757 | 37,055 | ||||||||
Accrued expenses and other liabilities | 229,891 | 174,118 | ||||||||
|
|
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Total liabilities | 10,738,294 | 10,287,242 | ||||||||
|
|
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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; 92,730,278 and 92,755,659 shares issued | 927 | 928 | ||||||||
Additional paid-in capital | 512,297 | 508,682 | ||||||||
Retained earnings, subject to certain restrictions | 896,710 | 835,605 | ||||||||
Accumulated other comprehensive loss | (11,080 | ) | (9,868 | ) | ||||||
Treasury stock at cost, 14,559,960 and 12,466,626 shares, and other | (508,485 | ) | (425,127 | ) | ||||||
|
|
|||||||||
Total stockholders equity | 890,369 | 910,220 | ||||||||
|
|
|||||||||
$ | 11,628,663 | $ | 11,197,462 | |||||||
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|
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See accompanying notes to
consolidated financial statements.
TCF
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements
of Operations
(In thousands, except per-share data)
(Unaudited)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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2001 | 2000 | 2001 | 2000 | ||||||||||||
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Interest income: | |||||||||||||||
Loans and leases | $ | 172,028 | $ | 172,432 | $ | 352,296 | $ | 337,688 | |||||||
Securities available for sale | 30,967 | 25,218 | 55,968 | 51,020 | |||||||||||
Loans held for sale | 7,241 | 4,362 | 12,237 | 8,095 | |||||||||||
Investments | 2,490 | 2,395 | 4,786 | 4,761 | |||||||||||
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|
|
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Total interest income | 212,726 | 204,407 | 425,287 | 401,564 | |||||||||||
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Interest expense: | |||||||||||||||
Deposits | 44,292 | 46,893 | 94,649 | 92,404 | |||||||||||
Borrowings | 49,156 | 47,316 | 97,569 | 92,122 | |||||||||||
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|
|
|
||||||||||||
Total interest expense | 93,448 | 94,209 | 192,218 | 184,526 | |||||||||||
|
|
|
|
||||||||||||
Net interest income | 119,278 | 110,198 | 233,069 | 217,038 | |||||||||||
Provision for credit losses | 5,422 | 5,383 | 7,847 | 6,373 | |||||||||||
|
|
|
|
||||||||||||
Net interest income after provision for credit losses | 113,856 | 104,815 | 225,222 | 210,665 | |||||||||||
|
|
|
|
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Non-interest income: | |||||||||||||||
Fees and service charges | 49,760 | 41,804 | 93,212 | 77,639 | |||||||||||
Electronic funds transfer revenues | 21,986 | 19,914 | 41,424 | 37,274 | |||||||||||
Leasing and equipment finance | 13,010 | 10,144 | 21,230 | 19,162 | |||||||||||
Mortgage banking | 4,837 | 2,452 | 7,355 | 4,609 | |||||||||||
Investments and insurance | 2,997 | 3,408 | 5,732 | 7,121 | |||||||||||
Other | 3,062 | 3,586 | 7,440 | 7,246 | |||||||||||
|
|
|
|
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Fees and other revenues | 95,652 | 81,308 | 176,393 | 153,051 | |||||||||||
Gains on sales of branches | - | 3,866 | 3,316 | 3,866 | |||||||||||
|
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|
|
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Total non-interest income | 95,652 | 85,174 | 179,709 | 156,917 | |||||||||||
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|
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|
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Non-interest expense: | |||||||||||||||
Compensation and employee benefits | 67,659 | 59,768 | 130,423 | 118,187 | |||||||||||
Occupancy and equipment | 19,514 | 18,772 | 39,105 | 37,677 | |||||||||||
Advertising and promotions | 5,647 | 4,958 | 10,915 | 9,135 | |||||||||||
Amortization of goodwill | 1,945 | 1,915 | 3,889 | 3,829 | |||||||||||
Other | 31,189 | 28,702 | 59,578 | 56,667 | |||||||||||
|
|
|
|
||||||||||||
Total non-interest expense | 125,954 | 114,115 | 243,910 | 225,495 | |||||||||||
|
|
|
|
||||||||||||
Income before income tax expense | 83,554 | 75,874 | 161,021 | 142,087 | |||||||||||
Income tax expense | 31,540 | 29,212 | 60,784 | 54,704 | |||||||||||
|
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|
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Net income | $ | 52,014 | $ | 46,662 | $ | 100,237 | $ | 87,383 | |||||||
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Net income per common share: | |||||||||||||||
Basic | $ | .68 | $ | .60 | $ | 1.31 | $ | 1.10 | |||||||
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|
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Diluted | $ | .67 | $ | .59 | $ | 1.29 | $ | 1.10 | |||||||
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Dividends declared per common share | $ | .25 | $ | .2125 | $ | .50 | $ | .40 | |||||||
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|
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See accompanying notes to consolidated financial statements.
TCF FINANCIAL CORPORATION AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30, |
|||||||||||
|
|||||||||||
2001 | 2000 | ||||||||||
|
|
||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 100,237 | $ | 87,383 | |||||||
Adjustments to reconcile net income to net cash provided (used) by operating activities: | |||||||||||
Depreciation and amortization | 18,379 | 14,765 | |||||||||
Amortization of goodwill and other intangibles | 4,858 | 4,967 | |||||||||
Provision for credit losses | 7,847 | 6,373 | |||||||||
Proceeds from sales of loans held for sale | 911,786 | 185,474 | |||||||||
Principal collected on loans held for sale | 5,843 | 5,818 | |||||||||
Originations and purchases of loans held for sale | (1,006,946 | ) | (251,374 | ) | |||||||
Net (increase) decrease in other assets and liabilities, and accrued interest | 32,188 | (17,591 | ) | ||||||||
Gains on sales of assets | (3,530 | ) | (3,866 | ) | |||||||
Other, net | 2,252 | 1,418 | |||||||||
|
|
||||||||||
Total adjustments | (27,323 | ) | (54,016 | ) | |||||||
|
|
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Net cash provided by operating activities | 72,914 | 33,367 | |||||||||
|
|
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Cash flows from investing activities: | |||||||||||
Principal collected on loans and leases | 1,538,957 | 1,015,021 | |||||||||
Originations and purchases of loans | (1,242,116 | ) | (1,156,259 | ) | |||||||
Purchases of equipment for lease financing | (239,705 | ) | (243,715 | ) | |||||||
Net (increase) decrease in interest-bearing deposits with banks | (1,497 | ) | 19,977 | ||||||||
Proceeds from maturities of and principal collected on securities available for sale | 127,681 | 85,463 | |||||||||
Purchases of securities available for sale | (569,819 | ) | - | ||||||||
Net increase in Federal Home Loan Bank stock | (25,987 | ) | (3,409 | ) | |||||||
Sales of deposits, net of cash paid | (26,958 | ) | (27,212 | ) | |||||||
Other, net | (18,322 | ) | (11,824 | ) | |||||||
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||||||||||
Net cash used by investing activities | (457,766 | ) | (321,958 | ) | |||||||
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Cash flows from financing activities: | |||||||||||
Net increase in deposits | 54,367 | 166,134 | |||||||||
Net increase (decrease) in securities sold under repurchase agreements and federal funds purchased | 145,244 | (82,669 | ) | ||||||||
Proceeds from borrowings | 2,046,362 | 3,268,268 | |||||||||
Payments on borrowings | (1,751,628 | ) | (3,010,969 | ) | |||||||
Purchases of common stock to be held in treasury | (88,078 | ) | (59,993 | ) | |||||||
Payments of dividends on common stock | (39,132 | ) | (32,303 | ) | |||||||
Other, net | (4,568 | ) | (6,675 | ) | |||||||
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Net cash provided by financing activities | 362,567 | 241,793 | |||||||||
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Net decrease in cash and due from banks | (22,285 | ) | (46,798 | ) | |||||||
Cash and due from banks at beginning of period | 392,007 | 429,262 | |||||||||
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Cash and due from banks at end of period | $ | 369,722 | $ | 382,464 | |||||||
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Supplemental disclosures of cash flow information: | |||||||||||
Cash paid for: | |||||||||||
Interest on deposits and borrowings | $ | 202,077 | $ | 188,693 | |||||||
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Income taxes | $ | 12,408 | $ | 51,664 | |||||||
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Transfer of loans to other real estate owned and other assets | $ | 10,375 | $ | 6,387 | |||||||
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See accompanying notes to consolidated financial statements.
TCF
FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
(Dollars in thousands)
(Unaudited)
Number of Common Shares Issued | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock and Other | Total | |||||||||||||||||||
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Balance, December 31, 1999 | 92,804,205 | $ | 928 | $ | 500,797 | $ | 715,461 | $ | (47,382) | $ | (360,822 | ) | $ | 808,982 | |||||||||||
Comprehensive income: | |||||||||||||||||||||||||
Net income | - | - | - | 87,383 | - | - | 87,383 | ||||||||||||||||||
Other comprehensive income | - | - | - | - | 491 | - | 491 | ||||||||||||||||||
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Comprehensive income | - | - | - | 87,383 | 491 | - | 87,874 | ||||||||||||||||||
Dividends on common stock | - | - | - | (32,303) | - | - | (32,303 | ) | |||||||||||||||||
Purchase of 2,861,300 shares to be held in treasury | - | - | - | - | - | (59,993 | ) | (59,993 | ) | ||||||||||||||||
Issuance of 1,188,514 shares from treasury | - | - | (8,510 | ) | - | - | 8,510 | - | |||||||||||||||||
Cancellation of shares | (23,332 | ) | - | (589 | ) | - | - | 142 | (447 | ) | |||||||||||||||
Amortization of deferred compensation | - | - | - | - | - | 4,591 | 4,591 | ||||||||||||||||||
Exercise of stock options, 34,066 shares from treasury | - | - | (439 | ) | - | - | 924 | 485 | |||||||||||||||||
Issuance of stock options | - | - | 1 | - | - | - | 1 | ||||||||||||||||||
Shares held in trust for deferred compensation plans | - | - | 14,071 | - | - | (14,071 | ) | - | |||||||||||||||||
Purchase of TCF stock to prefund the 401(k) plan, net | - | - | 145 | - | - | (685 | ) | (540 | ) | ||||||||||||||||
Loan to Executive Deferred Compensation Plan, net | - | - | - | - | - | (1,268 | ) | (1,268 | ) | ||||||||||||||||
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Balance, June 30, 2000 | 92,780,873 | $ | 928 | $ | 505,476 | $ | 770,541 | $ | (46,891 | ) | $ | (422,672 | ) | $ | 807,382 | ||||||||||
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Balance, December 31, 2000 | 92,755,659 | $ | 928 | $ | 508,682 | $ | 835,605 | $ | (9,868 | ) | $ | (425,127 | ) | $ | 910,220 | ||||||||||
Comprehensive income: | |||||||||||||||||||||||||
Net income | - | - | - | 100,237 | - | - | 100,237 | ||||||||||||||||||
Other comprehensive loss | - | - | - | - | (1,212 | ) | - | (1,212 | ) | ||||||||||||||||
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Comprehensive income | - | - | - | 100,237 | (1,212 | ) | - | 99,025 | |||||||||||||||||
Dividends on common stock | - | - | - | (39,132 | ) | - | - | (39,132 | ) | ||||||||||||||||
Purchase of 2,313,300 shares to be held in treasury | - | - | - | - | - | (88,078 | ) | (88,078 | ) | ||||||||||||||||
Issuance of 162,850 shares from treasury | - | - | 1,814 | - | - | (1,814 | ) | - | |||||||||||||||||
Cancellation of shares | (25,381 | ) | (1 | ) | (1,068 | ) | - | - | 288 | (781 | ) | ||||||||||||||
Amortization of deferred compensation | - | - | - | - | - | 5,448 | 5,448 | ||||||||||||||||||
Exercise of stock options, 57,116 shares from treasury | - | - | 904 | - | - | 1,567 | 2,471 | ||||||||||||||||||
Shares held in trust for deferred compensation plans | - | - | 1,954 | - | - | (1,954 | ) | - | |||||||||||||||||
Purchase of TCF stock to prefund the 401(k plan, net | - | - | 11 | - | - | (109 | ) | (98 | ) | ||||||||||||||||
Payments on Loan to Executive Deferred Compensation Plan | - | - | - | - | - | 1,294 | 1,294 | ||||||||||||||||||
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Balance, June 30, 2001 | 92,730,278 | $ | 927 | $ | 512,297 | $ | 896,710 | $ | (11,080 | ) | $ | (508,485 | ) | $ | 890,369 | ||||||||||
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See accompanying notes to consolidated financial statements.
TCF
FINANCIAL CORPORATION AND SUBSIDIARIES
(Unaudited)
(1) Basis of Presentation
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 Managements 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 Managements Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2000 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.
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.
(2) 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 investment securities available for sale. Such unrealized gains or losses only pertain to a portion of TCFs balance sheet and do not reflect the change in economic value of TCF as a whole.
Three
Months Ended
June 30, |
Six Months
Ended
June 30, |
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(In thousands) | 2001 | 2000 | 2001 | 2000 | |||||||||||
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Net income | $ | 52,014 | $ | 46,662 | $ | 100,237 | $ | 87,383 | |||||||
Other comprehensive income (loss) before tax: | |||||||||||||||
Unrealized holding gains (losses) arising during the period on investment securities available for sale | (18,341 | ) | 8,269 | (1,826 | ) | 1,107 | |||||||||
Income tax expense (benefit) | (6,694 | ) | 2,650 | (614 | ) | 616 | |||||||||
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Total other comprehensive income (loss), net of tax | (11,647 | ) | 5,619 | (1,212 | ) | 491 | |||||||||
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Comprehensive income | $ | 40,367 | $ | 52,281 | $ | 99,025 | $ | 87,874 | |||||||
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(3) Earnings Per Common Share
The weighted average
number of common shares outstanding used to compute basic earnings per common
share were 76,243,092 and 78,340,026 for the three months ended June 30, 2001
and 2000, respectively, and 76,708,337 and 79,159,831 for the six months ended
June 30, 2001 and 2000, respectively.
The weighted average number of common and common equivalent shares
outstanding used to compute diluted earnings per common share were 77,213,524
and 79,009,517 for the three months ended June 30, 2001 and 2000, respectively,
and 77,680,422 and 79,750,279 for the six months ended June 30, 2001 and 2000,
respectively.
(4) Segments
The following table sets forth certain information about the reported profit or loss and assets for each of TCFs reportable segments, including a reconciliation of TCFs consolidated totals. Results for 2001 reflect changes in methodologies of certain allocations. Leasing and equipment finance results for the second quarter and first six months of 2001 include increases of $415,000 and $915,000, after-tax, respectively, in intercompany expense. The mortgage banking results for the second quarter and first six months of 2001 include reductions of $289,000 and $538,000 after-tax, respectively, in intercompany expense compared with 2000. The net offsets to these changes in intercompany expenses are included in banking results.
Leasing and | Eliminations | |||||||||||||||||||
Equipment | Mortgage | and | ||||||||||||||||||
Banking | Finance | Banking | Other | Reclassifications | Consolidated | |||||||||||||||
(In thousands) |
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At or For the Three Months Ended | ||||||||||||||||||||
June 30, 2001 | ||||||||||||||||||||
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Revenues from External Customers: | ||||||||||||||||||||
Interest Income | $ | 185,406 | $ | 22,975 | $ | 4,265 | $ | 80 | $ | - | $ | 212,726 | ||||||||
Non-Interest Income | 77,787 | 13,010 | 4,837 | 18 | - | 95,652 | ||||||||||||||
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Total | $ | 263,193 | $ | 35,985 | $ | 9,102 | $ | 98 | $ | - | $ | 308,378 | ||||||||
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Net Interest Income | $ | 104,583 | 10,298 | 3,730 | 53 | 614 | $ | 119,278 | ||||||||||||
Provision for Credit Losses | 1,833 | 3,589 | - | - | - | 5,422 | ||||||||||||||
Non-Interest Income | 77,787 | 13,010 | 5,449 | 23,640 | (24,234 | ) | 95,652 | |||||||||||||
Amortization of Goodwill and Other Intangibles | 2,322 | 107 | - | - | - | 2,429 | ||||||||||||||
Other Non-Interest Expense | 104,810 | 9,996 | 5,723 | 26,616 | (23,620 | ) | 123,525 | |||||||||||||
Income Tax Expense (Benefit) | 27,668 | 3,634 | 1,305 | (1,067 | ) | - | 31,540 | |||||||||||||
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Net Income (Loss) | $ | 45,737 | $ | 5,982 | $ | 2,151 | $ | (1,856 | ) | $ | - | $ | 52,014 | |||||||
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Total Assets | $ | 11,264,231 | $ | 950,339 | $ | 319,566 | $ | 70,850 | $ | (976,323 | ) | $ | 11,628,663 | |||||||
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At or For the Three Months Ended | ||||||||||||||||||||
June 30, 2000 | ||||||||||||||||||||
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Revenues from External Customers: | ||||||||||||||||||||
Interest Income | $ | 187,010 | $ | 15,954 | $ | 1,324 | $ | 119 | $ | - | $ | 204,407 | ||||||||
Non-Interest Income | 72,561 | 10,144 | 2,452 | 17 | - | 85,174 | ||||||||||||||
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Total | $ | 259,571 | $ | 26,098 | $ | 3,776 | $ | 136 | $ | - | $ | 289,581 | ||||||||
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|||||||||||||||
Net Interest Income (Expense) | $ | 100,899 | $ | 6,933 | $ | 1,504 | $ | (397 | ) | $ | 1,259 | $ | 110,198 | |||||||
Provision for Credit Losses | 4,188 | 1,195 | - | - | - | 5,383 | ||||||||||||||
Non-Interest Income | 72,561 | 10,146 | 3,710 | 21,882 | (23,125 | ) | 85,174 | |||||||||||||
Amortization of Goodwill and Other Intangibles | 2,386 | 98 | - | - | - | 2,484 | ||||||||||||||
Other Non-Interest Expense | 97,473 | 6,627 | 4,878 | 24,519 | (21,866 | ) | 111,631 | |||||||||||||
Income Tax Expense (Benefit) | 26,623 | 3,531 | 127 | (1,069 | ) | - | 29,212 | |||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net Income (Loss) | $ | 42,790 | $ | 5,628 | $ | 209 | $ | (1,965 | ) | $ | - | $ | 46,662 | |||||||
|
|
|
|
|
|
|||||||||||||||
Total Assets | $ | 10,569,079 | $ | 667,881 | $ | 143,578 | $ | 48,986 | $ | (523,819 | ) | $ | 10,905,705 | |||||||
|
|
|
|
|
|
|||||||||||||||
Banking | Leasing and Equipment Finance | Mortgage Banking | Other | Eliminations and Reclassifications | Consolidated | |||||||||||||||
(In thousands) |
|
|
|
|
|
|
||||||||||||||
At or For the Six Months Ended | ||||||||||||||||||||
June 30, 2001 | ||||||||||||||||||||
|
||||||||||||||||||||
Revenues from External Customers: | ||||||||||||||||||||
Interest Income | $ | 372,956 | $ | 45,985 | $ | 6,176 | $ | 170 | $ | - | $ | 425,287 | ||||||||
Non-Interest Income | 151,084 | 21,230 | 7,355 | 40 | - | 179,709 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total | $ | 524,040 | $ | 67,215 | $ | 13,531 | $ | 210 | $ | - | $ | 604,996 | ||||||||
|
|
|
|
|
|
|||||||||||||||
Net Interest Income | $ | 204,548 | 20,496 | 5,681 | 334 | 2,010 | $ | 233,069 | ||||||||||||
Provision for Credit Losses | 2,445 | 5,402 | - | - | - | 7,847 | ||||||||||||||
Non-Interest Income | 151,084 | 21,230 | 9,364 | 46,705 | (48,674 | ) | 179,709 | |||||||||||||
Amortization of Goodwill and Other Intangibles | 4,644 | 214 | - | - | - | 4,858 | ||||||||||||||
Other Non-Interest Expense | 207,034 | 19,173 | 9,895 | 49,614 | (46,664 | ) | 239,052 | |||||||||||||
Income Tax Expense (Benefit) | 53,395 | 6,400 | 1,948 | (959 | ) | - | 60,784 | |||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net Income (Loss) | $ | 88,114 | $ | 10,537 | $ | 3,202 | $ | (1,616 | ) | $ | - | $ | 100,237 | |||||||
|
|
|
|
|
|
|||||||||||||||
At or For the Six Months Ended | ||||||||||||||||||||
June 30, 2000 | ||||||||||||||||||||
|
||||||||||||||||||||
Revenues from External Customers: | ||||||||||||||||||||
Interest Income | $ | 369,856 | $ | 29,421 | $ | 2,081 | $ | 206 | $ | - | $ | 401,564 | ||||||||
Non-Interest Income | 133,110 | 19,162 | 4,609 | 36 | - | 156,917 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total | $ | 502,966 | $ | 48,583 | $ | 6,690 | $ | 242 | $ | - | $ | 558,481 | ||||||||
|
|
|
|
|
|
|||||||||||||||
Net Interest Income (Expense) | $ | 200,347 | $ | 12,637 | $ | 2,711 | $ | (1,324 | ) | $ | 2,667 | $ | 217,038 | |||||||
Provision for Credit Losses | 4,299 | 2,074 | - | - | - | 6,373 | ||||||||||||||
Non-Interest Income | 133,110 | 19,164 | 7,277 | 43,751 | (46,385 | ) | 156,917 | |||||||||||||
Amortization of Goodwill and Other Intangibles | 4,771 | 196 | - | - | - | 4,967 | ||||||||||||||
Other Non-Interest Expense | 195,040 | 12,699 | 10,067 | 46,440 | (43,718 | ) | 220,528 | |||||||||||||
Income Tax Expense (Benefit) | 49,742 | 6,489 | (30 | ) | (1,497 | ) | - | 54,704 | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net Income (Loss) | $ | 79,605 | $ | 10,343 | $ | (49 | ) | $ | (2,516 | ) | $ | - | $ | 87,383 | ||||||
|
|
|
|
|
|
|||||||||||||||
(5) Investments and Securities Available for Sale
Total investments and securities available for sale consist of the following (in thousands). The amortized cost of investments approximate their fair values.
At June 30, 2001 | At December 31, 2000 | |||||||||||||
|
|
|||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||
Cost | Value | Cost | Value | |||||||||||
|
|
|
|
|||||||||||
Investments |
||||||||||||||
Interest-bearing deposits with banks | $ | 1,852 | $ | 1,852 | $ | 332 | $ | 332 | ||||||
Federal Home Loan Bank stock, at cost | 137,431 | 137,431 | 110,441 | 110,441 | ||||||||||
Federal Reserve Bank stock, at cost | 23,398 | 23,398 | 23,286 | 23,286 | ||||||||||
|
|
|
|
|||||||||||
Total investments | 162,681 | 162,681 | 134,059 | 134,059 | ||||||||||
|
|
|
|
|||||||||||
Securities Available for Sale |
||||||||||||||
U.S. Government and other marketable securities | 20,529 | 20,529 | 550 | 550 | ||||||||||
Mortgage-backed securities: | ||||||||||||||
Federal agencies | 1,808,776 | 1,792,402 | 1,380,196 | 1,365,620 | ||||||||||
Private issuer and collateralized mortgage obligations | 32,015 | 30,940 | 38,765 | 37,718 | ||||||||||
|
|
|
|
|||||||||||
Total securities available for sale | 1,861,320 | 1,843,871 | 1,419,511 | 1,403,888 | ||||||||||
|
|
|
|
|||||||||||
Total investments and securities available for sale | $ | 2,024,001 | $ | 2,006,552 | $ | 1,553,570 | $ | 1,537,947 | ||||||
|
|
|
|
|||||||||||
(6) Mortgage Servicing Rights
Mortgage servicing rights, net of valuation allowance, are summarized as follows:
Six Months
Ended June 30, |
|||||||
|
|||||||
(In thousands) | 2001 | 2000 | |||||
|
|
||||||
Balance at beginning of period | $ | 40,086 | $ | 22,614 | |||
Mortgage servicing rights capitalized | 18,852 | 7,813 | |||||
Amortization | (5,680 | ) | (2,340 | ) | |||
Valuation adjustments | (900 | ) | - | ||||
|
|
||||||
Balance at end of period | $ | 52,358 | $ | 28,087 | |||
|
|
The valuation allowance for mortgage servicing rights is summarized as follows:
Three
Months
Ended June 30, |
Six Months
Ended June 30, |
||||||||||||
|
|
||||||||||||
(In thousands) | 2001 | 2000 | 2001 | 2000 | |||||||||
|
|
|
|
||||||||||
Balance at beginning of period | $ | 1,346 | $ | 946 | $ | 946 | $ | 946 | |||||
Provision | 500 | - | 900 | - | |||||||||
Charge-offs | - | - | - | - | |||||||||
|
|
|
|
||||||||||
Balance at end of period | $ | 1,846 | $ | 946 | $ | 1,846 | $ | 946 | |||||
|
|
|
|
The fair value of mortgage servicing rights included in the Consolidated Statements of Financial Condition at June 30, 2001 was approximately $58.2 million. The estimated fair value of capitalized mortgage servicing rights is based on estimated cash flows discounted using rates commensurate with the risks involved. Assumptions regarding prepayments, defaults and interest rates are determined using available market information.
(7) Stockholders Equity
Treasury stock and other consists of the following:
At
June 30, 2001 |
At
December 31, 2000 |
|||||
(In thousands) |
|
|
||||
Treasury stock, at cost | $ | (407,164 | ) | $ | (325,026 | ) |
Shares held in trust for deferred compensation plans, at cost | (63,862 | ) | (61,908 | ) | ||
Unamortized deferred compensation | (33,507 | ) | (33,056 | ) | ||
Loan to Executive Deferred Compensation Plan | (3,843 | ) | (5,137 | ) | ||
Unearned ESOP shares | (109 | ) | - | |||
|
|
|||||
$ | (508,485 | ) | $ | (425,127 | ) | |
|
|
|
|
During the first six months of 2001, TCF contributed $1.5 million to the TCF Employees Stock Purchase Plan (the Plan) in order to prefund a portion of TCFs employer match of employee contributions for 2001. The Plan used the proceeds to purchase 39,154 shares of TCF common stock which are held as unallocated shares until released to employee accounts as employer matching contributions. TCF anticipates that all shares will be allocated to employee accounts by the end of the year. The unallocated shares of TCF common stock held by the Plan at June 30, 2001 are reflected as a reduction of stockholders equity as required by generally accepted accounting principles.
The following table sets forth TCFs regulatory tier 1 leverage, tier 1 risk-based and total risk-based capital levels, and applicable percentages of adjusted assets, together with the excess over minimum capital requirements:
At June 30, 2001 | At December 31, 2000 | ||||||||||
|
|
||||||||||
Tier 1 leverage capital | $ | 744,766 | 6.39 | % | $ | 758,766 | 6.90 | % | |||
Tier 1 leverage capital requirement | 349,681 | 3.00 | 330,110 | 3.00 | |||||||
|
|
|
|
||||||||
Excess | $ | 395,085 | 3.39 | % | $ | 428,656 | 3.90 | % | |||
|
|
|
|
||||||||
Tier 1 risk-based capital | $ | 744,766 | 10.15 | % | $ | 758,766 | 10.66 | % | |||
Tier 1 risk-based capital requirement | 293,544 | 4.00 | 284,827 | 4.00 | |||||||
|
|
|
|
||||||||
Excess | $ | 451,222 | 6.15 | % | $ | 473,939 | 6.66 | % | |||
|
|
|
|
||||||||
Total risk-based capital | $ | 814,483 | 11.10 | % | $ | 825,527 | 11.59 | % | |||
Total risk-based capital requirement | 587,089 | 8.00 | 569,655 | 8.00 | |||||||
|
|
|
|
||||||||
Excess | $ | 227,394 | 3.10 | % | $ | 255,872 | 3.59 | % | |||
|
|
|
|
At June 30, 2001, TCF and its bank subsidiaries exceeded their regulatory capital requirements and are considered well-capitalized under guidelines established by the Federal Reserve Board and the Office of the Comptroller of the Currency pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.
(8) Accounting for Derivative Instruments and Hedging Activities
Effective January 1, 2001, TCF adopted Statement of Financial Accounting Standards (SFAS) No. 133, as amended, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires that all derivative instruments as defined, including derivatives embedded in other financial instruments or contracts, be recognized as either assets or liabilities in the statement of financial condition at fair value. Changes in the fair value of a derivative are recorded in the results of operations. A derivative may be designated as a hedge of an exposure to changes in the fair value of an asset, liability or firm commitment or as a hedge of cash flows of forecasted transactions. The accounting for derivatives that are used as hedges is dependent on the type of hedge and requires that a hedge be highly effective in offsetting changes in the hedged risk.
Under SFAS No. 133, TCFs pipeline of locked residential mortgage loan commitments are considered derivatives and are recorded at fair value, with the changes in fair value recognized in gains on sales of loans held for sale in the statement of operations. TCF economically hedges its risk of changes in the fair value of locked residential mortgage loan commitments due to changes in interest rates through the use of forward sales contracts. Forward sales contracts require TCF to deliver qualifying residential mortgage loans or pools of loans at a specified future date at a specified price or yield. Such forward sales contracts hedging the pipeline of locked residential mortgage loan commitments are derivatives under SFAS No. 133 and are recorded at fair value, with changes in fair value recognized in gains on sales of loans held for sale. TCF also utilizes forward sales contracts to hedge its risk of changes in the fair value of its residential loans held for sale. In accordance with fair value hedge accounting under SFAS No. 133, the forward sales contracts hedging the residential loans held for sale are recorded at fair value, with changes in fair value recognized in gains on sales of loans held for sale as is the offsetting change in the fair value of the hedged loans.
The impact of adopting SFAS No. 133 on TCFs financial position was not material. A transition adjustment of $117,000 was recorded in other income in the statement of operations on January 1, 2001. During the first six months of 2001, there were no gains or losses recognized in earnings representing ineffectiveness of the fair value hedges.
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Managements
Discussion and Analysis of Financial
Condition and Results of Operations
CORPORATE PROFILE
TCF is the national financial holding company of two federally chartered banks, TCF National Bank headquartered in Minnesota and TCF National Bank Colorado. The Company has 360 banking offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana. Other affiliates provide leasing, mortgage banking, discount brokerage and annuity, insurance and mutual fund sales.
TCF provides convenient financial services through multiple channels to customers located primarily in the Midwest. TCF has developed products and services designed to meet the needs of all consumers with a primary focus on middle- and lower-income individuals. The Company focuses on attracting and retaining customers through service and convenience, including branches that are open seven days a week and on most holidays, extensive full-service supermarket branch and automated teller machine (ATM) networks, and telephone and Internet banking. TCFs philosophy is to generate top-line revenue growth (net interest income and fees and other revenues) through business lines that emphasize higher yielding assets and lower interest-cost deposits. The Companys growth strategies include de novo branch expansion and the development of new products and services designed to build on its core businesses and expand into complementary products and services through emerging businesses and strategic initiatives.
TCFs core businesses are comprised of traditional bank branches, EXPRESS TELLER ATMs, and commercial, consumer and mortgage lending. TCF emphasizes the Totally Free checking account as its anchor account, which provides opportunities to cross sell other convenience products and services and generate additional fee income. TCFs strategy is to originate high credit quality, primarily secured loans and earn profits through lower interest-cost deposits. Commercial loans are generally made on local properties or to local customers, and are virtually all secured. TCFs largest core lending business is its consumer home equity loan portfolio, comprised of fixed- and variable-rate closed-end loans and lines of credit.
TCFs emerging businesses and products are comprised of supermarket bank branches, including supermarket consumer lending, leasing and equipment finance, debit cards, and Internet and college campus banking. TCFs most significant de novo strategy has been its supermarket branch expansion. The Company opened its first supermarket branch in 1988, and now has 222 supermarket branches, with more than $1.1 billion in deposits. TCF has the nations fourth largest supermarket branch network. See Financial Condition Deposits. TCF entered the leasing business through its 1997 acquisition of Winthrop Resources Corporation (Winthrop), a leasing company that leases computers and other business-essential equipment to companies nationwide. The Company expanded its leasing operations in September 1999 through TCF Leasing, Inc. (TCF Leasing), a de novo general equipment leasing business to serve the transportation, general equipment, lease discounting, and syndications sectors. See Financial Condition Loans and Leases. These businesses are among TCFs fastest growing operations. The Companys VISA ® debit card program has also grown significantly since its inception in 1996. According to a March 31, 2001 statistical report issued by VISA, TCF is the 16 th largest VISA debit card issuer in the United States, with over 1.2 million cards outstanding and the 12 th largest based on sales volume.
TCFs strategic initiatives are businesses that complement the Companys core and emerging businesses. TCFs new products have been significant contributors to the growth in fees and other revenues generated by checking accounts and loan products. Currently, TCFs strategic initiatives include new card products designed to provide additional convenience to deposit and loan customers and to further leverage its EXPRESS TELLER ATM network. On June 8, 2001, the Company launched its discount brokerage, TCF Express Trade, Inc., to provide discount brokerage business and on-line brokerage in the future. The Company is also planning to launch additional insurance and investment products in 2001.
RESULTS OF OPERATIONS
TCF reported diluted earnings per common share of 67 cents and $1.29 for the second quarter and first six months of 2001, respectively, compared with 59 cents and $1.10 for the same 2000 periods. Net income was $52 million and $100.2 million for the second quarter and first six months of 2001, compared with $46.7 million and $87.4 million for the same 2000 periods. The first six months of 2001 results included a $2.1 million after-tax gain on sale of a branch, or 3 cents per diluted common share, compared with a $2.4 million after-tax gain on the sales of three branches, or 3 cents per diluted common share for the same period in 2000. Return on average assets was 1.78% and 1.74% for the second quarter and first six months of 2001, respectively, compared with 1.73% and 1.63% for the same 2000 periods. Return on average realized common equity was 23.22% and 22.33% for the second quarter and first six months of 2001, respectively, compared with 22.19% and 20.67% for the same 2000 periods. Diluted cash earnings per common share, which excludes amortization and reduction of goodwill, net of income tax benefits, was 70 cents and $1.34 for the second quarter and six months of 2001, respectively, compared with 61 cents and $1.14 for the same 2000 periods. On the same basis, cash return on average assets was 1.84% and 1.81% for the second quarter and first six months of 2001, respectively, compared with 1.80% and 1.70% for the same 2000 periods, and cash return on average realized equity was 24.07% and 23.18% for the second quarter and first six months of 2001, respectively, compared with 23.09% and 21.56% for the same 2000 periods.
Operating Segment Results
BANKING, comprised of deposits and investment products, commercial lending, consumer lending, residential lending and treasury services, reported net income of $45.7 million and $88.1 million for the second quarter and first six months of 2001, respectively, up 6.9% and 10.7% from $42.8 million and $79.6 million for the same 2000 periods. Net interest income for the second quarter and first six months of 2001 was $104.6 million and $204.5 million, respectively, up from $100.9 million and $200.3 million for the same 2000 periods. The provision for credit losses totaled $1.8 million and $2.4 million for the second quarter and first six months of 2001, respectively, down from $4.2 million and $4.3 million for the same 2000 periods. Non-interest income (excluding gains on sales of branches) totaled $77.8 million and $147.8 million for the second quarter and first six months of 2001, respectively, up 13.2% and 14.3% from $68.7 million and $129.2 million for the same 2000 periods. This improvement was primarily due to increased fees and service charges and electronic funds transfer revenues, reflecting TCFs expanded retail banking operations and customer base. Non-interest expense (excluding the amortization of goodwill and deposit base intangibles) totaled $104.8 million and $207 million for the second quarter and first six months of 2001, respectively, up 7.5% and 6.1% from $97.5 million and $195 million for the same 2000 periods. The increases were primarily due to the costs associated with TCFs continued retail banking expansion, including de novo supermarket branches, offset by sales of underperforming branches.
TCF has significantly expanded its retail banking franchise in recent periods and had 360 retail banking branches at June 30, 2001. Since January 1, 1998, TCF has opened 176 new branches, of which 164 were supermarket branches. TCF continued to expand its retail banking franchise by opening 8 new branches during the 2001 second quarter. TCF anticipates opening approximately 25 branches during 2001.
LEASING AND EQUIPMENT FINANCE, an operating segment comprised of TCFs wholly owned subsidiaries Winthrop and TCF Leasing, provides a broad range of comprehensive lease and equipment finance products. This operating segment reported net income of $6 million and $10.5 million for the second quarter and first six months of 2001, respectively, up 6.3% and 1.9% from $5.6 million and $10.3 million for the same 2000 periods. As previously discussed in Note 4, leasing and equipment finance results for the second quarter and first six months of 2001 include increases of $415,000 and $915,000, after-tax, respectively, in intercompany expense. Net interest income for the second quarter and first six months of 2001 was $10.3 million and $20.5 million, respectively, up 48.5% and 62.2% from $6.9 million and $12.6 million for the same 2000 periods. Leasing and equipment finances provision for credit losses totaled $3.6 million and $5.4 million for the second quarter and first six months of 2001 respectively, up from $1.2 million and $2.1 million for the same 2000 periods, primarily as a result of the significant growth in the portfolio coupled with increased net charge-offs. Non-interest income totaled $13 million and $21.2 million for the second quarter and first six months of 2001, respectively, up 28.2% and 10.8% from $10.1 million and $19.2 million for the same 2000 periods. This increase is due to higher levels of sales type lease revenues during the second quarter of 2001. Non-interest expense (excluding the amortization of goodwill) totaled $10 million and $19.2 million for the second quarter and first six months of 2001, respectively, up 50.8% and 51% from $6.6 million and $12.7 million for the same 2000 periods, primarily as a result of the growth experienced in TCF Leasing during the past year.
MORTGAGE BANKING activities include the origination and purchase of residential mortgage loans, generally for sale to third parties with servicing retained. This operating segment reported net income of $2.2 million and $3.2 million for the second quarter and first six months of 2001, respectively, compared with net income of $209,000 and a net loss of $49,000 for the same 2000 periods. As a result of changes in methodologies of certain allocations in 2001 as discussed in Note 4, 2001 results for the mortgage banking operating segment include a reduction of $289,000, after-tax, for the second quarter of 2001 and $538,000 after-tax for the first six months of 2001, in intercompany expense compared with 2000. Non-interest income totaled $5.4 million and $9.4 million for the second quarter and first six months of 2001, respectively, up 46.9% and 28.7% from $3.7 million and $7.3 million for the same 2000 periods. This increase in non-interest income from the second quarter of 2000 is primarily due to a $3.1 million increase in gains on sales of loans held for sale, a $1.4 million increase in service fees and other fees on mortgage loans and an increase in other income of $884,000, partially offset by a $3.2 million increase in amortization of mortgage servicing rights. During the second quarter and first six months of 2001, this operating segment had increased amortization of mortgage servicing rights of $2.4 million and $3.3 million, respectively, and recorded $500,000 and $900,000, respectively, in additional valuation allowance expense, due to the accelerating prepayments and larger servicing portfolios. As a result of declines in interest rates during the first six months of 2001, the mortgage banking segment has experienced an increase in refinance activity. During the first six months of 2001, this operating segment generated $1.8 billion in new loan applications and $1.1 billion in closed loans, up from $688.4 million and $430.9 million, respectively for the same 2000 period. TCFs mortgage pipeline (applications in process but not yet closed) was $747 million at June 30, 2001, compared with $221 million at December 31, 2000. The third-party servicing portfolio was $4.3 billion at June 30, 2001 with a weighted average coupon on loans of 7.31%, compared with $4 billion at December 31, 2000 with a weighted average coupon on loans of 7.42%. Non-interest expense totaled $5.7 million and $9.9 million for the second quarter and first six months of 2001, respectively, up 17.3% and down 1.7% from $4.9 million and $10.1 million for the same 2000 period. Contributing to the increase in non-interest expense during the second quarter of 2001 were increased expenses resulting from the high level of loan originations during the quarter. Mortgage servicing rights totaled $52.4 million or 1.22% of the servicing portfolio at June 30, 2001, compared with $40.1 million or 1.01% at December 31, 2000.
Net Interest Income
Net interest income for the second quarter of 2001 was $119.3 million, compared with $110.2 million for the second quarter of 2000 and $113.8 million for the 2001 first quarter. The net interest margin for the second quarter of 2001 was 4.40%, compared with 4.38% for the same 2000 period and 4.35% for the first quarter of 2001. TCFs second quarter 2001 net interest income increased $9.1 million over the comparable 2000 period. Net interest income for the first six months of 2001 was $233.1 million, compared with $217 million for the same 2000 period. The net interest margin for the first six months of 2001 was 4.38%, compared with 4.35% for the same period of 2000. Net interest income improved by $24.2 million due to volume changes and decreased $8.1 million due to rate changes. The increase in net interest income and net interest margin during the second quarter and first six months of 2001 is primarily due to the growth in higher yielding commercial loans and leases along with strong growth in low cost deposits. Changes in net interest income are dependent upon the movement of interest rates, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. Achieving net interest margin growth is dependent on TCFs ability to generate higher-yielding assets and lower-cost retail deposits. If variable index rates (e.g., prime) were to decline, TCF may experience compression of its net interest margin depending on the timing and amount of any reductions, as it is possible that interest rates paid on retail deposits will not decline as quickly, or to the same extent, as the decline in the yield on interest-rate-sensitive assets such as home equity loans. Competition for checking, savings and money market deposits, important sources of lower cost funds for TCF, is intense. TCF may also experience compression in its net interest margin if the rates paid on deposits increase or as a result of new pricing strategies and lower rates offered on loan products in order to respond to competitive conditions. See Market Risk - Interest-Rate Risk and Financial Condition - Deposits.
The following rate/volume analysis details the increases (decreases) in net interest income resulting from interest rate and volume changes during the second quarter and first six months of 2001 as compared with the same periods last year. Changes attributable to the combined impact of volume and rate have been allocated proportionately to the change due to volume and the change due to rate.
Three Months
Ended
June 30, 2001 Versus Same Period in 2000 |
Six Months
Ended
June 30, 2001 Versus Same Period in 2000 |
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Increase (Decrease) Due to | Increase (Decrease) Due to | ||||||||||||||||||||||||||
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(In thousands) | Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||||
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Investments | $ | 686 | $ | (591 | ) | $ | 95 | $ | 823 | $ | (798 | ) | $ | 25 | |||||||||||||
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|
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Securities available for sale | 5,749 | - | 5,749 | 4,871 | 77 | 4,948 | |||||||||||||||||||||
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|
|
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Loans held for sale | 3,371 | (492 | ) | 2,879 | 4,941 | (799 | ) | 4,142 | |||||||||||||||||||
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Loans and leases: | |||||||||||||||||||||||||||
Residential real estate | (10,855 | ) | (97 | ) | (10,952 | ) | (17,327 | ) | 1,360 | (15,967 | ) | ||||||||||||||||
Commercial real estate | 5,766 | (1,910 | ) | 3,856 | 11,608 | (2,306 | ) | 9,302 | |||||||||||||||||||
Commercial business | 1,030 | (1,431 | ) | (401 | ) | 2,016 | (1,504 | ) | 512 | ||||||||||||||||||
Consumer | 4,297 | (4,225 | ) | 72 | 8,600 | (4,403 | ) | 4,197 | |||||||||||||||||||
Leasing and equipment finance | 7,985 | (964 | ) | 7,021 | 17,454 | (890 | ) | 16,564 | |||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Total loans and leases | 8,223 | (8,627 | ) | (404 | ) | 22,351 | (7,743 | ) | 14,608 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Total interest income | 18,029 | (9,710 | ) | 8,319 | 32,986 | (9,263 | ) | 23,723 | |||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Deposits: | |||||||||||||||||||||||||||
Checking | 39 | (38 | ) | 1 | 66 | (79 | ) | (13 | ) | ||||||||||||||||||
Savings | (135 | ) | (736 | ) | (871 | ) | (325 | ) | (1,000 | ) | (1,325 | ) | |||||||||||||||
Money market | 1,089 | (1,013 | ) | 76 | 2,236 | 72 | 2,308 | ||||||||||||||||||||
Certificates | (1,948 | ) | 141 | (1,807 | ) | (3,605 | ) | 4,880 | 1,275 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Total deposits | (955 | ) | (1,646 | ) | (2,601 | ) | (1,628 | ) | 3,873 | 2,245 | |||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Borrowings: | |||||||||||||||||||||||||||
Securities sold under repurchase agreements and federal funds purchased | 6,455 | (3,377 | ) | 3,078 | 10,127 | (3,515 | ) | 6,612 | |||||||||||||||||||
FHLB advances | 1,645 | (538 | ) | 1,107 | 3,267 | (948 | ) | 2,319 | |||||||||||||||||||
Discounted lease rentals | (248 | ) | (205 | ) | (453 | ) | (502 | ) | (173 | ) | (675 | ) | |||||||||||||||
Other borrowings | (1,378 | ) | (514 | ) | (1,892 | ) | (2,430 | ) | (379 | ) | (2,809 | ) | |||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Total borrowings | 6,474 | (4,634 | ) | 1,840 | 10,462 | (5,015 | ) | 5,447 | |||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Total interest expense | 5,519 | (6,280 | ) | (761 | ) | 8,834 | (1,142 | ) | 7,692 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Net interest income | $ | 12,510 | $ | (3,430 | ) | $ | 9,080 | $ | 24,152 | $ | (8,121 | ) | $ | 16,031 | |||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
Provision for Credit Losses
TCF provided $5.4 million for credit losses in the second quarter of 2001, compared with $5.4 million for the same prior-year period. TCF provided $7.8 million for the first six months of 2001, compared with $6.4 million for the same period in 2000. Net loan and lease charge-offs were $3.9 million and $4.8 million during the second quarter and first six months of 2001, respectively, compared with $1.2 million and $1.1 million during the same 2000 periods. The increase in provisions and net loan and lease charge-offs from 2000 reflects the impact of the growth in the higher-risk commercial loan and lease portfolios coupled with increased charge-offs in the leasing portfolio. At June 30, 2001, the allowance for loan and lease losses totaled $69.7 million, compared with $66.7 million at December 31, 2000. See Financial Condition - Allowance for Loan and Lease Losses.
Non-Interest Income
Non-interest income is a significant source of revenues for TCF and an important factor in TCFs results of operations. Providing a wide range of retail banking services is an integral component of TCFs business philosophy and a major strategy for generating additional non-interest income. Excluding gains on sales of branches, non-interest income increased $14.3 million, or 17.6%, to $95.7 million for the second quarter of 2001, compared with $81.3 million for the same period in 2000. On the same basis, non-interest income increased $23.3 million, or 15.3%, to $176.4 million for the first six months of 2001, compared with $153.1 million for the same period in 2000. The increase was primarily due to increased fee and service charges and electronic funds transfer revenues, and reflects TCFs expanded retail banking and customer base.
Electronic funds transfer revenues totaled $22 million and $41.4 million for the second quarter and first six months of 2001, respectively, representing increases of 10.4% and 11.1% from $19.9 million and $37.3 million for the same 2000 periods. These increases reflect TCFs efforts to provide banking services through its EXPRESS TELLER ATM network and the TCF Express Cards. Included in electronic funds transfer revenues are Express Card interchange fees of $9.3 million and $17.3 million compared with $7.1 million and $13.1 million for the second quarter and first six months ended June 30, 2001 and 2000, respectively. The significant increase in these fees reflects an increase in the distribution of Express Cards, and an increase in utilization resulting from TCFs phone card promotion which rewards customers with long distance minutes based on usage, a promotion begun in February 2000. TCF had 1.3 million EXPRESS TELLER ATM cards outstanding at June 30, 2001, of which 1.2 million were Express Cards. At June 30, 2000, TCF had 1.2 million EXPRESS TELLER ATM cards outstanding of which 1 million were Express Cards. The percentage of TCFs checking account base with Express Cards increased to 79% during the second quarter of 2001, from 74.3% during the second quarter of 2000. The average number of transactions per month on active Express Cards increased to 11 during the second quarter of 2001, from 10 during the second quarter of 2000. TCF had 1,377 EXPRESS TELLER ATMs in its network at June 30, 2001, compared with 1,381 at June 30, 2000. Electronic funds transfer revenues in future periods may be negatively impacted by pending legislative proposals which, if enacted and not judicially restrained, could limit EXPRESS TELLER ATM fees.
Leasing revenues totaled $13 million and $21.2 million for the second quarter and first six months of 2001, respectively, compared with $10.1 million and $19.2 million for the same 2000 periods. The volume and type of new lease transactions and the resulting revenues may fluctuate from period to period based upon factors not within the control of TCF, such as economic conditions. The increase in total leasing revenues from the second quarter of 2000 is primarily due to increases of $1.6 million from sales-type lease transactions, $907,000 from operating lease transactions, and $352,000 in other revenues.
Mortgage banking revenues were $4.8 million and $7.4 million for the second quarter and first six months of 2001, respectively, compared with $2.5 million and $4.6 million for the same 2000 periods. The increase in revenues is attributable to increased gains on sales of loans and other income on higher origination and sales activity. The following table sets forth information about mortgage banking revenues:
Three
Months Ended
June 30, |
Six Months
Ended
June 30, |
||||||||||||||||||
|
|
||||||||||||||||||
(Dollars in thousands) | 2001 | 2000 | $ Change | 2001 | 2000 | $ Change | |||||||||||||
|
|
|
|
|
|
||||||||||||||
Servicing income | $ | 4,181 | $ | 2,861 | $ | 1,320 | $ | 7,941 | $ | 5,762 | $ | 2,179 | |||||||
Less: Mortgage servicing amortization | 4,076 | 1,130 | 2,946 | 6,580 | 2,340 | 4,240 | |||||||||||||
|
|
|
|
|
|
||||||||||||||
Net servicing income | 105 | 1,731 | (1,626 | ) | 1,361 | 3,422 | (2,061 | ) | |||||||||||
Gains on sales of loans | 3,373 | 246 | 3,127 | 3,967 | 495 | 3,472 | |||||||||||||
Other income | 1,359 | 475 | 884 | 2,027 | 692 | 1,335 | |||||||||||||
|
|
|
|
|
|
||||||||||||||
Total mortgage banking | $ | 4,837 | $ | 2,452 | $ | 2,385 | $ | 7,355 | $ | 4,609 | $ | 2,746 | |||||||
|
|
|
|
|
|
During the first quarter of 2001, TCF recognized a gain of $3.3 million on the sale of one Michigan branch with $30 million in deposits, compared with gains of $3.9 million on the sale of three Michigan branches with $31 million in deposits during the second quarter of 2000.
Non-Interest Expense
Non-interest expense totaled $126 million for the second quarter of 2001, compared with $114.1 million for the same 2000 period. For the first six months of 2001, non-interest expense totaled $243.9 million, up 8.2% from $225.5 million for the same 2000 period. Compensation and employee benefits expense totaled $67.7 million and $130.4 million for the 2001 second quarter and first six months, respectively, compared with $59.8 million and $118.2 million for the comparable periods in 2000. The increase in compensation and employee benefits over the first six months of 2000 is primarily due to TCFs continued leasing and de novo retail banking expansion as well as increased production in mortgage banking.
Advertising and promotions expenses totaled $5.6 million and $10.9 million for the second quarter and first six months of 2001, respectively, compared with $5 million and $9.1 million for the same periods in 2000. The increases in 2001, are primarily due to costs associated with expanded retail banking activities and promotional expenses associated with TCF Express Phone Card, where customers earn free long distance minutes for use of their debit cards. During the second quarter of 2001, TCF awarded over 25.2 million minutes under this promotion, compared with 12.2 million during the second quarter of 2000.
Other non-interest expense totaled $30.7 million and $58.6 million for the second quarter and first six months of 2001, respectively, reflecting an increase of 9.1% and 5.5% from $28.1 million and $55.5 million for the same 2000 periods, primarily the result of increased expenses associated with higher levels of activity in mortgage banking and expanded leasing operations.
Income Taxes
TCF recorded income tax expense of $31.5 million and $60.8 million for the second quarter and first six months of 2001, respectively, or 37.75% of income before income tax expense, compared with $29.2 million and $54.7 million, or 38.5% of income before income tax expense, for the comparable 2000 periods. The lower tax rates in 2001 primarily reflect lower state taxes.
FINANCIAL CONDITION
Investments and Securities Available for Sale
TCF purchased $550 million of mortgage-backed securities during the first quarter of 2001 in response to expected declines in the residential real estate loan portfolio.
Loans and Leases
The following table sets forth information about loans and leases held in TCFs portfolio, excluding loans held for sale:
(In thousands) |
At
June 30, 2001 |
At
December 31, 2000 |
%
Change from December 31, 2000 |
|||||||
|
|
|
||||||||
Residential real estate | $ | 3,247,212 | $ | 3,666,765 | (11.4 | )% | ||||
Unearned premiums and deferred loan fees | 4,601 | 7,066 | (34.9 | ) | ||||||
|
|
|||||||||
3,251,813 | 3,673,831 | (11.5 | ) | |||||||
|
|
|||||||||
Consumer: | ||||||||||
Home equity | 2,292,238 | 2,168,827 | 5.7 | |||||||
Other secured | 49,232 | 56,812 | (13.3 | ) | ||||||
Unsecured | 22,433 | 25,175 | (10.9 | ) | ||||||
Unearned discounts and deferred loan fees | (14,910 | ) | (16,680 | ) | 10.6 | |||||
|
|
|||||||||
2,348,993 | 2,234,134 | 5.1 | ||||||||
|
|
|||||||||
Commercial real estate: | ||||||||||
Apartments | 382,421 | 324,666 | 17.8 | |||||||
Other permanent | 935,891 | 871,614 | 7.4 | |||||||
Construction and development | 169,123 | 178,372 | (5.2 | ) | ||||||
Unearned discounts and deferred loan fees | (3,201 | ) | (2,811 | ) | 13.9 | |||||
|
|
|||||||||
1,484,234 | 1,371,841 | 8.2 | ||||||||
|
|
|||||||||
Commercial business | 418,274 | 409,915 | 2.0 | |||||||
Deferred loan costs | 524 | 507 | 3.4 | |||||||
|
|
|||||||||
418,798 | 410,422 | 2.0 | ||||||||
|
|
|||||||||
Leasing and equipment finance: | ||||||||||
Loans: | ||||||||||
Equipment finance loans | 255,568 | 204,351 | 25.1 | |||||||
Deferred loan costs | 2,939 | 2,708 | 8.5 | |||||||
|
|
|||||||||
258,507 | 207,059 | 24.8 | ||||||||
|
|
|||||||||
Lease financings: | ||||||||||
Direct financing leases | 680,529 | 658,678 | 3.3 | |||||||
Sales-type leases | 36,735 | 37,645 | (2.4 | ) | ||||||
Lease residuals | 31,897 | 30,426 | 4.8 | |||||||
Unearned income and deferred lease costs | (95,388 | ) | (94,506 | ) | (0.9 | ) | ||||
Investment in leveraged leases | 16,955 | 17,169 | (1.2 | ) | ||||||
|
|
|||||||||
670,728 | 649,412 | 3.3 | ||||||||
|
|
|||||||||
929,235 | 856,471 | 8.5 | ||||||||
|
|
|||||||||
$ | 8,433,073 | $ | 8,546,699 | (1.3 | ) | |||||
|
|
|||||||||
Approximately 69% of the home equity loan portfolio at June 30, 2001 consists of closed-end loans, compared with 68% at December 31, 2000. In addition, at June 30, 2001, 45% of this portfolio carries a variable interest rate, compared with 47% at December 31, 2000. At June 30, 2001, the weighted average loan-to-value ratio for the home equity loan portfolio was 77%, unchanged from December 31, 2000.
The following table sets forth additional information about the loan-to-value ratios for TCFs home equity loan portfolio:
TCF continues to expand its commercial business and commercial real estate lending activity to borrowers located in its primary midwestern markets. At June 30, 2001, approximately 87% of TCFs commercial real estate loans outstanding were secured by properties located in its primary markets. In addition, approximately 98% of TCFs commercial business and commercial real estate loans are secured either by properties or underlying business assets.
Total loan and lease originations for TCFs leasing business were $264.3 million for the first six months of 2001, compared with $296.5 million for the same 2000 period. At June 30, 2001, the backlog of approved transactions related to TCFs leasing business totaled $141.5 million, compared with $165.6 million at December 31, 2000. Included in this portfolio at June 30, 2001 are $149.5 million of loans and leases secured by trucks and trailers, compared with $152.3 million at December 31, 2000. TCF has substantially reduced its originations in the transportation segment. TCFs expanded leasing activity is subject to the risk of cyclical downturns and other adverse economic developments affecting these industries and markets. TCFs ability to grow its lease portfolio is dependent upon its ability to place new equipment in service. In an adverse economic environment, there is a lower demand for some types of equipment which TCF leases, resulting in a decline in the amount of new equipment being placed into service. TCF Leasing has originated most of its portfolio during recent periods, and consequently the performance of this portfolio may not be reflective of future results and credit quality.
Loan and lease originations, including loans held for sale, for the first six months of 2001 and 2000 were as follows:
Six Months Ended June 30, | |||||||
|
|||||||
(In thousands) | 2001 | 2000 | |||||
|
|
||||||
Consumer (1) | $ | 741,559 | $ | 524,848 | |||
Commercial | 309,397 | 364,551 | |||||
Leasing and equipment finance | 264,287 | 296,493 | |||||
Residential real estate (1) | 1,114,412 | 427,612 | |||||
|
|
||||||
Total | $ | 2,429,655 | $ | 1,613,504 | |||
|
|
||||||
(1) Includes loans held for sale.
Allowance for Loan and Lease Losses
A summary of the activity of the allowance for loan and lease losses and selected statistics follows:
Three
Months Ended
June 30 , |
Six Months
Ended
June 30, |
|||||||||||||
|
|
|||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||
(Dollars in thousands) |
|
|
|
|
||||||||||
Balance at beginning of period | $ | 68,136 | $ | 56,775 | $ | 66,669 | $ | 55,755 | ||||||
Provision for credit losses | 5,422 | 5,383 | 7,847 | 6,373 | ||||||||||
Charge-offs | (5,026 | ) | (2,959 | ) | (7,285 | ) | (4,902 | ) | ||||||
Recoveries | 1,135 | 1,798 | 2,436 | 3,771 | ||||||||||
|
|
|
|
|||||||||||
Net charge-offs | (3,891 | ) | (1,161 | ) | (4,849 | ) | (1,131 | ) | ||||||
|
|
|
|
|||||||||||
Balance at end of period | $ | 69,667 | $ | 60,997 | $ | 69,667 | $ | 60,997 | ||||||
|
|
|
|
|||||||||||
Ratio of annualized net loan and lease charge-offs to average loans and leases outstanding | .19 | % | .06 | % | .11 | % | .03 | % | ||||||
Allowance for loan and lease losses as a percentage of total loans and leases at period end | .83 | % | .74 | % | ||||||||||
Additional information on the allowance for loan and lease losses follows:
At or For the Six Months Ended June 30, 2001 | At or For the Year Ended December 31, 2000 | ||||||||||||||||||||
|
|
||||||||||||||||||||
(Dollars in thousands) | Allowance for Loan and Lease Losses |
Total Loans
and Leases |
Allowance as a % of Portfolio |
Net Charge
Offs (Recoveries)(1) |
Allowance for Loan and Lease Losses |
Total Loans
and Leases |
Allowance as a % of Portfolio | Net Charge Offs (Recoveries) | |||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||
Commercial real estate | $ | 22,060 | $ | 1,484,234 | 1.49 | % | - | % | $ | 20,753 | $ | 1,371,841 | 1.51 | % | (.02 | )% | |||||
Commercial business | 11,012 | 418,798 | 2.63 | .03 | 9,668 | 410,422 | 2.36 | (.15 | ) | ||||||||||||
Consumer | 8,732 | 2,348,993 | .37 | .09 | 9,764 | 2,234,134 | .44 | .12 | |||||||||||||
Leasing and equipment finance | 9,257 | 929,235 | 1.00 | .82 | 7,583 | 856,471 | .89 | .33 | |||||||||||||
Unallocated | 16,139 | - | .19 | N.A. | 16,139 | - | .19 | N.A. | |||||||||||||
|
|
|
|
||||||||||||||||||
Subtotal | 67,200 | 5,181,260 | 1.30 | .19 | 63,907 | 4,872,868 | 1.31 | .09 | |||||||||||||
Residential real estate | 2,467 | 3,251,813 | .08 | - | 2,762 | 3,673,831 | .08 | - | |||||||||||||
|
|
|
|
||||||||||||||||||
Total | $ | 69,667 | $ | 8,433,073 | .83 | .11 | $ | 66,669 | $ | 8,546,699 | .78 | .05 | |||||||||
|
|
|
|
(1) Annualized.
N.A. Not applicable.
The ratio of annualized net loan charge-offs (recoveries) to average loans outstanding for TCFs consumer portfolio were .12% and .09% for the three and six months ended June 30, 2001, respectively, compared with (.01)% and .04% for the same periods of 2000. Included in the net loan and lease charge-offs for the second quarter and first six months of 2001 were net recoveries related to the consumer finance automobile loans of $428,000 and $942,000 respectively, compared with $875,000 and $1.1 million for the same periods of 2000.
As previously noted, TCF provided $5.4 million for credit losses in the second quarter of 2001, compared with $5.4 million for the same period of 2000 and $2.4 million for the first quarter of 2001. At June 30, 2001, the allowance for loan and lease losses totaled $69.7 million, compared with $66.7 million at December 31, 2000 and $68.1 million at March 31, 2001. The increase in the provision for credit losses and the allowance for loan and lease losses during the second quarter of 2001 reflects the impact of the growth in the higher-risk commercial loan and lease portfolios coupled with increased charge-offs in the leasing portfolio.
On an ongoing basis, TCFs loan and lease portfolios are reviewed and analyzed as to credit risk, performance, collateral value and quality. The allowance for loan and lease losses is maintained at a level believed to be appropriate by management to provide for probable loan and lease losses inherent in the portfolio. Managements judgment as to the amount of the allowance, including the allocated and unallocated elements, is a result of ongoing review of larger individual loans and leases, the overall risk characteristics of the portfolios, changes in the character or size of the portfolios, the level of non-performing assets, historical net charge-off amounts, geographic location and prevailing economic conditions. The allowance for loan and lease losses is established for probable losses inherent in TCFs loan and lease portfolios as of the balance sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known to require specific allowances. Loans and leases are charged off to the extent they are deemed to be uncollectible.
The amount of the allowance for loan and lease losses is highly dependent upon managements estimates of variables affecting valuation, appraisals of collateral, evaluations of performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans. Such estimates, appraisals, evaluations and cash flows may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees or properties. These estimates are reviewed periodically and adjustments, if necessary, are reported in the provision for credit losses in the periods in which they become known.
Non-Performing Assets
Non-performing assets, consisting of non-accrual loans and leases and other real estate owned, totaled $43.8 million, or .52% of net loans and leases at June 30, 2001, compared with $46.1 million, or .54% at December 31, 2000. Included in non-accrual leasing and equipment finance at June 30, 2001 are $1.5 million of leases that have been funded on a non-recourse basis by third-party financial institutions. Approximately 63% of non-performing assets at June 30, 2001 consist of, or are secured by, residential real estate. Non-performing assets are summarized in the following table:
June 30, | December 31, | |||||||
(Dollars in thousands) | 2001 | 2000 | ||||||
|
|
|||||||
Non-accrual loans and leases: | ||||||||
Consumer | $ | 13,397 | $ | 13,027 | ||||
Residential real estate | 5,985 | 4,829 | ||||||
Commercial real estate | 4,958 | 5,820 | ||||||
Commercial business | 665 | 236 | ||||||
Leasing and equipment finance, net | 7,981 | 7,376 | ||||||
|
|
|||||||
Total non-accrual loans and leases, net | 32,986 | 31,288 | ||||||
Non-recourse discounted lease rentals | 1,545 | 3,910 | ||||||
|
|
|||||||
Total non-accrual loans and leases, gross | 34,531 | 35,198 | ||||||
Other real estate owned | 9,294 | 10,869 | ||||||
|
|
|||||||
Total non-performing assets, gross | $ | 43,825 | $ | 46,067 | ||||
|
|
|||||||
Total non-performing assets, net | $ | 42,280 | $ | 42,127 | ||||
|
|
|||||||
Accruing loans and leases 90 days or more past due | $ | 6,741 | $ | 5,020 | ||||
|
|
|||||||
Gross non-performing assets as a percentage of net loans and leases | .52 | % | .54 | % | ||||
Gross non-performing assets as a percentage of total assets | .38 | % | .41 | % | ||||
The over 30-day delinquency rate on TCFs loans and leases (excluding loans held for sale and non-accrual loans and leases) was .65% of loans and leases outstanding at June 30, 2001, compared with .69% at year-end 2000. TCFs delinquency rates are determined using the contractual method. The following table sets forth information regarding TCFs over 30-day delinquent loan and lease portfolio, excluding loans held for sale and non-accrual loans and leases:
At June 30, 2001 | At December 31, 2000 | ||||||||||
|
|
||||||||||
Principal | Percentage of | Principal | Percentage of | ||||||||
(Dollars in thousands) | Balances | Portfolio | Balances | Portfolio | |||||||
|
|
|
|
||||||||
Consumer | $ | 22,129 | .95 | % | $ | 20,628 | .93 | % | |||
Residential real estate | 13,658 | .42 | 16,971 | .46 | |||||||
Commercial real estate | 101 | .01 | 1,793 | .13 | |||||||
Commercial business | 1,345 | .32 | 3,958 | .96 | |||||||
Leasing and equipment finance | 17,739 | 1.93 | 15,508 | 1.83 | |||||||
|
|
||||||||||
Total | $ | 54,972 | .65 | $ | 58,858 | .69 | |||||
|
|
TCFs over 30-day delinquency rate on total consumer loans was .95% at June 30, 2001, compared to .93% at year-end 2000. TCFs over 30-day delinquency on total leasing and equipment finance increased to 1.93% at June 30, 2001 from 1.83% at December 31, 2000. Included in delinquent leasing and equipment finance at June 30, 2001 are $1.5 million of leases that have been funded on a non-recourse basis by third-party financial institutions. Management continues to monitor the leasing and equipment finance and consumer loan portfolios, which will generally have higher delinquencies than other categories.
In addition to the non-accrual loans and leases, there were commercial real estate and commercial business loans with an aggregate principal balance of $58.4 million outstanding at June 30, 2001 for which management has concerns regarding the ability of the borrowers to meet existing repayment terms. This amount consists of loans that were classified for regulatory purposes as substandard or doubtful, or were to borrowers that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. This compares with $19.9 million of such loans at December 31, 2000. Although these loans are secured by commercial real estate or other corporate assets, they may be subject to future modifications of their terms or may become non-performing. The recorded investment in loans that are considered to be impaired was $8 million and $6.8 million at June 30, 2001 and December 31, 2000, respectively. The related allowance for credit losses was $1.7 million at June 30, 2001, compared with $1.3 million at December 31, 2000. All of the impaired loans were on non-accrual status. The average recorded investment in impaired loans during the three months ended June 30, 2001 was $8.4 million, compared with $7.7 million for the 2001 first quarter. Management monitors the performance and classification of such loans and leases and the financial condition of these borrowers.
Deposits
Checking, savings and money market deposits are an important source of lower cost funds and fee income for TCF. Deposits totaled $6.9 billion at June 30, 2001, up $24.3 million from December 31, 2000. The increase in deposits is net of the impact of the previously noted sale of one branch during the first six months of 2001. Lower interest-cost checking, savings and money market deposits totaled $4.3 billion, up $246.5 million from December 31, 2000, and comprised 62.6% of total deposits at June 30, 2001. The average annualized fee revenue per retail checking account for the first six months of 2001 was $207, compared with $175 for the comparable 2000 period. Higher interest-cost certificates of deposit decreased $222.2 million from December 31, 2000 as a result of the growth in other lower cost deposits, the availability of other, lower cost funding sources and TCFs reluctance to match higher certificate of deposit pricing by competitors. TCFs weighted-average rate for deposits, including non-interest bearing deposits, was 2.31% at June 30, 2001, compared with 3.12% at December 31, 2000.
TCF continued to expand its supermarket banking franchise by opening 7 new branches during the 2001 second quarter. TCF now has 222 supermarket branches, up from 207 such branches a year ago. Additional information regarding TCFs supermarket branches is as follows:
Supermarket Banking Summary: |
At or for
the Six Months
Ended June 30, |
||||||||||||
|
|||||||||||||
(Dollars in thousands) | 2001 | 2000 | Increase (Decrease) | % Change | |||||||||
|
|
|
|
||||||||||
Number of branches | 222 | 207 | 15 | 7.2 | % | ||||||||
Number of deposit accounts | 699,597 | 614,983 | 84,614 | 13.8 | |||||||||
Deposits: | |||||||||||||
Checking | $ | 544,111 | $ | 436,220 | $ | 107,891 | 24.7 | ||||||
Savings | 165,016 | 142,878 | 22,138 | 15.5 | |||||||||
Money market | 120,461 | 86,837 | 33,624 | 38.7 | |||||||||
Certificates | 312,339 | 305,214 | 7,125 | 2.3 | |||||||||
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|
|
|||||||||||
Total deposits | $ | 1,141,927 | $ | 971,149 | $ | 170,778 | 17.6 | ||||||
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|
|||||||||||
Average rate on deposits | 1.91 | % | 2.35 | % | (.44 | )% | (18.7 | ) | |||||
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|||||||||||
Total fees and other revenues (quarter ended) | $ | 35,074 | $ | 28,497 | $ | 6,577 | 23.1 | ||||||
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Total fees and other revenues (year-to-date) | $ | 64,710 | $ | 51,811 | $ | 12,899 | 24.9 | ||||||
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Consumer loans outstanding | $ | 263,328 | $ | 213,498 | $ | 49,830 | 23.3 | ||||||
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Borrowings
Borrowings totaled $3.6 billion as of June 30, 2001, up $387.3 million from year-end 2000. The increase was primarily due to increases of $150 million in FHLB advances, $135.9 million in treasury, tax and loan notes, $106.2 million in securities sold under repurchase agreements and $39 million in federal funds purchased, partially offset by decreases of $28.8 million in subordinated debt and $18.1 million in discounted lease rentals. Included in FHLB advances at June 30, 2001 are $1.8 billion of fixed-rate advances which are callable at par on certain anniversary dates and quarterly thereafter until maturity. If called, the FHLB will provide replacement funding at the then-prevailing market rate of interest for the remaining term-to-maturity of the advances, subject to standard terms and conditions. The weighted-average rate on borrowings decreased to 5.26% at June 30, 2001, from 6.23% at December 31, 2000. At June 30, 2001, borrowings with a maturity of one year or less totaled $1.4 billion.
On July 2, 2001, TCF exercised its right of redemption on the $28.8 million of 9.50% senior subordinated debentures at par plus accrued earnings to the date of redemption, in accordance with redemption provisions of the debentures.
Stockholders Equity
Stockholders equity at June 30, 2001 was $890.4 million, or 7.7% of total assets, down from $910.2 million, or 8.1% of total assets, at December 31, 2000. The decrease in stockholders equity is primarily due to the repurchase of 2.3 million shares of TCFs common stock at a cost of $88.1 million and the payment of $39.1 million in dividends on common stock, partially offset by net income of $100.2 million for the first six months of 2001. On April 30, 2001, TCFs Board of Directors authorized another repurchase of up to 5% of TCFs common stock, or approximately 3.9 million shares. At June 30, 2001, TCF has 4.2 million shares remaining in stock repurchase programs authorized by its Board of Directors. On July 24, 2001, TCF declared a quarterly dividend of 25 cents per common share, payable on August 31, 2001 to shareholders of record as of August 3, 2001.
MARKET RISK - INTEREST-RATE RISK
TCFs 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 Companys ability to manage its interest-rate risk. Although TCF manages other risks, such as credit and liquidity risk, in the normal course of its business, the Company considers interest-rate risk to be its most significant market risk. TCF, like most financial institutions, has a material interest-rate risk exposure to changes in both short-term and long-term interest rates as well as variable index interest rates (e.g., prime). Since TCF does not hold a trading portfolio, the Company is not exposed to market risk from trading activities.
Like most financial institutions, TCFs 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 TCFs 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 TCFs 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.
TCFs Asset/Liability Management Committee manages TCFs interest-rate risk based on interest rate expectations and other factors. The principal objective of TCFs 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. Managements 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, TCFs 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 TCFs longer-term FHLB advances. See Financial Condition - Borrowings. TCFs one-year adjusted interest-rate gap was a negative $353 million, or (3)% of total assets, at June 30, 2001, compared with a negative $215 million, or (2)% of total assets, at December 31, 2000.
Recent Accounting Developments
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142.
The Company is required to adopt the provisions of SFAS No. 141 immediately, for all business combinations initiated after July 1, 2001 and SFAS No. 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will no longer be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible assets with indefinite useful lives acquired in business combinations completed before July 1, 2001 will continue to be amortized until SFAS No. 142 is adopted on January 1, 2002.
Upon adoption of SFAS No. 142, TCF will be required to evaluate its existing intangible assets and goodwill that were acquired in prior purchase business combinations, and make any necessary reclassifications of intangible assets in order to conform with the new criteria of SFAS No. 141 for recognition apart from goodwill. Upon adoption of SFAS No. 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first quarter after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, as in the case of goodwill, the Company will be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 within the first quarter of 2002. Any impairment loss will be measured as of the date of adoption and recognized as a cumulative effect of a change in accounting principle during the first quarter of 2002.
As of the date of adoption, the Company expects to have unamortized goodwill in the amount of $145.5 million and unamortized identifiable intangible assets (deposit base intangibles) in the amount of $9.2 million, all of which will be subject to the transition provisions of SFAS Nos. 141 and 142. Amortization expense related to goodwill was $7.7 million ($7.5 million after-tax) and $3.9 million ($3.8 million after-tax) for the year ended December 31, 2000 and the six months ended June 30, 2001, respectively. Amortization of goodwill for both the years ended December 31, 2001 and 2002 is scheduled at $7.7 million ($7.6 million after-tax). Management has not determined the impact of adopting these Statements on TCFs financial statements, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle.
Earnings Teleconference
TCF hosts quarterly conference calls to discuss its financial results. Additional information regarding TCFs conference calls can be obtained from the investor relations section within TCFs web site at www.tcfexpress.com or contact TCFs Corporate Communications Department at (952) 745-2760.
Legislative, Legal and Regulatory Developments
Federal and state legislation imposes numerous legal and regulatory requirements on financial institutions. Future legislative or regulatory change, or changes in enforcement practices or court rulings, may have a dramatic and potentially adverse impact on TCF and its bank and other subsidiaries
Forward-Looking Information
This report and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, may contain forward-looking statements that deal with future results, plans or performance. In addition, TCFs 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. TCFs future results may differ materially from historical performance and forward-looking statements about TCFs 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 TCFs loan, lease and investment portfolios; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation or other significant uncertainties.
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
SELECTED QUARTERLY FIANANCIAL DATA (Unaudited) | |||||||||||||||||||||||||||||||||||||||||
(Dollars in
thousands,
except per-share data) |
At
June 30, 2001 |
At
March 31, 2001 |
At
Dec. 31, 2000 |
At
Sept. 30, 2000 |
At
June 30, 2000 |
At
March 31, 2000 |
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|
|
|
|
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SELECTED FINANCIAL CONDITION DATA: | |||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 11,628,663 | $ | 11,845,124 | $ | 11,197,462 | $ | 10,980,000 | $ | 10,905,705 | $ | 10,761,821 | |||||||||||||||||||||||||||||
Investments | 162,681 | 242,065 | 134,059 | 132,173 | 131,635 | 155,265 | |||||||||||||||||||||||||||||||||||
Securities available for sale | 1,843,871 | 1,928,338 | 1,403,888 | 1,413,218 | 1,436,836 | 1,470,532 | |||||||||||||||||||||||||||||||||||
Residential real estate loans | 3,251,813 | 3,450,311 | 3,673,831 | 3,797,023 | 3,866,659 | 3,932,944 | |||||||||||||||||||||||||||||||||||
Other loans and leases | 5,181,260 | 5,010,256 | 4,872,868 | 4,562,644 | 4,364,491 | 4,158,849 | |||||||||||||||||||||||||||||||||||
Deposits | 6,916,145 | 7,030,818 | 6,891,824 | 6,810,921 | 6,719,962 | 6,823,248 | |||||||||||||||||||||||||||||||||||
Borrowings | 3,571,501 | 3,675,428 | 3,184,245 | 3,115,066 | 3,205,732 | 2,975,080 | |||||||||||||||||||||||||||||||||||
Stockholders' equity | 890,369 | 895,066 | 910,220 | 859,444 | 807,382 | 780,311 | |||||||||||||||||||||||||||||||||||
SELECTED OPERATIONS DATA: | |||||||||||||||||||||||||||||||||||||||||
Interest income | $ | 212,726 | $ | 212,561 | $ | 214,408 | $ | 210,709 | $ | 204,407 | $ | 197,157 | |||||||||||||||||||||||||||||
Interest expense | 93,448 | 98,770 | 103,584 | 100,035 | 94,209 | 90,317 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
Net interest income | 119,278 | 113,791 | 110,824 | 110,674 | 110,198 | 106,840 | |||||||||||||||||||||||||||||||||||
Provision for credit losses | 5,422 | 2,425 | 4,711 | 3,688 | 5,383 | 990 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
Net interest income after provision for credit losses | 113,856 | 111,366 | 106,113 | 106,986 | 104,815 | 105,850 | |||||||||||||||||||||||||||||||||||
|
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|
|
|
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Non-interest income: | |||||||||||||||||||||||||||||||||||||||||
Fees and other revenues | 95,652 | 80,741 | 86,343 | 84,069 | 81,308 | 71,743 | |||||||||||||||||||||||||||||||||||
Gains on sales of branches | - | 3,316 | 8,947 | - | 3,866 | - | |||||||||||||||||||||||||||||||||||
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|
|
|
|
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Total non-interest income | 95,652 | 84,057 | 95,290 | 84,069 | 85,174 | 71,743 | |||||||||||||||||||||||||||||||||||
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Non-interest expense: | |||||||||||||||||||||||||||||||||||||||||
Amortization of goodwill | 1,945 | 1,944 | 1,940 | 1,937 | 1,915 | 1,914 | |||||||||||||||||||||||||||||||||||
Other non-interest expense | 124,009 | 116,012 | 114,641 | 113,189 | 112,200 | 109,466 | |||||||||||||||||||||||||||||||||||
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|
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|
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Total non-interest expense | 125,954 | 117,956 | 116,581 | 115,126 | 114,115 | 111,380 | |||||||||||||||||||||||||||||||||||
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Income before income tax expense | 83,554 | 77,467 | 84,822 | 75,929 | 75,874 | 66,213 | |||||||||||||||||||||||||||||||||||
Income tax expense | 31,540 | 29,244 | 32,657 | 29,232 | 29,212 | 25,492 | |||||||||||||||||||||||||||||||||||
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Net income | $ | 52,014 | $ | 48,223 | $ | 52,165 | $ | 46,697 | $ | 46,662 | $ | 40,721 | |||||||||||||||||||||||||||||
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Per common share: | |||||||||||||||||||||||||||||||||||||||||
Basic earnings | $ | .68 | $ | .62 | $ | .67 | $ | .60 | $ | .60 | $ | .51 | |||||||||||||||||||||||||||||
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Diluted earnings | $ | .67 | $ | .62 | $ | .66 | $ | .59 | $ | .59 | $ | .51 | |||||||||||||||||||||||||||||
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Diluted cash earnings (1) | $ | .70 | $ | .64 | $ | .68 | $ | .61 | $ | .61 | $ | .53 | |||||||||||||||||||||||||||||
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Dividends declared | $ | .25 | $ | .25 | $ | .2125 | $ | .2125 | $ | .2125 | $ | .1875 | |||||||||||||||||||||||||||||
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MORTGAGE BANKING REVENUES: | |||||||||||||||||||||||||||||||||||||||||
Servicing income | $ | 4,181 | $ | 3,760 | $ | 3,739 | $ | 3,141 | $ | 2,861 | $ | 2,901 | |||||||||||||||||||||||||||||
Less: Mortgage servicing amortization | 4,076 | 2,504 | 1,779 | 1,207 | 1,130 | 1,210 | |||||||||||||||||||||||||||||||||||
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Net servicing income | 105 | 1,256 | 1,960 | 1,934 | 1,731 | 1,691 | |||||||||||||||||||||||||||||||||||
Gains on sales of loans | 3,373 | 594 | 637 | 215 | 246 | 249 | |||||||||||||||||||||||||||||||||||
Other income | 1,359 | 668 | 563 | 600 | 479 | 213 | |||||||||||||||||||||||||||||||||||
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Total mortgage banking | $ | 4,837 | $ | 2,518 | $ | 3,160 | $ | 2,749 | $ | 2,456 | $ | 2,153 | |||||||||||||||||||||||||||||
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FINANCIAL RATIOS: (2) | |||||||||||||||||||||||||||||||||||||||||
Return on average assets | 1.78 | % | 1.71 | % | 1.89 | % | 1.71 | % | 1.73 | % | 1.53 | % | |||||||||||||||||||||||||||||
Cash return on average assets (1) | 1.84 | 1.77 | 1.96 | 1.78 | 1.80 | 1.60 | |||||||||||||||||||||||||||||||||||
Return on average realized common equity | 23.22 | 21.47 | 23.17 | 21.52 | 22.19 | 19.24 | |||||||||||||||||||||||||||||||||||
Return on average common equity | 23.37 | 21.54 | 23.78 | 22.55 | 23.72 | 20.55 | |||||||||||||||||||||||||||||||||||
Cash return on average realized common equity (1) | 24.07 | 22.31 | 24.01 | 22.39 | 23.09 | 20.12 | |||||||||||||||||||||||||||||||||||
Average total equity to average assets | 7.61 | 7.93 | 7.95 | 7.60 | 7.28 | 7.44 | |||||||||||||||||||||||||||||||||||
Average realized tangible equity to average assets | 6.28 | 6.51 | 6.66 | 6.43 | 6.23 | 6.35 | |||||||||||||||||||||||||||||||||||
Average tangible equity to average assets | 6.23 | 6.48 | 6.45 | 6.06 | 5.72 | 5.84 | |||||||||||||||||||||||||||||||||||
Net interest margin (3) | 4.40 | 4.35 | 4.33 | 4.38 | 4.38 | 4.32 | |||||||||||||||||||||||||||||||||||
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(1) | Excludes amortization and reduction of goodwill, net of income tax benefit. | ||||||||||||||||||||||||||||||||||||||||
(2) | Annualized. | ||||||||||||||||||||||||||||||||||||||||
(3) | Net interest income divided by average interest-earning assets. | ||||||||||||||||||||||||||||||||||||||||
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average
Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
Six Months Ended June 30, | |||||||||||||||||||||
|
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2001 | 2000 | ||||||||||||||||||||
|
|
||||||||||||||||||||
(Dollars in thousands) |
Average
Balance |
Interest (1) | Yields and Rates (2) |
Average
Balance |
Interest (1) | Yields and Rates (2) | |||||||||||||||
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|
|
|
|
|
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Assets: | |||||||||||||||||||||
Investments | $ | 163,405 | $ | 4,786 | 5.86 | % | $ | 137,401 | $ | 4,761 | 6.93 | % | |||||||||
Securities available for sale (3) | 1,693,749 | 55,968 | 6.61 | 1,546,089 | 51,020 | 6.60 | |||||||||||||||
Loans held for sale | 351,705 | 12,237 | 6.96 | 211,481 | 8,095 | 7.66 | |||||||||||||||
Loans and leases: | |||||||||||||||||||||
Residential real estate | 3,441,536 | 123,012 | 7.15 | 3,926,183 | 138,979 | 7.08 | |||||||||||||||
Commercial real estate | 1,423,174 | 57,673 | 8.10 | 1,138,888 | 48,371 | 8.49 | |||||||||||||||
Commercial business | 408,670 | 16,484 | 8.07 | 360,438 | 15,972 | 8.86 | |||||||||||||||
Consumer | 2,270,555 | 109,142 | 9.61 | 2,094,362 | 104,945 | 10.02 | |||||||||||||||
Leasing and equipment finance | 899,131 | 45,985 | 10.23 | 558,437 | 29,421 | 10.54 | |||||||||||||||
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|
|
|
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Total loans and leases (4) | 8,443,066 | 352,296 | 8.35 | 8,078,308 | 337,688 | 8.36 | |||||||||||||||
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|
|
|
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Total interest-earning assets | 10,651,925 | 425,287 | 7.99 | 9,973,279 | 401,564 | 8.05 | |||||||||||||||
|
|
||||||||||||||||||||
Other assets (5) | 847,534 | 752,913 | |||||||||||||||||||
|
|
||||||||||||||||||||
Total assets | $ | 11,499,459 | $ | 10,726,192 | |||||||||||||||||
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|
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Liabilities and Stockholders' Equity: | |||||||||||||||||||||
Non-interest bearing deposits | $ | 1,509,919 | $ | 1,279,164 | |||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||
Checking | 764,636 | 2,175 | .57 | 741,052 | 2,188 | .59 | |||||||||||||||
Savings | 999,221 | 4,560 | .91 | 1,061,404 | 5,885 | 1.11 | |||||||||||||||
Money market | 871,020 | 12,653 | 2.91 | 716,545 | 10,345 | 2.89 | |||||||||||||||
Certificates | 2,710,817 | 75,261 | 5.55 | 2,846,714 | 73,986 | 5.20 | |||||||||||||||
|
|
|
|
||||||||||||||||||
Total interest-bearing deposits | 5,345,694 | 94,649 | 3.54 | 5,365,715 | 92,404 | 3.44 | |||||||||||||||
|
|
|
|
||||||||||||||||||
Total deposits | 6,855,613 | 94,649 | 2.76 | 6,644,879 | 92,404 | 2.78 | |||||||||||||||
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|
|
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Borrowings: | |||||||||||||||||||||
Securities sold under repurchase agreements and federal funds purchased | 1,215,055 | 32,033 | 5.27 | 842,737 | 25,421 | 6.03 | |||||||||||||||
FHLB advances | 1,997,382 | 56,158 | 5.62 | 1,882,260 | 53,839 | 5.72 | |||||||||||||||
Discounted lease rentals | 154,917 | 6,277 | 8.10 | 167,218 | 6,952 | 8.31 | |||||||||||||||
Other borrowings | 94,497 | 3,101 | 6.56 | 167,833 | 5,910 | 7.04 | |||||||||||||||
|
|
|
|
||||||||||||||||||
Total borrowings | 3,461,851 | 97,569 | 5.64 | 3,060,048 | 92,122 | 6.02 | |||||||||||||||
|
|
|
|
||||||||||||||||||
Total interest-bearing liabilities | 8,807,545 | 192,218 | 4.36 | 8,425,763 | 184,526 | 4.38 | |||||||||||||||
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|
|
|
||||||||||||||||||
Total deposits and borrowings | 10,317,464 | 192,218 | 3.73 | 9,704,927 | 184,526 | 3.80 | |||||||||||||||
|
|
||||||||||||||||||||
Other liabilities (5) | 289,520 | 230,174 | |||||||||||||||||||
|
|
||||||||||||||||||||
Total liabilities | 10,606,984 | 9,935,101 | |||||||||||||||||||
Stockholders' equity (5) | 892,475 | 791,091 | |||||||||||||||||||
|
|
||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 11,499,459 | $ | 10,726,192 | |||||||||||||||||
|
|
||||||||||||||||||||
Net interest income and margin | $ | 233,069 | 4.38 | % | $ | 217,038 | 4.35 | % | |||||||||||||
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|
|
|
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|
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(1) | Tax-exempt income was not significant and thus has not been presented on a tax equivalent basis. Tax-exempt income of $82,000 and $93,000 was recognized during the six months ended June 30, 2001 and 2000, respectively. | ||||||||||||||||||||
(2) | Annualized. | ||||||||||||||||||||
(3) | Average balance and yield of securities available for sale are based upon the historical amortized cost. | ||||||||||||||||||||
(4) | Average balance of loans and leases includes non-accrual loans and leases, and is presented net of unearned income. | ||||||||||||||||||||
(5) | Average balance is based upon month-end balances. | ||||||||||||||||||||
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 TCFs financial condition. TCF is and expects to become engaged in a number of foreclosure proceedings and other collection actions as part of its loan collection activities. From time to time, borrowers have also brought actions against TCF, in some cases claiming substantial amounts of damages. There have been a considerable number of consumer class actions brought against banks and financial service companies and TCF is subject to the risk of such actions.
On November 2, 1993, TCF National Bank Minnesota (TCF Minnesota, now known as TCF National Bank) filed a complaint in the United States Court of Federal Claims seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. TCF Minnesotas claim is based on the governments breach of contract in connection with TCF Minnesotas 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 Minnesotas complaint. TCF Minnesotas complaint involves approximately $80.3 million in supervisory goodwill.
In August 1995, TCF National Bank Michigan (TCF Michigan, now known as TCF National Bank) filed with the United States Court of Federal Claims a complaint seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. TCF Michigans claim is based on the governments breach of contract in connection with TCF Michigans 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 Michigans complaint. TCF Michigans complaint involves approximately $87.3 million in supervisory goodwill.
On July 1, 1996, the United States Supreme Court issued a decision affirming the August 30, 1995 decision of the United States Court of Appeals for the Federal Circuit, which decision had affirmed the Court of Federal Claims liability determinations in three other supervisory goodwill cases, consolidated for review under the title Winstar Corp. v. United States , 116 S.Ct. 2432 (1996). In rejecting the United States consolidated appeal from the Court of Federal Claims decisions, the Supreme Court held in Winstar that the United States had breached contracts it had entered into with the plaintiffs which provided for the treatment of supervisory goodwill, created through the plaintiffs acquisitions of failed or failing savings institutions, as an asset that could be counted toward regulatory capital. Two of the three cases consolidated in the Supreme Court proceedings have since been tried before the Court of Federal Claims on the issue of damages, and the third was settled without trial. In one of the cases that proceeded to a damages trial, Glendale Federal Bank, FSB v. United States , 43 Fed. Cl. 390 (1999), the Court of Federal Claims issued a decision on April 9, 1999, awarding the plaintiff in that case $908,948,000 in restitution and non-overlapping reliance damages. The other case which went to trial was settled in June 1998.
The Glendale damages decision was appealed to the United States Court of Appeals for the Federal Circuit, and on February 16, 2001, the Federal Circuit vacated the trial courts award of damages. The Federal Circuit held that the trial courts award of approximately $530 million in restitution was erroneous given the facts of the case. The Federal Circuit concluded that for purposes of measuring the loss suffered by Glendale as a result of the Governments breach, reliance damages provided a firmer and more rational basis than the alternative damages theories argued by the parties. The Federal Circuit did not affirm or reverse the trial courts award of approximately $380 million in non- overlapping post-breach reliance damages, but instead remanded the case to the Court of Federal Claims for a determination of the total reliance damages to which Glendale may be entitled.
On December 22, 1997, the Court of Federal Claims issued a decision finding the existence of contracts and governmental breaches of those contracts in four other supervisory goodwill cases, consolidated for purposes of that decision only under the title California Federal Bank v. United States , 39 Fed. Cl. 753 (1997). In reaching its decision, the Court of Federal Claims rejected a number of common issue defenses that the government has raised in a number of supervisory goodwill cases. In November 1998, the Court of Federal Claims issued another decision in the California Federal case prohibiting the plaintiff in that case from offering evidence as to a lost profits theory of damages. A two-month trial regarding the plaintiffs other damages theories in that case was concluded in early March 1999. On April 21, 1999, the Court of Federal Claims entered judgment for the plaintiff in California Federal , and awarded the plaintiff $22,966,523.42 in damages under a cost of replacement capital theory. California Federal Bank v. United States, 43 Fed Cl. 445 (1999). The California Federal decision was appealed to the United States Court of Appeals for the Federal Circuit, and on April 2, 2001, the Federal Circuit affirmed-in-part the judgment of the Court of Federal Claims, vacated that judgment in part, and remanded the case for further proceedings in the trial court. The Federal Circuit affirmed the Court of Federal Claims decision on liability, and held that the parties had entered into supervisory goodwill contracts and that the government had breached these contracts. With respect to damages issues, the Federal Circuit rejected the plaintiffs argument that the Court of Federal Claims had erred in limiting damages under a cost of replacement capital theory to floatation costs, holding that it found no clear error in the [trial] courts factual finding that the floatation costs provided an appropriate measure of Cal Feds damages incurred in replacing the supervisory goodwill with tangible capital. The Federal Circuit also held that it found no fault with the Court of Federal Claims denial of restitution damages. The Federal Circuit held that the Court of Federal Claims had erred by not permitting the plaintiff to present evidence on its lost profits claim, and remanded for a trial on that claim. The plaintiff has sought rehearing of the Federal Circuits decision with respect to the restitution and cost of replacement capital claims, and the government has sought rehearing of the Federal Circuits liability decision. Both parties rehearing requests are pending.
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 governments 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 Courts decisions in these cases will be appealed.
The government has indicated that it will have a number of affirmative defenses against goodwill litigation filed against it. The TCF Minnesota and TCF Michigan actions involve a variety of different types of transactions, contracts and contract provisions. There can be no assurance that the U.S. Supreme Court decision in Winstar or liability and damages decisions in Glendale , California Federal and other cases will mean that a similar result would be obtained in the actions filed by TCF Minnesota and TCF Michigan. There also can be no assurance that the government will be determined liable in connection with the loss of supervisory goodwill by either TCF Minnesota or TCF Michigan or, even if a determination favorable to TCF Minnesota or TCF Michigan is made on the issue of the governments liability, that a measure of damages will be employed that will permit any recovery on TCF Minnesotas or TCF Michigans 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 Minnesotas or TCF Michigans 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 .
On May 9, 2001, the Annual Meeting of the shareholders of TCF was held to obtain the approval of shareholders of record as of March 16, 2001 in connection with matter indicated below. Following is a brief description of the matter voted on at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker nonvotes, as to the matter:
Vote | ||||||||
|
||||||||
Against or | Broker | |||||||
For | Withheld | Abstain | Nonvote | |||||
|
|
|
|
|||||
1. Election of Directors | ||||||||
Luella G. Goldberg | 68,709,739 | 655,722 | N/A | N/A | ||||
George G. Johnson | 68,711,615 | 653,846 | N/A | N/A | ||||
Lynn A. Nagorske | 68,705,234 | 660,227 | N/A | N/A | ||||
Ralph Strangis | 67,817,634 | 1,547,827 | N/A | N/A |
Item 5. Other Information .
None.
Item 6. Exhibits and Reports on Form 8-K .
(a) |
Exhibits.
|
See Index to Exhibits on pages 33 and 34 of this
report.
|
|
(b) |
Reports on Form 8-K.
|
A Current Report on Form 8-K, dated May 9, 2001, was submitted furnishing certain investor presentation materials under Item 9 of Form 8-K. |
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: August 7, 2001
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
Exhibit Number | Description | Sequentially Numbered Page |
|
|
|
3(b)* | Restated Bylaws of TCF Financial Corporation, as amended and restated through October 25, 1999; as amended by amendment adopted April 28, 2000 [incorporated by reference to Exhibit 3(b) to TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, No. 001-10253]; and as amended by amendment adopted January 22, 2001 | |
|
||
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(c)* | Amended and Restated TCF Financial Corporation Executive Deferred Compensation Plan as amended and restated effective as of January 1, 2000 [incorporated by reference to Exhibit 10(c) of TCF Financial Corporations Annual Report on Form 10-K for the year ended December 31, 1999, No. 001-10253]; as amended by amendment adopted April 30, 2001 |
|
|
||
10(d)* | Amended and Restated Trust Agreement for TCF Financial Corporation Executive Deferred Compensation Plan effective September 1, 1998; amendment adopted effective November 1, 1998 [incorporated by reference to Exhibit 10(d) to TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253]; Restated Trust Agreement as executed with First National Bank in Sioux Falls as trustee effective as of October 1, 2000; as amended by amendment adopted April 30, 2001 |
|
|
||
10(j)* | Supplemental Employee Retirement Plan, as amended and restated effective July 21, 1997 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 001-10253]; as amended effective September 30, 1998 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253]; as further amended on May 11, 1999 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, No. 001-10253]; as amended by amendment adopted January 24, 2000 [incorporated by reference to Exhibit 10(l) of TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, No. 001-10253]; and as amended by amendment adopted April 30, 2001 |
|
|
||
10(k)* | Trust Agreement for TCF Financial Corporation Supplemental Employee Retirement Plan, dated August 21, 1991 [incorporated by reference to Exhibit 10.16 to TCF Financial Corporations Registration Statement on Form S-2, filed November 15, 1991, No. 33-43988]; as amended on October 20, 1997 [incorporated by reference to Exhibit 10(n) to TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 001-10253]; and as amended by amendment adopted on April 30, 2001 |
|
|
||
10(l)* | TCF Financial Corporation Senior Officer Deferred Compensation Plan as amended and restated effective as of January 1, 2000 [incorporated by reference to Exhibit 10(n) of TCF Financial Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2000, No. 001-10253]; and as amended by amendment adopted April 30, 2001 |
|
|
||
10(m)* | Amended and Restated Trust Agreement for TCF Financial Corporation Senior Officer Deferred Compensation Plan effective September 1, 1998; amendment adopted effective November 1, 1998 [incorporated by reference to Exhibit 10(p) to TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253]; Restated Trust Agreement as executed with First National Bank in Sioux Falls as trustee effective as of October 1, 2000; as amended by amendment adopted April 30, 2001 |
|
|
||
10(r)* | TCF Directors Deferred Compensation Plan [incorporated by reference to Plan filed with registrants definitive proxy statement dated March 15, 1995, No. 001-10253]; as amended October 22, 1996 [incorporated by reference to Exhibit 10(x) to TCF Financial Corporations Annual Report on Form 10-K for the year ended December 31, 1996, No. 001-10253]; amendment adopted effective September 30, 1998 [incorporated by reference to Exhibit 10(v) to TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, No. 001-10253]; as amended on May 11, 1999 [incorporated by reference to Exhibit 10(v) to TCF Financial Corporations Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, No.001-10253]; and as further amended by amendment adopted April 30, 2001 |
|
|
||
10(s)* | Trust Agreement for TCF Directors Compensation Plan; as amended by amendment adopted April 30, 2001 |
|
|
||
11* | Computation of Earnings Per Share |
|
* Filed Herein
3(b)
EXCERPT FROM MINUTES
BOARD OF DIRECTORS MEETING
TCF FINANCIAL CORPORATION
January 22, 2001
Following discussion, and upon motion duly made, seconded and carried, the following resolutions were adopted:
RESOLVED, that Article II, Section 13(i)(ii) of the Bylaws is amended to read as follows:
Nominations of candidates for election as directors at any annual meeting of stockholders may be made (i) by, or at the direction of, a majority of the Personnel Committee of the Board of Directors or (ii) by any stockholder of record entitled to vote at such annual meeting.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby certify that the foregoing is a true and correct copy of excerpt of minutes of the Board of Directors of the Corporation meeting held on January 22, 2001 and that the minutes have not been modified or rescinded as of the date hereof.
(Corporate Seal) | |
Dated: July 2, 2001 | |
/s/ Gregory J. Pulles | |
|
|
Gregory J. Pulles |
10(c), (d), (j), (k), (l), (m), (r), (s)
SECRETARIAL CERTIFICATION
INDEPENDENT SUBCOMMITTEE
OF THE
PERSONNEL/SHAREHOLDER RELATIONS COMMITTEE
OF
TCF FINANCIAL CORPORATION
April 30, 2001
******************************************************************************
Following discussion, and upon motion duly made, seconded and carried, the following resolutions were adopted:
WHEREAS, the Independent Sub-Committee of the Personnel Committee has authority to recommend amendments to the plan and trust of the Executive Deferred, Senior Officer and Directors Deferred Compensation Plans and Trusts and the Board of Directors has authority to approve such amendments (subject to participant consent, where required); and
WHEREAS,
the Independent Sub-Committee of the Personnel Committee has the authority to
approve amendments to the Supplemental Employee Retirement Plan (SERP) Plan
and Trust; and
NOW, THEREFORE, IT IS HEREBY
RESOLVED,
that the following Appendix is hereby added to the Executive, Senior Officer
and Directors Deferred Compensation Plans and Trusts and to the SERP Plan and
Trust, effective May 16, 2001:
APPENDIX RE: IRS NOTICE
2000-56
Notwithstanding anything to the contrary in the
Plan or Trust, effective on and after May 16, 2001, TCF Financial stock or
other assets contributed to the Trust by TCF Financial or any other Company for
the benefit of employees or service providers of TCF Financial or such Company
are subject to the claims of creditors (in the event of insolvency) of both TCF
Financial and such Company. In
addition, such stock and assets are subject to the claims of creditors (in the
event of insolvency) of any Company from which benefits are due to a
participant or beneficiary under the terms of the Plan. Nothing in this
Appendix, however, shall relieve any Company of its obligation to pay any
benefits due from the Company to a participant or beneficiary under the terms
of the Plan.
Notwithstanding anything to the contrary in the Plan or Trust, effective on and after May 16, 2001, any TCF Financial stock or other assets not transferred to a Companys employees or their beneficiaries will revert to TCF Financial upon termination of the Trust.
***********************************************
FURTHER RESOLVED, that Section 5(l) is hereby added to the Executive Deferred and Senior Officer Deferred compensation Plans reading as follows, and Section III(c), second paragraph, first clause of the SERP Plan is hereby amended in full to read as follows:
Effective for distributions commencing on or after May 16, 2001, an Eligible Employee may elect to have benefits due under this Plan distributed in any one of the forms allowed by the Plan, provided that the election is in writing and is executed and delivered to TCF Financial or to its Corporate Secretary (or designee) on behalf of TCF Financial, no later than one year (365 days) before such Employees termination of employment or other distribution event.
FURTHER RESOLVED, that Section 5.a.of the Directors Deferred Compensation Plan is hereby amended in full to read as follows:
Effective
for distributions commencing on or after May 16, 2001, on or about the 30
th
day following a Directors termination of service on all boards of directors of
the Companies, the balance credited to the Directors Account shall be paid in
one single distribution of TCF Stock or in annual installment distributions of
TCF Stock over the number of years directed by the Director in an election made
by the Director, provided that such election is in writing and is executed and
delivered to the Committee or the Secretary, on behalf of the Committee, no
later than one year before such Directors termination of service.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby certify that the foregoing is a true and correct copy of excerpt of minutes of the Personnel/Shareholder Relations Committee TCF Financial Corporation meeting held on April 30, 2001 and that the minutes have not been modified or rescinded as of the date hereof.
(Corporate Seal) | |
Dated: July 2, 2001 | |
/s/ Gregory J. Pulles | |
|
|
Gregory J. Pulles |
Exhibit 11 - Computation of Earnings Per Common Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Dollars in thousands, except per-share data)
(Unaudited)
Computations of Basic Earnings Per Common | Three Months Ended | Six Months Ended | |||||||||||||
Share for Statement of Operations: | June 30, | June 30, | |||||||||||||
|
|
|
|||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||
|
|
|
|
||||||||||||
Net income | $ | 52,014 | $ | 46,662 | $ | 100,237 | $ | 87,383 | |||||||
|
|
|
|
||||||||||||
Weighted average common shares outstanding | 76,243,092 | 78,340,026 | 76,708,337 | 79,159,831 | |||||||||||
|
|
|
|
||||||||||||
Basic earnings per common share | $ | .68 | $ | .60 | $ | 1.31 | $ | 1.10 | |||||||
|
|
|
|
||||||||||||
Computation of Diluted Earnings Per Common
Share for Statements of Operations: |
|||||||||||||||
|
|||||||||||||||
Net income | $ | 52,014 | $ | 46,662 | $ | 100,237 | $ | 87,383 | |||||||
|
|
|
|
||||||||||||
Weighted average number of common shares outstanding adjusted for effect of dilutive securities: | |||||||||||||||
Weighted average common shares outstanding used in basic earnings per common share calculation | 76,243,092 | 78,340,026 | 76,708,337 | 79,159,831 | |||||||||||
Net dilutive effect of: | |||||||||||||||
Stock option plans | 148,417 | 82,456 | 147,355 | 77,012 | |||||||||||
Restricted stock plans | 822,015 | 587,035 | 824,730 | 513,436 | |||||||||||
|
|
|
|
||||||||||||
77,213,524 | 79,009,517 | 77,680,422 | 79,750,279 | ||||||||||||
|
|
|
|
||||||||||||
Diluted earnings per common share | $ | .67 | $ | .59 | $ | 1.29 | $ | 1.10 | |||||||
|
|
|
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