TCF Bank 2003 Annual Report Download - page 20

18 TCF Financial Corporation and Subsidiaries
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s discussion and analysis of the consolidated financial
condition and results of operations of TCF Financial Corporation
(“TCF” or the “Company”) should be read in conjunction with the
consolidated financial statements and other financial data begin-
ning on page 48.
OVERVIEW
TCF is a national financial holding company located in Wayzata,
Minnesota. Its principal subsidiary, TCF National Bank, is
headquartered in Minnesota and had 401 banking offices in
Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana
at December 31, 2003.
TCF provides convenient financial services through multiple chan-
nels to customers located primarily in the Midwest. TCF has developed
products and services designed to meet the needs of all consumers.
The Company focuses on attracting and retaining customers through
service and convenience, including branches that are open seven
days a week and on most holidays, extensive full-service supermarket
branch and automated teller machine (“ATM”) networks, and tele-
phone and Internet banking. TCF’s philosophy is to generate net
interest income and fees and other revenue growth through business
lines that emphasize higher yielding assets and lower or no interest-
cost deposits. The Company’s growth strategies include new branch
expansion and the development of new products and services. New
products and services are designed to build on existing businesses
and expand into complementary products and services through
strategic initiatives.
TCF’s core businesses are comprised of traditional and supermar-
ket bank branches, campus banking, EXPRESS TELLER®ATMs, VISA®
debit cards, commercial lending, small business banking, consumer
lending, mortgage banking, leasing and equipment finance and
investment, brokerage and insurance services. TCF emphasizes the
“Totally Free” checking account as its anchor account, which
provides opportunities to cross sell other convenience products and
services and generate additional fee income.
TCF has opened 239 new branches since January 1, 1998; 196
supermarket branches and 43 traditional branches. Opening new
branches is an integral part of TCF’s growth strategy for generating
new deposit accounts and the related revenue that is associated
with the accounts and other products. New branches typically pro-
duce net losses during the first 24 - 30 months of operations before
they become profitable, and therefore the level and timing of new
branch expansion can have a significant impact on TCF’s reported
profitability. TCF’s growth in checking accounts is primarily occurring
in new branches with growth in older, mature branches being slower
and more difficult to generate. During 2003, TCF closed twelve
supermarket branches and one traditional branch. Closure of the
twelve supermarket branches was the result of the supermarket
owner closing the stores and discontinuing TCF’s license agreements
for these locations. The deposits in all these branches were transferred
to other nearby branches. The success of TCF’s branch expansion is
dependent on the continued long-term success and viability of
branch banking. Success in the supermarket branches is also depen-
dent on the success and viability of the supermarket branch locations.
Economic slowdowns, financial or labor difficulties and competitive
pressures from new grocery retailers may have an adverse impact on
the supermarket industry and therefore reduce customer activity in
TCF’s supermarket branches. TCF is subject to the risk, among others,
that its license for its supermarket branches will terminate in con-
nection with the sale or closure of a store by a supermarket chain.
TCF’s lending strategy is to originate high credit quality, primarily
secured, loans and leases. Commercial loans are generally made on
local properties or to local customers, and are virtually all secured.
TCF’s largest core lending business is its consumer home equity loan
operation, which offers fixed- and variable-rate loans and lines of
credit secured by residential real estate properties. The leasing
and equipment finance businesses consist of Winthrop Resources
Corporation (“Winthrop”), a leasing company that leases technology
and data processing equipment to companies nationwide and
TCF Leasing, Inc. (“TCF Leasing”), a general leasing and equipment
finance leasing business. TCF’s leasing and equipment finance
businesses operate in all 50 states.
As a primarily secured lender, TCF emphasizes credit quality over
asset growth. As a result, TCF’s credit losses are generally lower than
those experienced by other banks. The allowance for loan and lease
losses, while generally lower as a percent of loans and leases than the
average in the banking industry, reflects the lower historical charge-
offs and management’s expectation of the risk of loss inherent in
the loan and lease portfolio. See “Consolidated Financial Condition
Analysis – Allowance for Loan and Lease Losses.”