TCF Bank 2004 Annual Report Download - page 48

46 TCF Financial Corporation and Subsidiaries
Summary of Critical Accounting Estimates Critical
accounting estimates occur in certain accounting policies and
procedures and are particularly susceptible to significant change.
Policies that contain critical accounting estimates include the
determination of the allowance for loan and lease losses, mortgage
servicing rights, income taxes, lease financings and pension liability
and expenses. See Note 1 of Notes to Consolidated Financial
Statements for further discussion of critical accounting estimates.
Recent Accounting Developments In December 2004, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 123R, Share-Based Payment which
revised SFAS No. 123, Accounting for Stock-Based Compensation.
This Statement supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related implementation guidance and
amends SFAS No. 95, Statement of Cashflows. It requires that all
stock-based compensation now be measured at fair value and rec-
ognized as expense in the income statement. This Statement also
clarifies and expands guidance on measuring fair value, requires
estimation of forfeitures when determining expense, and requires
that excess tax benefits be shown as financing cash inflows versus
a reduction of taxes paid in the statement of cashflows. Various
other changes are also required. This statement is effective begin-
ning July 1, 2005. TCF adopted the recognition provisions of SFAS123
in January 2000. TCF expects no significant effect on TCF’s financial
statements upon adoption of this Statement.
Fourth Quarter Summary In the fourth quarter of 2004, TCF
reported net income of $67.4 million, compared with $59.5 million in
the fourth quarter of 2003. Diluted earnings per common share was
50 cents for the fourth quarter of 2004, compared with 43 cents for
the fourth quarter of 2003. TCF opened 12 new branches in the fourth
quarter of 2004, of which four were supermarket branches.
Net interest income was $126.5 million and $119.1 million for the
quarter ended December 31, 2004 and 2003 respectively. The net
interest margin was 4.56% and 4.68% for the fourth quarter of 2004
and 2003, respectively. TCF’s net interest income increased by $7.4
million, or 6.2% over the fourth quarter of 2003. Of this increase in
net interest income, $10.5 million was due to volume changes, partially
offset by a decrease of $3.1 million due to interest rate changes.
TCF provided $4.1 million for credit losses in the fourth quarter of
2004, compared with $4 million in the fourth quarter of 2003. Net loan
and lease charge-offs were $3.2 million, or .14% of average loans
and leases outstanding, compared with $6.1 million, or .30% of
average loans and leases outstanding during the same 2003 period.
Non-interest income increased $17.7 million, or 15.4%, during the
fourth quarter of 2004 to $132.5 million. Banking fees and other rev-
enue increased $7.9 million, or 8.8%, over the fourth quarter of 2003.
Card revenues, included in banking fees and other revenue, totaled
$17.5 million for the fourth quarter of 2004, up $5.4 million, or
44.7% over the same quarter in 2003. The increase was attributable
to a 21.2% increase in sales volume coupled with an 18 basis point
increase in the average off-line interchange rate. Leasing and
equipment finance revenues were up $5.7 million, or 36.9%, over the
fourth quarter of 2003 due to increases in sales-type lease revenues.
Non-interest expense increased $12.2 million, or 8.5%, in the
fourth quarter of 2004 to $154.4 million. Compensation and employee
benefits increased $9.6 million, or 12.5%, from the fourth quarter of
2003, primarily driven by a $4.2 million increase in incentive compen-
sation resulting from improved performance in 2004 and a $1.9 million
increase related to new branches opened during the past 12 months.
Occupancy and equipment expenses increased $2.1 million, or 9%,
from the fourth quarter of 2003, with $1.4 million relating to costs
associated with new branch expansion.
In the fourth quarter of 2004, the effective income tax rate was
32.96% of income before tax expense compared with 32.14% for the
fourth quarter of 2003.
Earnings Teleconference and Website Information TCF
hosts quarterly conference calls to discuss its financial results.
Additional information regarding TCF’s conference calls can be
obtained from the investor relations section within TCF’s website at
www.tcfexpress.com or by contacting TCF’s Corporate Communications
Department at [phone]. The website also includes free access
to company news releases, TCF’s annual report, quarterly reports,
investor presentations and Securities and Exchange Commission
(“SEC”) filings. Replays of prior quarterly conference calls discussing
financial results may also be accessed at the investor relations sec-
tion within TCF’s website.
Legislative, Legal and Regulatory Developments
Federal and state legislation imposes numerous legal and regulatory
requirements on financial institutions. Future legislative or regula-
tory change, or changes in enforcement practices or court rulings,
may have a dramatic and potentially adverse impact on TCF and its
bank and other subsidiaries.
The Federal Deposit Insurance Corporation (“FDIC”) and members
of the United States Congress have proposed new legislation that
would reform the bank deposit insurance system. This reform could
merge the Bank Insurance Fund (“BIF”) and Savings Association
Insurance Fund (“SAIF”), increase the deposit insurance coverage
limits and index future coverage limitations, among other changes.
Most significantly, reform proposals could allow the FDIC to raise
or lower (within certain limits) the currently mandated designated
reserve ratio requiring the FDIC to maintain a 1.25% reserve ratio
($1.25 against $100 of insured deposits), and require certain changes
in the calculation methodology. Although it is too early to predict the
ultimate impact of such proposals, they could, if adopted, result in
the imposition of additional deposit insurance premium costs on TCF.