TCF Bank 2005 Annual Report Download - page 37

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172005 Form 10-K
Operating Segment Results BANKING, comprised of deposits
and investment products, commercial banking, small business
banking, consumer lending and treasury services, reported net
income of $229.9 million for 2005, up 4.6% from $219.9 million
in 2004. Banking net interest income for 2005 was $455.5 million,
up 6.6% from $427.5 million for 2004. The provision for credit
losses totaled $1 million in 2005, down from $4.1 million in 2004.
The provision for credit losses for 2005 reflects improved credit
quality, primarily in the consumer and commercial portfolios,
including a $3.3 million commercial business loan recovery in the
first quarter of 2005. Non-interest income totaled $425.1 million,
compared with $426.6 million in 2004. Card revenues, primarily
interchange fees, increased 25.7% in 2005, which was primarily
attributable to a 19.8% increase in sales volume compared with
2004. Fees and service charges were $258.7 million for 2005, down
4.6% from $271.2 million in 2004, as a result of changing customer
behaviors. During 2005, TCF sold several buildings and one branch
including its deposits resulting in total gains of $13.6 million.
There were no branch sales in 2004 or 2003. During 2005, TCF sold
mortgage-backed securities and realized gains of $10.7 million,
compared with gains of $22.6 million for 2004 and $32.8 million
for 2003. See “Consolidated Income Statement Analysis – Non-
Interest Income” for further discussion on the sales of mortgage-
backed securities.
Banking non-interest expense totaled $553.2 million, up 7.1%
from $516.4 million in 2004. The increases were primarily due
to compensation and benefits and occupancy costs associated
with new branch expansion, increases in card processing and
issuance expenses related to the overall increase in card volumes,
and increases in net real estate expense as a result of net recov-
eries on sales of foreclosed properties in 2004, partially offset by
a decrease in deposit account losses.
LEASING AND EQUIPMENT FINANCE, an operating segment
comprised of TCF’s wholly-owned subsidiaries TCF Equipment
Finance and Winthrop, provides a broad range of comprehensive
lease and equipment finance products. Leasing and Equipment
Finance reported net income of $33.4 million for 2005, down
6.9% from $35.9 million in 2004. Net interest income for 2005
was $57 million, up 2.4% from $55.7 million in 2004. The provision
for credit losses for this operating segment totaled $4 million
in 2005, down from $6.8 million in 2004. Delta Airlines, Inc.,
(“Delta”), declared bankruptcy on September 14, 2005, and TCF
charged off its $18.8 million investment in the related leveraged
lease through a reduction in the allowance for loan and lease
losses. The decrease in the provision for credit losses from 2004
was primarily related to improved credit quality of the portfolio
excluding leveraged leases. Non-interest income totaled $47.5
million in 2005, down $3.2 million from $50.7 million in 2004. The
decrease in leasing and equipment finance revenues for 2005,
compared with 2004, was primarily due to lower sales-type lease
revenues, partially offset by higher operating lease revenues and
other transaction fees. Leasing and equipment finance revenues
may fluctuate from period to period based on customer-driven
factors not entirely within the control of TCF. Non-interest expense
totaled $48.6 million in 2005, up $4.9 million from $43.7 million
in 2004, primarily related to an increase in operating lease depre-
ciation expense.
Consolidated Income Statement Analysis
Net Interest Income Net interest income, which is the differ-
ence between interest earned on loans and leases, securities
available for sale, investments and other interest-earning assets
(interest income), and interest paid on deposits and borrowings
(interest expense), represented 52% of TCF’s revenue in 2005.
Net interest income divided by average interest-earning assets is
referred to as the net interest margin, expressed as a percentage.
Net interest income and net interest margin are affected by
changes in interest rates, loan and deposit pricing strategies
and competitive conditions, the volume and the mix of interest-
earning assets and interest-bearing liabilities, and the level of
non-performing assets.