<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________
Commission File
No. 0-16431
__________________
TCF FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1591444
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 Marquette Avenue, Suite 302, Minneapolis, Minnesota 55402
-------------------------------------------------------------
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (612) 661-6500
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1995
- ---------------------------- --------------
Common Stock, $.01 par value 17,557,938 shares
1
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information Pages
-----
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at March 31, 1995 and December 31, 1994. . . . . . . . . 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1995 and 1994 . . . . . . . 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 . . . . . . . 5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1994 and for the
Three Months Ended March 31, 1995. . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1995 and 1994 . . . . . . . .10-27
Supplementary Information. . . . . . . . . . . . . . . . .28-29
Part II. Other Information
Items 1-6 . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
At At
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 202,188 $ 224,266
Interest-bearing deposits with banks 5,390 193,751
Federal funds sold 10,000 6,900
U.S. Government and other marketable securities
held to maturity (fair value of $3,551 and $3,526) 3,552 3,528
Federal Home Loan Bank stock, at cost 73,027 78,925
Securities available for sale (amortized cost of $92,642
and $140,074) 89,693 138,430
Loans held for sale 207,850 201,511
Mortgage-backed securities held to maturity (fair value
of $1,266,805 and $1,512,606) 1,291,370 1,601,200
Loans:
Residential real estate 2,716,300 2,662,707
Commercial real estate 996,925 997,632
Commercial business 192,355 190,975
Consumer 1,374,817 1,299,458
Unearned discounts and deferred fees (42,864) (32,391)
---------- ----------
Total loans 5,237,533 5,118,381
Allowance for loan losses (62,383) (56,343)
---------- ----------
Net loans 5,175,150 5,062,038
Premises and equipment 124,630 136,158
Real estate:
Total real estate 25,541 23,922
Allowance for real estate losses (1,973) (2,576)
---------- ----------
Net real estate 23,568 21,346
Accrued interest receivable 48,706 46,465
Due from brokers - 27,379
Goodwill 13,076 13,355
Deposit base intangibles 14,151 14,662
Other assets 86,710 75,674
---------- ----------
$7,369,061 $7,845,588
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $1,020,550 $1,031,039
Passbook and statement 932,066 940,459
Money market 676,250 646,732
Certificates 2,742,595 2,781,488
---------- ----------
Total deposits 5,371,461 5,399,718
---------- ----------
Securities sold under repurchase agreements 463,499 429,469
Federal Home Loan Bank advances 879,184 1,354,663
Subordinated debt 50,676 50,676
Collateralized obligations 41,817 42,035
Other borrowings 10,151 8,152
---------- ----------
Total borrowings 1,445,327 1,884,995
Accrued interest payable 13,300 20,043
Accrued expenses and other liabilities 68,472 65,363
---------- ----------
Total liabilities 6,898,560 7,370,119
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share, 30,000,000
shares authorized; 2,710,000 issued and outstanding 27 27
Common stock, par value $.01 per share, 70,000,000 shares
authorized; 17,460,478 and 17,086,173 shares issued 175 171
Additional paid-in capital 256,933 251,345
Unamortized deferred compensation (11,684) (6,986)
Retained earnings, subject to certain restrictions 227,150 244,779
Loan to Executive Deferred Compensation Plan (180) (195)
Employee Stock Ownership Plan debt - (1,500)
Unrealized loss on securities available for sale, net (1,920) (1,160)
Treasury stock, at cost, 322,880 shares in 1994 - (11,012)
---------- ----------
Total stockholders' equity 470,501 475,469
---------- ----------
$7,369,061 $7,845,588
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
3
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Interest income:
Interest on loans $115,467 $ 93,677
Interest on loans held for sale 3,966 5,207
Interest on mortgage-backed securities held to maturity 25,846 22,730
Interest on investments 1,900 2,874
Interest on securities available for sale 1,612 5,955
-------- --------
Total interest income 148,791 130,443
-------- --------
Interest expense:
Interest on deposits 48,305 46,941
Interest on borrowings 24,838 19,374
-------- --------
Total interest expense 73,143 66,315
-------- --------
Net interest income 75,648 64,128
Provision for credit losses 6,688 2,640
-------- --------
Net interest income after provision for credit losses 68,960 61,488
-------- --------
Non-interest income:
Fee and service charge revenues 20,753 19,885
Data processing revenue 2,424 2,129
Commissions on sales of annuities 2,366 2,472
Title insurance revenues 2,273 2,724
Gain on sale of loans held for sale, net 576 1,024
Loss on sale of mortgage-backed securities, net (21,037) -
Gain (loss) on sale of securities available for sale, net (250) 2,758
Gain on sale of loan servicing, net 523 561
Other 1,250 1,422
-------- --------
Total non-interest income 8,878 32,975
-------- --------
Non-interest expense:
Compensation and employee benefits 35,653 30,976
Occupancy and equipment, net 12,495 12,037
Advertising and promotions 4,452 3,614
Federal deposit insurance premiums and assessments 3,472 3,883
Amortization of goodwill and other intangibles 790 823
Provision for real estate losses 163 799
Cancellation cost on early termination of interest-rate
exchange agreements 4,423 -
Merger-related expenses 21,733 -
Other 13,979 15,536
-------- --------
Total non-interest expense 97,160 67,668
-------- --------
Income (loss) before income tax expense (benefit)
and extraordinary item (19,322) 26,795
Income tax expense (benefit) (7,683) 10,563
-------- --------
Income (loss) before extraordinary item (11,639) 16,232
Extraordinary item:
Penalties on early repayment of FHLB advances, net of
tax benefit of $578 (963) -
-------- --------
Net income (loss) (12,602) 16,232
Dividends on preferred stock 678 678
-------- --------
Net income (loss) available to common shareholders $(13,280) $ 15,554
-------- --------
-------- --------
Per common share:
Income (loss) before extraordinary item $ (.72) $ .90
Extraordinary item (.05) -
-------- --------
Net income (loss) $ (.77) $ .90
-------- --------
-------- --------
Dividends declared $ .25 $ .25
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
4
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (12,602) $ 16,232
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,309 3,571
Amortization of goodwill and other intangibles 790 823
Amortization of fees, discounts and premiums (365) (1,248)
Proceeds from sales of loans held for sale 74,051 507,347
Principal collected on loans held for sale 2,778 3,173
Originations and purchases of loans held for sale (82,728) (339,367)
Net (increase) decrease in other assets and liabilities,
and accrued interest (24,837) 10,596
Provisions for credit and real estate losses 6,851 3,439
(Gain) loss on sale of securities available for sale, net 250 (2,758)
Gain on sale of loan servicing, net (523) (561)
Penalties on early repayment of FHLB advances 1,541 -
Loss on sale of mortgage-backed securities, net 21,037 -
Cancellation cost on early termination of interest-rate
exchange agreements 4,423 -
Write-off of equipment 13,435 -
Other, net 890 1,514
---------- ---------
Total adjustments 20,902 186,529
---------- ---------
Net cash provided by operating activities 8,300 202,761
---------- ---------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities 211,117 -
Principal collected on mortgage-backed securities 38,926 160,200
Purchases of mortgage-backed securities - (299,379)
Principal collected on loans 254,121 337,049
Loan originations (378,403) (375,676)
Net (increase) decrease in interest-bearing deposits with banks 188,361 (12,568)
Net increase in securities purchased under resale agreements - (14,400)
Proceeds from sales of securities available for sale 44,462 174,083
Proceeds from maturities of securities available for sale 68,612 144,716
Purchases of securities available for sale - (311,760)
Proceeds from maturities of U.S. Government and other
marketable securities - 250
Proceeds from redemption of FHLB stock 8,838 -
Purchases of term federal funds sold - (34,000)
Proceeds from maturities of term federal funds sold - 15,000
Net increase in short-term federal funds sold (3,100) (84,400)
Sales of deposits, net of cash paid (9,160) -
Proceeds from sales of real estate 2,423 3,768
Payments for acquisition and improvement of real estate (1,027) (135)
Proceeds from sale of loan servicing 631 668
Other, net (5,116) 3,497
---------- ---------
Net cash provided (used) by investing activities 420,685 (293,087)
---------- ---------
Cash flows from financing activities:
Net decrease in deposits (19,097) (107,921)
Proceeds from securities sold under repurchase agreements
and federal funds purchased 2,390,058 541,683
Payments on securities sold under repurchase agreements
and federal funds purchased (2,354,028) (540,941)
Proceeds from FHLB advances 699,890 345,153
Payments on FHLB advances (1,176,910) (159,006)
Payments for termination of interest-rate exchange agreements (4,581) -
Payments on other borrowings (278) (763)
Repurchases of common stock - (7,417)
Other, net 13,883 1,758
---------- ---------
Net cash provided (used) by financing activities (451,063) 72,546
---------- ---------
Net decrease in cash and due from banks (22,078) (17,780)
Cash and due from banks at beginning of period 224,266 198,324
---------- ---------
Cash and due from banks at end of period $ 202,188 $ 180,544
---------- ---------
---------- ---------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 78,231 $ 66,086
---------- ---------
---------- ---------
Income taxes $ 2,524 $ 5,350
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Loan to Unrealized
Executive Gain
Number Unamor- Deferred (Loss) on
of tized Compen- Securities
Common Pre- Additional Deferred sation Available
Shares ferred Common Paid-in Compen- Retained Plan and for Sale, Treasury
Issued Stock Stock Capital sation Earnings ESOP debt Net Stock Total
------ ------ ------ --------- ---------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993,
as originally reported 12,361,569 $ - $124 $150,602 $ (1,272) $146,502 $ (348) $ - $ - $295,608
Adjustments for pooling-of-
interests 4,286,983 27 43 87,958 - 48,329 (3,900) - - 132,457
----------- --- ---- -------- ------- ------- ------ ------- ------- -------
Balance, December 31, 1993,
as restated 16,648,552 27 167 238,560 (1,272) 194,831 (4,248) - - 428,065
Cumulative effect of change
in accounting for
securities available for
sale at January 1, 1994,
net of tax - - - - - - - 3,276 - 3,276
Net income - - - - - 70,183 - - - 70,183
Dividends on preferred stock - - - - - (2,710) - - - (2,710)
Dividends on common stock 174,411 - 2 5,266 - (17,525) - - - (12,257)
Purchase of 535,000 shares to
be held in treasury - - - - - - - - (17,524) (17,524)
Issuance of 189,200 shares
of restricted stock, of
which 183,200 shares were
from treasury 6,000 - - 2,007 (7,541) - - - 5,550 16
Grant of 28,500 shares of
restricted stock to
outside directors from
treasury - - - 117 (1,065) - - - 948 -
Issuance of 420 shares to
employee benefit plans
from treasury - - - 4 - - - - 14 18
Issuance of shares to
Dividend Reinvestment Plan 4,030 - - 122 - - - - - 122
Issuance of shares under
Officers' Stock Performance
Investment Plan 23,045 - - 705 - - - - - 705
Cancellation of shares of
restricted stock (1,500) - - (56) 40 - - - - (16)
Amortization of deferred
compensation - - - - 2,852 - - - - 2,852
Exercise of stock options 109,111 - 1 2,132 - - - - - 2,133
Exercise of stock warrants 122,524 - 1 2,488 - - - - - 2,489
Payments on Loan to Executive
Deferred Compensation Plan - - - - - - 153 - - 153
Payments on Employee Stock
Ownership Plan debt - - - - - - 2,400 - - 2,400
Change in unrealized gain
(loss) on securities
available for sale, net - - - - - - - (4,436) - (4,436)
---------- ---- --- -------- ------ -------- ------ ------- ------- -------
Balance, December 31, 1994 17,086,173 27 171 251,345 (6,986) 244,779 (1,695) (1,160) (11,012) 475,469
Net loss - - - - - (12,602) - - - (12,602)
Dividends on preferred stock - - - - - (678) - - - (678)
Dividends on common stock - - - - - (4,349) - - - (4,349)
Issuance of shares to
Dividend Reinvestment Plan 300 - - 11 - - - - - 11
Issuance of 186,880 shares
from treasury to effect
merger with Great Lakes (186,880) - (2) (6,372) - - - - 6,374 -
Issuance of 136,000 shares
of restricted stock from
treasury - - - 1,050 (5,688) - - - 4,638 -
Repurchase and cancellation
of shares (1,338) - - (52) - - - - - (52)
Amortization of deferred
compensation - - - - 990 - - - - 990
Exercise of stock options 131,287 - 1 2,283 - - - - - 2,284
Exercise of stock warrants 430,936 - 5 8,668 - - - - - 8,673
Payments on Loan to Executive
Deferred Compensation Plan - - - - - - 15 - - 15
Payments on Employee Stock
Ownership Plan debt - - - - - - 1,500 - - 1,500
Change in unrealized loss
on securities available
for sale, net - - - - - - - (760) - (760)
---------- ---- ---- -------- -------- -------- ------ ------- ------- --------
Balance March 31, 1995 17,460,478 $ 27 $175 $256,933 $(11,684) $227,150 $ (180) $(1,920) $ - $470,501
---------- ---- ---- -------- -------- -------- ------ ------- ------- --------
---------- ---- ---- -------- -------- -------- ------ ------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
6
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. The
results of operations for interim periods are not necessarily indicative of
the results to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and notes necessary for complete financial
statements in conformity with generally accepted accounting principles.
The material under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is written with the
presumption that the users of the interim financial statements have read or
have access to the most recent Annual Report on Form 10-K of TCF Financial
Corporation ("TCF"), which contains the latest audited financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations as of December 31, 1994 and
for the year then ended.
Certain reclassifications have been made to prior period balances to
conform to current period presentation. For consolidated statements of
cash flows purposes, cash and cash equivalents include cash and due from
banks.
(2) CHANGE IN METHOD OF ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
Effective January 1, 1995, TCF adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." SFAS No. 114 requires that impaired
loans, including all loans that are restructured in a troubled debt
restructuring involving a modification of terms, be measured at the present
value of expected future cash flows discounted at the loan's initial
effective interest rate. The fair value of the collateral of an impaired
collateral-dependent loan or an observable market price, if one exists, may
be used as an alternative to discounting. If the measure of the impaired
loan is less than the recorded investment in the loan, impairment is to be
recognized through the allowance for loan losses. A loan is considered
impaired when, based on current information and events, it is probable that
a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS No. 118 amends SFAS No. 114
to allow a creditor to use existing methods for recognizing interest income
on impaired loans and to clarify disclosure requirements. The adoption of
SFAS No. 114 and SFAS No. 118 did not impact TCF's results of operations
for the first quarter of 1995 or any prior period. In accordance with SFAS
No. 114 and SFAS No. 118, prior period financial statements have not
been restated to reflect the change in accounting method.
7
<PAGE>
(3) EARNINGS PER COMMON SHARE
The weighted average number of common and common equivalent shares
outstanding used to compute earnings per common share were 17,172,991 and
17,245,927 for the three months ended March 31, 1995 and 1994,
respectively. The effect of outstanding stock options and common stock
warrants is excluded from the 1995 earnings per common share computation as
the effect is antidilutive.
(4) BUSINESS COMBINATION
On February 8, 1995, TCF completed its acquisition of Great Lakes Bancorp,
A Federal Savings Bank ("Great Lakes"), a Michigan-based savings bank with
$2.8 billion in assets, $1.6 billion in deposits, 39 offices in Michigan
and five offices in western Ohio. In connection with the acquisition, TCF
issued approximately 4.9 million shares of its common stock for all of the
outstanding common shares of Great Lakes. In addition, each outstanding
share of Great Lakes preferred stock was exchanged for one share of TCF
preferred stock with substantially identical terms. TCF also assumed the
obligation to issue common stock upon the exercise or conversion of the
outstanding warrants to purchase Great Lakes common stock, the outstanding
employee and director options to purchase Great Lakes common stock, and the
outstanding 7 1/4% convertible subordinated debentures due 2011 of Great
Lakes. In connection with the acquisition, a pretax merger-related charge
of $54 million was incurred during the 1995 first quarter. The merger-
related charges are described in Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 10 through 27.
As a result of the acquisition, Great Lakes merged into TCF's existing
Michigan-based wholly owned savings bank subsidiary, TCF Bank Michigan fsb.
The resulting savings bank is operated as a direct subsidiary of TCF and
retained the Great Lakes name, certain members of its board of directors,
and headquarters in Ann Arbor, Michigan. The resulting savings bank
operates 54 offices in Michigan and five offices in western Ohio.
The consolidated financial statements of TCF give effect to the
acquisition, which has been accounted for as a pooling-of-interests
combination. Accordingly, TCF's consolidated financial statements for
periods prior to the combination have been restated to include the accounts
and the results of operations of Great Lakes for all periods presented,
except for dividends declared per share. There were no material
intercompany transactions prior to the acquisition.
8
<PAGE>
The significant accounting and reporting policies of TCF and Great Lakes
differed in certain respects. As required in a pooling-of-interests
business combination, the restated consolidated financial statements for
periods prior to the combination reflect certain adjustments to conform
Great Lakes' accounting methods to those of TCF. These adjustments
retroactively restate, for all periods presented, Great Lakes' method of
adoption of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions," SFAS No. 109, "Accounting for Income Taxes," and SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," to conform to TCF's method of adoption of these same
statements. Great Lakes adopted SFAS No. 115 effective December 31, 1993
on a prospective basis whereas TCF adopted SFAS No. 115 effective January
1, 1994 on a prospective basis. The adjustments to conform Great Lakes'
method of adoption of SFAS No. 115 to that of TCF decreased stockholders'
equity at December 31, 1993 by $1.9 million. No adjustments were required
to the restated consolidated financial statements presented herein to
conform Great Lakes' method of adoption of SFAS No. 72 and SFAS No. 109 to
that of TCF.
The results of operations previously reported by TCF and Great Lakes on a
separate basis and the combined amounts presented in the accompanying
consolidated financial statements are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1994
---------------------------------
Great
(In thousands, except per-share data) TCF Lakes Combined
--- ----- --------
<S> <C> <C> <C>
Interest income $84,689 $45,754 $130,443
Interest expense 38,960 27,355 66,315
------- ------- --------
Net interest income 45,729 18,399 64,128
Provision for credit losses 2,140 500 2,640
------- ------- --------
Net interest income after provision
for credit losses 43,589 17,899 61,488
Non-interest income 29,886 3,089 32,975
Non-interest expense 52,600 15,068 67,668
------- ------- --------
Income before income tax expense 20,875 5,920 26,795
Income tax expense 8,663 1,900 10,563
------- ------- --------
Net income 12,212 4,020 16,232
Dividends on preferred stock - 678 678
------- ------- --------
Net income available to common
shareholders $12,212 $ 3,342 $ 15,554
------- ------- --------
------- ------- --------
Earnings per common share $ .98 $ .51 $ .90
------- ------- --------
------- ------- --------
</TABLE>
9
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
TCF Financial Corporation ("TCF" or the "Company") reported a net loss of $12.6
million for the first quarter of 1995, compared with net income of $16.2 million
for the same period in 1994. Net loss available to common shareholders for the
first quarter of 1995 was $13.3 million, or 77 cents per common share, compared
with net income available to common shareholders of $15.6 million, or 90 cents
per common share, for the first quarter of 1994.
The 1995 first quarter loss was a result of merger-related charges incurred in
connection with TCF's acquisition of Great Lakes Bancorp, A Federal Savings Bank
("Great Lakes"), which is described in Note 4 of Notes to Consolidated Financial
Statements. The following table summarizes the major components of the merger-
related charges, which were previously disclosed in TCF's prospectus relating to
the acquisition (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Loss on sale of securities available for sale $ 310
Loss on sale of mortgage-backed securities 21,037
Loss on prepayment of FHLB advances 1,541 (1)
Interest-rate exchange agreement termination costs 4,423
Provision for credit losses 5,000
Merger-related expenses:
Equipment charges 13,933
Severance and employee benefits 4,721
Professional fees 2,215
Other 864
-------
Total merger-related expenses 21,733
-------
Total pretax merger-related charges $54,044
-------
-------
<FN>
- ----------------------------
(1) Reflected in the Consolidated Statements of Operations as an extraordinary
item, net of tax benefit of $578.
</TABLE>
On an after-tax basis, these merger-related charges totaled $32.8 million, or
$1.91 per common share.
During the first quarter of 1995, Great Lakes sold $232.2 million of
collateralized mortgage obligations from its held to maturity portfolio at a
pretax loss of $21 million. In addition, Great Lakes sold $17.3 million of
securities available for sale at a pretax loss of $310,000. The combined
weighted average yield on the assets sold was 6.30%. The collateralized
mortgage obligations and securities available for sale were sold in order to
reduce Great Lakes' interest-rate and credit-loss risk to levels consistent with
TCF's existing interest-rate risk position and credit-loss risk policy. In
addition to these asset sales, Great Lakes prepaid Federal Home Loan Bank
("FHLB") advances, paid down wholesale borrowings and terminated interest-rate
exchange contracts during the first quarter of 1995. Great Lakes prepaid $112.3
million of FHLB advances at a pretax loss of $1.5 million during the first
quarter of 1995. This amount, net of a $578,000 income tax benefit, was
recorded as an extraordinary item in the Consolidated Statements of Operations.
The FHLB advances had a weighted average cost of 9.03% and a weighted average
life of one year. Interest-rate exchange contracts with notional principal
amounts totaling $544.5 million were terminated by Great Lakes at a pretax loss
of $4.4 million. These
10
<PAGE>
actions were taken in order to reduce Great Lakes' level of higher-cost
wholesale borrowings and to reduce interest-rate risk.
Great Lakes recorded $5 million in provisions for credit losses in the first
quarter of 1995 to conform its credit loss reserve practices and methods to
those of TCF and to allow for the accelerated disposition of its remaining
problem assets.
In connection with its acquisition of Great Lakes, TCF committed to restructure
certain existing business activities of Great Lakes in order to integrate Great
Lakes' data processing system into TCF's. These actions were also designed to
reduce staff by consolidating certain functions such as data processing,
investments and certain other back office operations. Subsequent to its merger
with TCF, Great Lakes recognized a pretax charge of $21.7 million in the 1995
first quarter for these restructuring and merger-related expenses.
Income for the first quarter of 1995, excluding the $32.8 million in after-tax
merger-related charges, totaled $20.2 million, or $1.11 per common share, a
24.7% increase from $16.2 million, or 90 cents per common share for the 1994
first quarter. On the same basis, return of average common equity was 17.48%
for the 1995 first quarter compared with 15.24% for the 1994 first quarter.
NET INTEREST INCOME
Net interest income for the first quarter of 1995 was $75.6 million, up 18% from
$64.1 million recorded in the first quarter of 1994. The net interest margin
for the first quarter of 1995 was 4.31%, up from 3.67% for the same period in
1994. TCF's net interest income and net interest margin increased primarily due
to increased yields and growth of consumer loans, the favorable impact of the
merger-related activities at Great Lakes, lower average levels of non-performing
assets, and increased capital. As the merger-related activities at Great Lakes
were not completed until the end of the 1995 first quarter, TCF anticipates a
continued favorable impact on its net interest margin resulting from these
actions.
If variable index rates (e.g., prime) were to decline dramatically, TCF may
experience compression of its interest margin, as it is likely 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. In addition, competition for checking and savings
deposits, an important source of lower cost funds for TCF, has intensified
among depository and other financial institutions. As a result of this
competition and the general increases in market interest rates, TCF has
experienced an increase in the rates paid on its deposits. TCF may
experience compression in its net interest margin if the rates paid on
deposits continue to increase. See "Asset/Liability Management-Interest Rate
Risk."
11
<PAGE>
The following rate/volume analysis details the increases (decreases) in interest
income and expense resulting from interest rate and volume changes during the
first quarter of 1995 as compared to the same period last year. Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995
Versus Same Period in 1994
-------------------------------
Increase (Decrease) Due to
-------------------------------
Volume Rate Total
------ ---- -----
(In thousands)
<S> <C> <C> <C>
Securities available for sale $(5,837) $ 1,494 $(4,343)
------- ------- -------
Loans held for sale (2,376) 1,135 (1,241)
------- ------- -------
Mortgage-backed securities held to maturity 2,407 709 3,116
------- ------- -------
Loans:
Residential real estate 6,841 1,239 8,080
Commercial real estate (1,049) 1,379 330
Commercial business (198) 728 530
Consumer 6,042 6,808 12,850
------- ------- -------
Total loans 11,636 10,154 21,790
------- ------- -------
Investments:
Interest-bearing deposits with banks (83) 130 47
Federal funds sold (1,709) 582 (1,127)
U.S. Government and other marketable
securities held to maturity (8) (55) (63)
FHLB stock (58) 227 169
------- ------- -------
Total investments (1,858) 884 (974)
------- ------- -------
Total interest income 3,972 14,376 18,348
------- ------- -------
Deposits:
Checking (108) 14 (94)
Passbook and statement (531) 543 12
Money market (192) 1,677 1,485
Certificates (1,733) 1,694 (39)
------- ------- -------
Total deposits (2,564) 3,928 1,364
------- ------- -------
Borrowings:
Securities sold under repurchase agreements 1,942 870 2,812
FHLB advances 1,028 1,373 2,401
Subordinated debt - (31) (31)
Collateralized obligations (19) 219 200
Other borrowings 42 40 82
------- ------- -------
Total borrowings 2,993 2,471 5,464
------- ------- -------
Total interest expense 429 6,399 6,828
------- ------- -------
Net interest income $ 3,543 $ 7,977 $11,520
------- ------- -------
------- ------- -------
</TABLE>
PROVISIONS FOR CREDIT AND REAL ESTATE LOSSES
TCF provided $6.7 million for credit losses in the first quarter of 1995,
compared with $2.6 million for the same prior-year period. Net loan and
industrial revenue bond charge-offs were $723,000 for the first quarter of
1995, compared with $3.5 million during the same 1994 period. The provision
for real estate losses for the first quarter of 1995 was $163,000, compared
with $799,000 for the same prior-year period. The provision for credit
losses in the first quarter of 1995 includes $5 million in merger-related
provisions, which were established to conform Great Lakes' accounting and
credit loss reserve practices and methods to those of TCF and to allow for
the accelerated disposition of Great Lakes' remaining problem assets.
12
<PAGE>
TCF continues to expand its consumer lending and consumer finance operations and
anticipates opening 13 new consumer finance offices during the remainder of
1995, most of which will be in areas outside its traditional market areas. TCF
opened 10 such offices during the first quarter of 1995 and now has 56 consumer
finance offices in 13 states. As a result of this expansion, TCF's consumer
finance loan portfolio totaled $238.7 million at March 31, 1995, compared with
$201 million at December 31, 1994. Consumer finance lending is generally
considered to involve a higher level of risk than single-family residential
lending due to the higher level of credit risk and interest rates associated
with these loans. The underwriting criteria for loans originated by these
consumer finance offices are generally less stringent than those historically
adhered to by TCF and as a result carry a higher level of credit risk and higher
interest rates. TCF believes that it has in place experienced personnel and
acceptable standards for maintaining credit quality that are consistent with its
goals for expanding its portfolio of these higher-yielding loans. TCF's greater
than 30-day delinquency ratio on consumer loans was .70% at March 31, 1995,
compared with .77% at December 31, 1994.
TCF's investments in commercial real estate loans and commercial business loans
have decreased significantly in recent years. TCF is seeking to expand its
commercial real estate and commercial business lending activity to borrowers
located in its primary markets of Minnesota, Illinois, Wisconsin, Michigan and
other Midwestern states in an attempt to maintain the size of these lending
portfolios and, where feasible under local economic conditions, achieve some
growth in these lending categories over time. These loans generally have larger
individual balances and a substantially greater inherent risk of loss. The risk
of loss on such loans is difficult to quantify and is subject to fluctuations in
real estate values. At March 31, 1995, the allowances for loan and real estate
losses and industrial revenue bond reserves totaled $67 million, compared with
$61.7 million at year-end 1994. See "Financial Condition - Allowances for Loan
and Real Estate Losses and Industrial Revenue Bond Reserves" for additional
information.
NON-INTEREST INCOME
Non-interest income, excluding the losses from merger-related asset sales at
Great Lakes, decreased $2.8 million, or 8.3%, to $30.2 million for the first
quarter of 1995, compared with $33 million for the same period in 1994. The
decrease was primarily due to lower title insurance revenues and decreased gains
on sales of loans held for sale and securities available for sale. The
following table presents the components of non-interest income:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Percentage
---------------------- Increase
(Dollars in thousands) 1995 1994 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Fee and service charge revenues $ 20,753 $19,885 4.4%
Data processing revenue 2,424 2,129 13.9
Commissions on sales of annuities 2,366 2,472 (4.3)
Title insurance revenues 2,273 2,724 (16.6)
Gain on sale of loans held for sale, net 576 1,024 (43.8)
Gain on sale of securities available
for sale, net 60 2,758 (97.8)
Gain on sale of loan servicing, net 523 561 (6.8)
Other 1,250 1,422 (12.1)
-------- -------
30,225 32,975 (8.3)
Merger-related charges:
Loss on sale of securities
available for sale, net (310) - (100.0)
Loss on sale of mortgage-backed
securities, net (21,037) - (100.0)
-------- -------
$ 8,878 $32,975 (73.1)
-------- -------
-------- -------
</TABLE>
13
<PAGE>
Data processing revenue totaled $2.4 million for the first quarter of 1995, a
13.9% increase from $2.1 million for the same 1994 period. This increase
reflects TCF's efforts to provide and expand electronic banking transaction
services through its automated teller machine ("ATM") network. TCF expanded its
network of ATM's to 705 by installing 17 ATM's during the first quarter of 1995
and anticipates installing additional ATM's during the remainder of 1995. These
revenues are generated principally through the use of TCF's ATM network by
depositors of other financial institutions.
Commissions on sales of annuities totaled $2.4 million during the first quarter
of 1995 compared with $2.5 million for the same 1994 period. Sales of annuities
may fluctuate from period to period, and future sales levels will depend upon
continued favorable tax treatment, the level of interest rates, general economic
conditions and investor preferences. In March of 1995, TCF commenced sales of
annuities in Michigan through a newly incorporated subsidiary.
Title insurance revenues totaled $2.3 million during the first quarter of 1995
compared with $2.7 million for the first quarter of 1994. Title insurance
revenues have been negatively affected by decreases in refinancing activity
associated with the rise in market interest rates. Title insurance revenues are
cyclical in nature and are largely dependent on the level of loan originations
and refinancings in the industry.
Gains on sales of loans held for sale totaled $576,000 during the first quarter
of 1995, compared with $1 million during the same period in 1994. Gains on
sales of securities available for sale totaled $60,000, excluding merger-related
sales, for the first quarter of 1995, compared with $2.8 million during the same
1994 period. Gains on sales of loans held for sale and securities available for
sale may fluctuate significantly from period to period due to changes in
interest rates and volumes, and results in any period related to these
transactions may not be indicative of results which will be obtained in future
periods.
The results for the first quarter of 1995 include a pretax gain of $523,000 on
the sale of $51 million of third-party loan servicing rights. TCF's results for
the first quarter of 1994 included a pretax gain of $561,000 on the sale of
$39.2 million of third-party loan servicing rights. TCF periodically sells loan
servicing rights depending on market conditions. TCF's residential loan
servicing portfolio totaled $7.3 billion at March 31, 1995, relatively unchanged
from December 31, 1994.
During the first quarter of 1995, Great Lakes sold $176.1 million of private
issuer collateralized mortgage obligations, $42.3 million of FHLMC
collateralized mortgage obligations and $13.8 million of FNMA collateralized
mortgage obligations from its held to maturity portfolio. The sales were
completed to reduce Great Lakes' interest-rate and credit-loss risk to levels
consistent with TCF's existing interest-rate risk position and credit-loss risk
policy. The fair values of the private issuer, FHLMC and FNMA collateralized
mortgage obligations at the time of sale were $161 million, $37.8 million and
$12.4 million, respectively. As a result, a pretax loss of $21 million was
recorded on these sales in the first quarter of 1995.
Also in the 1995 first quarter, Great Lakes sold $3 million of mortgage-backed
securities, $638,000 of private issuer collateralized mortgage obligations,
$10.2 million of corporate securities and $3.5 million of structured notes from
the available for sale portfolio at a pretax loss of $310,000. These sales also
reduced Great Lakes' interest-rate and credit-loss risk to levels consistent
with those of TCF.
14
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense (excluding the provision for real estate losses and merger-
related charges) totaled $70.8 million for the first quarter of 1995, up 5.9%
from $66.9 million for the same 1994 period. The increased expenses in 1995
were primarily due to costs associated with expanded consumer lending and
consumer finance operations and other costs related to the Great Lakes
acquisition. The following table presents the components of non-interest
expense:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Percentage
---------------------- Increase
(Dollars in thousands) 1995 1994 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Compensation and employee benefits $35,653 $30,976 15.1%
Occupancy and equipment, net 12,495 12,037 3.8
Advertising and promotions 4,452 3,614 23.2
Federal deposit insurance premiums
and assessments 3,472 3,883 (10.6)
Amortization of goodwill and
other intangibles 790 823 (4.0)
Other 13,979 15,536 (10.0)
------- -------
70,841 66,869 5.9
Provision for real estate losses 163 799 (79.6)
Merger-related charges:
Merger-related expenses 21,733 - 100.0
Cancellation cost on early
termination of interest-rate
exchange agreements 4,423 - 100.0
------- -------
$97,160 $67,668 43.6
------- -------
------- -------
</TABLE>
Compensation and employee benefits expense totaled $35.7 million for the 1995
first quarter, compared with $31 million for the same period in 1994. This
increase of $4.7 million, or 15.1%, was primarily due to the expansion of
consumer lending and consumer finance operations and other additional non-
recurring costs associated with the Great Lakes acquisition. As the
restructuring of Great Lakes' operations will not be completed until the third
quarter of 1995, TCF did not experience the full benefit of the expense
reductions in the first quarter of 1995.
Advertising and promotion expenses totaled $4.5 million for the first quarter of
1995, an increase of $838,000, or 23.2%, from the same period in 1994. The
increase reflects the increase in direct mail and other marketing expenses
relating to the promotion of TCF's consumer finance and deposit products.
Federal deposit insurance premiums and assessments totaled $3.5 million for
the first quarter of 1995, compared with $3.9 million for the same period in
1994. The decrease is primarily due to a decrease in the deposit insurance
premium rate paid by TCF Bank Minnesota fsb's ("TCF Minnesota") wholly owned
bank subsidiaries, TCF Bank Wisconsin fsb ("TCF Wisconsin") and TCF Bank
Illinois fsb ("TCF Illinois") from .26% to .23% of total insured deposits.
The thrift industry faces the prospect of significantly higher deposit
insurance premiums, and this may have an adverse effect on TCF's ability to
attract and retain deposits. In addition, the U.S. Department of the Treasury
recently disclosed that it is considering a plan to recapitalize the Savings
Association Insurance Fund ("SAIF") that would entail charging a one-time
special assessment of approximately $6 billion, among other proposals under
consideration. The special assessment, recently estimated to range from .78%
to .84% of TCF's total insured deposits, or approximately $42 million to $45
million pretax, would be in addition to TCF's annual deposit insurance
premium. Deposit insurance premium rates would likely decline following such
a charge. It is too early to predict whether the proposed special assessment
will be approved, or, if approved, when it will be charged.
15
<PAGE>
Other non-interest expense totaled $14 million for the 1995 first quarter, a 10%
decrease from $15.5 million for the same period in 1994. This decrease was
primarily due to decreases of $610,000 in loan expense due to decreased loan
origination activity and $642,000 in real estate operations expense.
Included in merger-related expenses for the first quarter of 1995 are $13.9
million of equipment charges which reflect costs associated with the integration
of Great Lakes' data processing system into TCF's and the write-off of certain
redundant data processing equipment and software. During the first quarter of
1995, approximately $13.4 million of redundant equipment was written off. In
addition, an accrual of $500,000 was established for data processing contract
cancellation costs, none of which was paid in the first quarter of 1995. It is
anticipated the data processing integration will be completed in the third
quarter of 1995.
Merger-related expenses for the first quarter of 1995 include $4.7 million of
executive contract, severance and employee benefit costs reflecting the
consolidation of certain functions such as data processing, investments and
certain other back office operations. A reduction of approximately 200
employees in the combined work force is expected as a result of the
consolidation of these functions, of which approximately 80 occurred during
the first quarter of 1995. The severance benefit arrangement was
communicated to all employees who may be affected by the consolidation of
certain functions, and generally provides for a minimum of one month of
severance up to a maximum of seven months depending upon years of service and
job classification. In addition, staying bonuses with higher levels of
employee benefits were offered to certain individuals in addition to the
severance benefits. Approximately $920,000 of severance and employee benefit
costs were paid in the 1995 first quarter.
In the first quarter of 1995, approximately $2.2 million of merger-related
expenses for professional services, including investment advisor, legal and
accounting services, and $864,000 of other expenses were incurred by Great Lakes
as a direct result of the merger.
In the 1995 first quarter, Great Lakes terminated $544.5 million of high-cost
interest-rate exchange agreements at a pretax loss of $4.4 million. The
agreements were terminated in connection with the asset sales and paydown of
wholesale borrowings as part of the merger-related restructuring activities.
Upon completion of the termination actions, Great Lakes is no longer a party to
any interest-rate exchange agreements.
In June 1994, the Financial Accounting Standards Board issued an Exposure Draft
of a Proposed Statement of Financial Accounting Standards, "Accounting for
Mortgage Servicing Rights and Excess Servicing Receivables and for
Securitization of Mortgage Loans." The proposed statement amends the accounting
for mortgage servicing rights prescribed under Statement of Financial Accounting
Standards ("SFAS") No. 65, "Accounting for Certain Mortgage Banking Activities."
SFAS No. 65 presently prescribes different treatment for the recognition of
originated mortgage servicing rights and purchased mortgage servicing rights
("PMSRs"). Subject to limitations, presently only PMSRs are capitalized and
amortized in accordance with SFAS No. 65. The proposed statement would require
that an entity recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired. An entity that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells those loans with servicing rights retained would allocate some
of the cost of the loans to the mortgage servicing rights. The proposed
statement would also require that capitalized mortgage servicing rights be
assessed for impairment, based on fair value. The proposed statement would be
applied prospectively in fiscal years beginning after December 15, 1995 to
transactions in which an entity acquires mortgage servicing rights and to
impairment evaluations of all capitalized mortgage servicing rights whenever
acquired. Earlier
16
<PAGE>
application is permitted but not required. Retroactive application would be
prohibited. It is too early to predict whether the proposed statement will be
adopted in its present form or what effect the proposed statement will have on
TCF's financial condition or results of operations.
INCOME TAXES
TCF recorded an income tax benefit of $7.7 million, or 39.8% of pretax loss, for
the first quarter of 1995, compared with income tax expense of $10.6 million, or
39.4% of pretax income, during the same period in 1994.
ASSET/LIABILITY MANAGEMENT - INTEREST-RATE RISK
TCF's results of operations are dependent to a large degree on its net interest
income, which is the difference between interest income and interest expense.
Like most financial institutions, TCF's interest income and cost of funds are
significantly affected by general economic conditions and by policies of
regulatory authorities. The mismatch between maturities and interest rate
sensitivities of assets and liabilities results in interest-rate risk. Although
the measure is subject to a number of assumptions and is only one of a number of
measurements, management believes the interest rate gap (difference between
interest-earning assets and interest-bearing liabilities repricing within a
given period) is an important indication of TCF's exposure to interest-rate risk
and the related volatility of net interest income in a changing interest rate
environment. In addition to the interest rate gap analysis, management also
utilizes a simulation model to measure and manage TCF's interest-rate risk.
For an institution with a negative interest rate gap for a given period, the
amount of its interest-bearing liabilities maturing or otherwise repricing
within such period exceeds the amount of 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.
As a result of the Great Lakes acquisition, TCF's exposure to rising and falling
interest rates has increased slightly. TCF's strategy is to reduce this
interest-rate risk over time by continuing to emphasize growth in core deposits
and higher yielding home equity and other consumer loans, and by extending the
maturities on borrowings. TCF's one-year adjusted interest rate gap was a
negative $405 million, or (5)% of total assets, at March 31, 1995, compared with
a negative $511.6 million, or (7)% of total assets, at December 31, 1994.
TCF's Asset/Liability Management Committee manages TCF's interest-rate risk
based on interest rate expectations and other factors. The amounts in the
maturity/rate sensitivity table below represent management's estimates and
assumptions, which in some cases may differ from regulatory assumptions.
Also, the amounts 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, and
competition. Decisions by management to purchase or sell assets, or retire
debt could change the maturity/repricing and spread relationships.
17
<PAGE>
The following table summarizes TCF's one-year adjusted interest rate gap at
March 31, 1995:
<TABLE>
<CAPTION>
Maturity/Rate Sensitivity
-------------------------
(Dollars in thousands)
Within One Year
---------------
<S> <C>
Interest-earning assets:
Loans held for sale $ 207,850
Securities available for sale 27,873
Mortgage-backed securities held to maturity (1) 302,385
Real estate loans (1) 1,453,473
Other loans (1) 1,397,628
Investments (2) 91,969
----------
3,481,178
----------
Interest-bearing liabilities:
Deposits (3) 3,034,767
FHLB advances 359,739
Borrowings 511,927
----------
3,906,433
----------
Interest-bearing liabilities over interest-earning assets
(primary gap) (425,255)
Impact of interest-rate exchange and cap agreements 20,300
----------
One-year adjusted gap $ (404,955)
----------
----------
One-year adjusted gap as a percentage of total assets:
At March 31, 1995 (5)%
----------
----------
At December 31, 1994 (7)%
----------
----------
<FN>
(1) Based upon a) contractual maturity, b) repricing date, if applicable,
c) scheduled repayments of principal and d) projected prepayments of
principal based upon experience.
(2) Includes interest-bearing deposits with banks, federal funds sold, U.S.
Government and other marketable securities held to maturity and FHLB stock.
(3) Includes noninterest-bearing deposits. Money market accounts, 13% of
checking accounts and 38% of passbook and statement accounts are included
in amounts repricing within one year. All remaining checking and passbook
and statement accounts are assumed to mature in periods subsequent to one
year. While management believes these assumptions are well based, no
assurance can be given that amounts on deposit in checking and passbook and
statement accounts will not significantly decrease or be repriced in the
event of a continued rise in interest rates.
</TABLE>
18
<PAGE>
FINANCIAL CONDITION
INVESTMENTS
Total investments decreased $191.1 million from year-end 1994 to $92 million at
March 31, 1995. Decreases of $188.4 million in interest-bearing deposits with
banks and $5.9 million in FHLB stock were partially offset by an increase of
$3.1 million in federal funds sold.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are carried at fair value with the unrealized
holding gains and losses, net of deferred income taxes, reported as a separate
component of stockholders' equity. Securities available for sale decreased
$48.7 million from year-end 1994 to $89.7 million at March 31, 1995. The
decrease was partially due to maturities and the previously described Great
Lakes' sale of $17.3 million of securities available for sale. These decreases
were partially offset by Great Lakes' transfer of certain of its private issuer
mortgage-backed securities and collateralized mortgage obligations from its held
to maturity portfolio to its available for sale portfolio. See "- Mortgage-
Backed Securities Held to Maturity." The following table summarizes securities
available for sale as of March 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
------------------- --------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------- ------ ----------- ------
<S> <C> <C> <C> <C>
U.S. Government and other
marketable securities:
U.S. Government and agency
obligations $ 1,007 $ 1,020 $ 54,462 $ 54,298
Corporate bonds 5,003 4,998 15,202 14,918
Commercial paper - - 14,955 14,843
Marketable equity
securities 3 36 3 30
------- ------- -------- --------
6,013 6,054 84,622 84,089
------- ------- -------- --------
Mortgage-backed securities:
Mortgage-backed securities 54,082 52,335 45,841 44,697
Collateralized mortgage
obligations 32,547 31,304 9,611 9,644
------- ------- -------- --------
86,629 83,639 55,452 54,341
------- ------- -------- --------
$92,642 $89,693 $140,074 $138,430
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
LOANS HELD FOR SALE
Residential real estate and education loans held for sale are carried at the
lower of cost or market. Loans held for sale increased $6.3 million from year-
end 1994, totaling $207.9 million at March 31, 1995. Residential real estate
loans held for sale decreased $12.6 million to $33.1 million at March 31, 1995,
as loan sales activity exceeded production levels during the first quarter of
1995. Education loans held for sale increased $18.7 million to $174.3 million
at March 31, 1995, reflecting management's intention to hold a larger portfolio
of these loans due to the higher yields received on the loans as compared with
alternative short-term investments.
19
<PAGE>
The following table summarizes loans held for sale as of March 31, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1995 1994
----------- ------------
<S> <C> <C>
Residential real estate $ 33,117 $ 45,744
Education 174,259 155,524
-------- --------
207,376 201,268
Less:
Deferred loan costs, net (612) (489)
Unearned discounts, net 138 246
-------- --------
$207,850 $201,511
-------- --------
-------- --------
</TABLE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity are carried at amortized cost.
Mortgage-backed securities totaled $1.3 billion at March 31, 1995, a decrease
of $309.8 million from December 31, 1994. This decrease is primarily due to
the previously described Great Lakes' sale of $232.2 million of
collateralized mortgage obligations. In addition to selling certain
collateralized mortgage obligations from its held to maturity portfolio,
Great Lakes also transferred $13 million of private issuer mortgage-backed
securities and $25.4 million of private issuer collateralized mortgage
obligations from its held to maturity portfolio to its securities available
for sale portfolio in the first quarter of 1995. The transfers allow for the
possible sale of these assets, which is consistent with the strategy to
reduce Great Lakes' interest-rate and credit-loss risk to levels consistent
with those of TCF. The fair value of the private issuer collateralized
mortgage obligations and the private issuer mortgage-backed securities at the
time of transfer to the securities available for sale portfolio was $24.3
million and $12.2 million, respectively. As a result of these transfers, a
$1.2 million unrealized loss was recognized as a separate component of
stockholders' equity, net of deferred taxes of $673,000. At March 31, 1995
and December 31, 1994, TCF's mortgage-backed securities held to maturity
portfolio had gross unrealized gains of $6.4 million and $3.6 million,
respectively, and gross unrealized losses of $31 million and $92.2 million,
respectively.
The following table summarizes mortgage-backed securities held to maturity as of
March 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1995 1994
----------- ------------
<S> <C> <C>
Mortgage-backed-securities:
Agency $1,269,053 $1,303,606
Private issuers 17,063 31,261
---------- ----------
1,286,116 1,334,867
---------- ----------
Collateralized mortgage obligations:
Agency - 84,347
Private issuers - 177,409
---------- ----------
- 261,756
---------- ----------
Net premiums 5,254 4,577
---------- ----------
$1,291,370 $1,601,200
---------- ----------
---------- ----------
</TABLE>
20
<PAGE>
LOANS
Total loans increased $119.2 million from year-end 1994 to $5.2 billion at March
31, 1995. Residential real estate loans increased $53.6 million during the
first quarter of 1995 to $2.7 billion. This increase reflects the origination
and retention of $111.6 million of residential loans, partially offset by loan
repayments. Commercial real estate loans decreased $707,000 from year-end 1994.
At March 31, 1995, approximately 89% of TCF's commercial real estate loans
outstanding were secured by properties located in its primary markets. The
average individual balance of commercial real estate loans was $582,000 at March
31, 1995. Consumer loans outstanding increased $75.4 million during the first
quarter of 1995, reflecting a $36.4 million increase in home equity loans and a
$39.4 million increase in automobile, marine and recreational vehicle loans.
The growth in home equity loans is primarily due to the expanded operations of
TCF's consumer finance subsidiaries. The growth in automobile, marine and
recreational vehicle loans also reflects the expanded operations of TCF's
consumer finance subsidiaries. As previously described, TCF opened 10 consumer
finance offices during the first quarter of 1995 and had 56 such offices in 13
states at March 31, 1995. It is anticipated that TCF will open 13 additional
consumer finance offices during the remainder of 1995.
The following table summarizes loans as of March 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1995 1994
---------- ------------
<S> <C> <C>
Residential real estate $2,716,300 $2,662,707
---------- ----------
Commercial real estate:
Apartments 423,800 432,114
Other permanent 534,815 526,773
Construction and development 38,310 38,745
---------- ----------
996,925 997,632
---------- ----------
Total real estate 3,713,225 3,660,339
---------- ----------
Commercial business 192,355 190,975
---------- ----------
Consumer:
Home equity 1,030,875 994,472
Automobile, marine and recreational vehicle 189,988 150,565
Credit card 36,364 34,698
Loans secured by deposits 9,594 9,685
Other 107,996 110,038
---------- ----------
1,374,817 1,299,458
---------- ----------
5,280,397 5,150,772
Less:
Unearned discounts on loans purchased 3,884 4,103
Deferred loan fees, net 10,863 11,456
Unearned discounts and finance charges, net 28,117 16,832
---------- ----------
$5,237,533 $5,118,381
---------- ----------
---------- ----------
</TABLE>
At March 31, 1995, the recorded investment in loans that are considered to be
impaired under the criteria established by SFAS No. 114 and SFAS No. 118 was
$28.4 million. All of these loans were on non-accrual status. Included in this
amount are $27.2 million of impaired loans for which the related allowance for
credit losses is $4.1 million and $1.2 million of impaired loans that, as a
result of write-downs, do not have a specific allowance for credit losses. The
average recorded investment in impaired loans during the three months ended
March 31, 1995 was $24.6 million. For the three months ended March 31, 1995,
TCF recognized interest income on impaired loans of $22,000, all of which was
recognized using the cash basis method of income recognition.
21
<PAGE>
Included in performing loans at March 31, 1995 are commercial real estate and
commercial business loans aggregating $2.9 million with terms that have been
modified in troubled debt restructurings, compared with $4.3 million at
December 31, 1994.
The results of hotel and motel operations have suffered in recent years.
Included in commercial real estate loans at March 31, 1995 are $95.8 million of
loans secured by hotel or motel properties. Seven loans comprise $56.4 million,
or 59%, of the total hotel and motel portfolio. Of the total hotel and motel
portfolio balance, seven loans totaling $18.9 million are included in loans
subject to management concern and four loans totaling $8.3 million are included
in non-accrual loans. TCF continues to closely monitor the performance of
these loans and properties.
NON-PERFORMING ASSETS
Non-performing assets (principally non-accrual loans and real estate acquired
through foreclosure) totaled $63.6 million at March 31, 1995, up $6 million from
the December 31, 1994 total of $57.6 million. At March 31, 1995, 12 loans or
properties comprised $25.3 million, or 39.7%, of total non-performing assets.
These loans or properties had been written down by $9.2 million as of March 31,
1995. Properties acquired are being actively marketed. Approximately 90% of
the non-performing assets at March 31, 1995 consisted of, or were secured by,
real estate. Non-performing assets are summarized in the table below.
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1995 1994
---------- ------------
<S> <C> <C>
Loans (1):
Residential real estate $ 7,516 $ 7,211
Commercial real estate 22,697 18,452
Commercial business 5,743 5,972
Consumer 2,251 2,127
------- -------
38,207 33,762
Real estate and other assets (2) 25,378 23,849
------- -------
Total non-performing assets $63,585 $57,611
------- -------
------- -------
Non-performing assets as a percentage
of net loans 1.23% 1.14%
Non-performing assets as a percentage
of total assets .86 .73
<FN>
(1) Included in total loans in the Consolidated Statements of Financial
Condition.
(2) Includes commercial real estate of $14 million and $15 million at March 31,
1995 and December 31, 1994, respectively.
</TABLE>
TCF had accruing loans 90 days or more past due totaling $3.3 million at March
31, 1995, compared with $2.4 million at December 31, 1994. These loans are in
the process of collection and management believes they are adequately secured.
The over 30-day delinquency rate on TCF's loans and loans held for sale
(excluding non-accrual loans) was .56% of gross loans outstanding at March 31,
1995, compared with .44% at year-end 1994.
In addition to the non-accrual, restructured and accruing loans 90 days or more
past due, there were commercial real estate and commercial business loans with
an aggregate principal balance of $68.3 million outstanding at March 31, 1995
for which management has concerns regarding the ability of the borrowers to meet
existing repayment terms. This amount consists of loans that were classified
for regulatory purposes as substandard, doubtful or loss, or were to borrowers
that currently are experiencing financial difficulties or that management
believes may experience financial difficulties in the future. This compares
with $74.2 million of such loans at December 31, 1994. Although these loans are
secured by commercial real estate or
22
<PAGE>
other corporate assets, they may be subject to future modifications of their
terms or may become non-performing. Management is monitoring the performance
and classification of such loans and the financial condition of these borrowers.
ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND RESERVES
The following tables summarize the activity of the allowances for loan and real
estate losses and the industrial revenue bond reserves (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1995 March 31, 1994
----------------------------------- ------------------------------------
Industrial Industrial
Revenue Revenue
Allowance for Loan Losses and Allowance for Bond Allowance for Bond
Industrial Revenue Bond Reserves: Loan Losses Reserves Total Loan Losses Reserves Total
------------- ---------- ----- ------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance (beginning of period) $56,343 $2,759 $59,102 $54,444 $2,689 $57,133
Provision for credit losses 6,763 (75) 6,688 2,640 - 2,640
Charge-offs (2,373) - (2,373) (5,296) - (5,296)
Recoveries 1,650 - 1,650 1,793 50 1,843
------- ------ ------- ------- ------ -------
Net recoveries (charge-offs) (723) - (723) (3,503) 50 (3,453)
------- ------ ------- ------- ------ -------
Balance (end of period) $62,383 $2,684 $65,067 $53,581 $2,739 $56,320
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Allowance for loan losses as a
percentage of total gross loans 1.18% 1.14%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
Allowance for Real Estate Losses: 1995 1994
--------- ---------
<S> <C> <C>
Allowance for real estate losses (beginning of period) $2,576 $2,439
Provision for losses 163 799
Charge-offs (766) (524)
------ ------
Allowance for real estate losses (end of period) $1,973 $2,714
------ ------
------ ------
</TABLE>
The allowance for loan losses is maintained at a level believed to be adequate
by management to provide for estimated loan losses. Management's judgment as to
the adequacy of the allowance is a result of ongoing review of individual loans
greater than $100,000, the overall risk characteristics of the portfolio,
changes in the character or size of the portfolio, the levels of non-performing
assets, net charge-offs, geographic location and prevailing economic conditions.
The allowance for loan losses is established for known or anticipated problem
loans, as well as for loans which are not currently known to require specific
allowances. The adequacy of the allowance for loan losses is highly dependent
upon management's estimates of variables affecting valuation, appraisals of
collateral, evaluations of performance and status, and the amounts and timing of
future cash flows expected to be received on impaired loans. Such estimates,
appraisals, evaluations and cash flows may be subject to frequent adjustments
due to changing economic prospects of borrowers or properties. The
unallocated portion of TCF's allowance for loan losses totaled $20.2 million
at March 31, 1995.
Prior to being acquired by TCF, Republic Capital Group had entered into
agreements guaranteeing certain industrial development and housing revenue bonds
issued by municipalities to finance commercial and multi-family real estate
owned by third parties. In the event a third-party borrower defaults on
principal or interest payments on the bonds, TCF, as acquiring entity, is
required to either fund the amount in default or acquire the then outstanding
bonds. TCF may foreclose on the underlying real estate to recover amounts in
default. The balance of such financial guarantees at March 31, 1995 was $18.6
million. Management has considered these guarantees in its review of the
adequacy of the industrial revenue bond reserves.
23
<PAGE>
LIQUIDITY MANAGEMENT
TCF manages its liquidity position to ensure that the funding needs of
depositors and borrowers are met promptly and in a cost-effective manner. Asset
liquidity arises from the ability to convert certain assets to cash as well as
from the maturity of assets. Liability liquidity results from the ability of
TCF to attract a diversity of funding sources to meet funding requirements
promptly. TCF's wholly owned savings bank subsidiaries are required by federal
regulation to maintain a monthly average minimum asset liquidity ratio of 5%.
During the first quarter of 1995, these subsidiaries maintained average monthly
liquidity ratios in excess of this requirement.
DEPOSITS
Deposits totaled $5.4 billion at March 31, 1995, relatively unchanged from the
year-end 1994 total. The following table summarizes TCF's deposits at March 31,
1995 and December 31, 1994:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
---------------------------- ---------------------------
Weighted Weighted
Average % of Average % of
(Dollars in thousands) Rate Amount Total Rate Amount Total
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Checking:
Non-interest bearing 0.00% $ 466,353 8.7% 0.00% $ 456,867 8.5%
Interest bearing 1.29 554,197 10.3 1.41 574,172 10.6
---------- ----- ---------- -----
.70 1,020,550 19.0 .78 1,031,039 19.1
Passbook and statement 2.13 932,066 17.4 2.13 940,459 17.4
Money market 3.58 676,250 12.6 3.26 646,732 12.0
Certificates 5.41 2,742,595 51.0 5.07 2,781,488 51.5
---------- ----- ---------- -----
3.72 $5,371,461 100.0% 3.53 $5,399,718 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
Certificates had the following remaining maturities:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
---------------------------------------------- ---------------------------------------------
Weighted Weighted
(Dollars in Negotiable Average Negotiable Average
millions) Rate Other Total Rate Rate Other Total Rate
---------- ----- ----- -------- ----------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity:
0-3 months $128.3 $ 578.3 $ 706.6 5.06% $203.2 $ 498.0 $ 701.2 4.74%
4-6 months 53.7 470.7 524.4 5.09 25.4 542.4 567.8 4.84
7-12 months 11.3 586.4 597.7 5.55 46.2 600.7 646.9 4.97
13-24 months 4.3 494.3 498.6 5.74 4.5 432.5 437.0 5.47
25-36 months 2.1 200.1 202.2 5.78 1.2 184.3 185.5 5.52
37-48 months .4 115.5 115.9 5.69 1.8 124.1 125.9 5.75
49-60 months .1 47.7 47.8 5.75 .3 64.9 65.2 5.47
Over 60 months - 49.4 49.4 6.43 - 52.0 52.0 6.36
------ -------- -------- ------ -------- --------
$200.2 $2,542.4 $2,742.6 5.41 $282.6 $2,498.9 $2,781.5 5.07
------ -------- -------- ------ -------- --------
------ -------- -------- ------ -------- --------
</TABLE>
Included in deposits at March 31, 1995 and December 31, 1994 are $94.4 million
and $139.5 million, respectively, of brokered deposits acquired as a result of
the Great Lakes acquisition.
BORROWINGS
Borrowings are used primarily to fund the purchase of investments and mortgage-
backed securities. These borrowings totaled $1.4 billion as of March 31, 1995,
down $439.7 million from year-end 1994. The decrease was primarily due to a
$475.5 million decrease in FHLB advances, including the previously mentioned
prepayment of $112.3
24
<PAGE>
million of higher-rate FHLB advances as part of the merger-related activities at
Great Lakes. The weighted average rate on borrowings increased to 6.38% at
March 31, 1995 from 6.29% at December 31, 1994. The increase reflects the
repricing of securities sold under repurchase agreements at slightly higher
rates.
TCF's borrowings consist of the following:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
------------------ ---------------------
Weighted Weighted
Year of Average Average
(Dollars in thousands) Maturity Amount Rate Amount Rate
-------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Securities sold under
repurchase agreements 1995 $ 463,499 6.16% $ 429,469 5.78%
---------- ----------
Federal Home Loan Bank
advances 1995 254,739 6.28 661,405 6.17
1996 328,100 5.84 386,900 6.15
1997 66,014 6.31 76,014 6.54
1998 73,000 6.00 73,000 5.80
1999 123,000 7.00 123,000 6.98
2000 8,074 7.34 8,074 7.34
2001 25,000 7.33 25,000 7.33
2008 342 6.27 345 6.27
2009 915 6.86 925 6.86
---------- ----------
879,184 6.24 1,354,663 6.27
---------- ----------
Subordinated debt:
Subordinated capital notes
of TCF Financial
Corporation, callable
beginning January 1, 1995 2002 34,500 10.00 34,500 10.00
Senior subordinated
debentures 2006 6,248 18.00 6,248 18.00
Convertible subordinated
debentures 2011 9,928 7.25 9,928 7.25
---------- ----------
50,676 10.45 50,676 10.45
---------- ----------
Collateralized obligations:
Collateralized notes 1997 37,500 6.69 37,500 6.81
Less unamortized discount 82 - 90 -
---------- ----------
37,418 6.70 37,410 6.83
---------- ----------
Collateralized mortgage
obligations 2006 211 6.50 488 6.50
2008 3,000 6.50 3,000 6.50
2010 1,464 5.90 1,443 5.90
---------- ----------
4,675 6.31 4,931 6.32
Less amortized discount 276 - 306 -
---------- ----------
4,399 6.71 4,625 6.74
---------- ----------
41,817 6.70 42,035 6.82
---------- ----------
Other borrowings:
Industrial development
revenue bonds 2015 3,125 4.95 3,125 4.65
---------- ----------
Bank loan, maturing
serially through 1998 1998 3,500 10.00 3,500 9.50
---------- ----------
Other 1995 3,500 6.46 1,500 6.13
1998 26 7.60 27 7.60
---------- ----------
3,526 6.47 1,527 6.16
---------- ----------
10,151 7.22 8,152 7.01
---------- ----------
$1,445,327 6.38 $1,884,995 6.29
---------- ----------
---------- ----------
</TABLE>
25
<PAGE>
At March 31, 1995, borrowings with a maturity of one year or less consisted of
the following:
<TABLE>
<CAPTION>
Weighted
Average
(Dollars in thousands) Amount Rate
------ --------
<S> <C> <C>
Securities sold under repurchase agreements $463,499 6.16%
Federal Home Loan Bank advances 254,739 6.28
Bank loan 1,000 10.00
Other 3,500 6.46
--------
$722,738 6.21
--------
--------
</TABLE>
STOCKHOLDERS' EQUITY
Stockholders' equity was $470.5 million at March 31, 1995, or 6.4% of total
assets, down from $475.5 million, or 6.1% of total assets, at December 31, 1994.
The decrease in stockholders' equity is primarily due to a net loss of $12.6
million for the first quarter of 1995 and the payment of $4.3 million in common
stock dividends, partially offset by the receipt of $11 million on the exercise
of stock options and common stock warrants.
On April 18, 1995, TCF declared a quarterly dividend of 31.25 cents per common
share payable on May 31, 1995 to stockholders of record as of May 12, 1995.
REGULATORY CAPITAL REQUIREMENTS
The following tables set forth the calculations of the tangible, core and risk-
based capital levels and applicable percentages of adjusted assets for TCF's
wholly owned subsidiaries, TCF Minnesota and Great Lakes, at March 31, 1995 and
December 31, 1994 together with the excess over the minimum capital requirements
(dollars in thousands):
<TABLE>
<CAPTION>
TCF Minnesota: March 31, 1995 December 31, 1994
--------------------- ----------------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Tangible capital $281,910 6.06% $292,825 5.81%
Tangible capital requirement 69,734 1.50 75,634 1.50
-------- ----- -------- -----
Excess $212,176 4.56% $217,191 4.31%
-------- ----- -------- -----
-------- ----- -------- -----
Core capital $283,667 6.10% $320,673 6.34%
Core capital requirement 139,521 3.00 151,704 3.00
-------- ----- -------- -----
Excess $144,146 3.10% $168,969 3.34%
-------- ----- -------- -----
-------- ----- -------- -----
Risk-based capital $312,674 11.09% $350,096 12.01%
Risk-based capital requirement 225,639 8.00 233,292 8.00
-------- ----- -------- -----
Excess $ 87,035 3.09% $116,804 4.01%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Great Lakes: March 31, 1995 December 31, 1994
-------------------- ----------------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Tangible capital $138,842 5.15% $148,482 5.35%
Tangible capital requirement 40,459 1.50 41,626 1.50
-------- ----- -------- -----
Excess $ 98,383 3.65% $106,856 3.85%
-------- ----- -------- -----
-------- ----- -------- -----
Core capital $151,073 5.58% $148,482 5.35%
Core capital requirement 81,285 3.00 83,252 3.00
-------- ----- -------- -----
Excess $ 69,788 2.58% $ 65,230 2.35%
-------- ----- -------- -----
-------- ----- -------- -----
Risk-based capital $184,096 11.41% $181,594 11.08%
Risk-based capital requirement 129,040 8.00 131,140 8.00
-------- ----- -------- -----
Excess $ 55,056 3.41% $ 50,454 3.08%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
At March 31, 1995, TCF Minnesota and its wholly owned savings bank subsidiaries,
TCF Illinois and TCF Wisconsin, and Great Lakes exceeded their fully phased-in
capital requirements and believe that they would be considered well-capitalized
under guidelines established pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991.
On January 1, 1995, the amount of qualifying supervisory goodwill includable in
core and risk-based capital decreased from .375% to 0% of tangible assets.
Although it did not impact TCF Minnesota's results of operations or its ability
to meet the minimum regulatory capital requirements, this scheduled phase-out of
supervisory goodwill reduced TCF Minnesota's computed core and risk-based
capital levels by approximately $13.4 million on January 1, 1995.
On January 1, 1994, the Office of Thrift Supervision ("OTS") adopted an
amendment to its risk-based capital requirements that requires institutions with
more than a normal level of interest rate risk to maintain additional risk-based
capital. On October 13, 1994, the OTS issued a memorandum stating that the
interest-rate risk capital deduction will be waived until the OTS publishes the
process under which institutions may appeal such deductions. The effective date
of this amendment has been postponed pending further notice. Management does
not believe the interest rate risk component will have a significant impact on
the risk-based capital requirements of TCF Minnesota, its wholly owned savings
bank subsidiaries or Great Lakes.
27
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, At At At At At
except per-share data) March 31, Dec. 31, Sept. 30, June 30, March 31,
1995 1994 1994 1994 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $7,369,061 $7,845,588 $7,830,976 $7,725,299 $7,725,961
Investments(1) 91,969 283,104 363,104 408,475 322,367
Securities available for sale 89,693 138,430 186,146 142,071 392,972
Mortgage-backed securities held to maturity 1,291,370 1,601,200 1,670,848 1,715,841 1,590,669
Loans 5,237,533 5,118,381 4,961,496 4,794,255 4,687,941
Deposits 5,371,461 5,399,718 5,407,766 5,442,527 5,588,007
Federal Home Loan Bank advances 879,184 1,354,663 992,677 1,127,918 1,131,639
Subordinated debt 50,676 50,676 50,676 50,676 50,676
Other borrowings 515,467 479,656 828,012 564,832 417,268
Stockholders' equity 470,501 475,469 460,221 444,972 435,398
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
1995 1994 1994 1994 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Interest income $148,791 $145,592 $141,308 $135,139 $130,443
Interest expense 73,143 71,978 68,408 66,629 66,315
-------- -------- -------- -------- --------
Net interest income 75,648 73,614 72,900 68,510 64,128
Provision for credit losses 6,688 3,556 3,262 1,344 2,640
-------- -------- -------- -------- --------
Net interest income after provision for credit losses 68,960 70,058 69,638 67,166 61,488
-------- -------- -------- -------- --------
Non-interest income:
Loss on sale of mortgage-backed securities, net (21,037) - - - -
Gain on sale of loan servicing, net 523 581 518 693 561
Gain (loss) on sale of securities available for sale, net (250) (1,689) (52) (36) 2,758
Other non-interest income 29,642 30,331 31,393 30,505 29,656
-------- -------- -------- -------- --------
Total non-interest income 8,878 29,223 31,859 31,162 32,975
-------- -------- -------- -------- --------
Non-interest expense:
Provision for real estate losses 163 713 682 1,828 799
Amortization of goodwill and other intangibles 790 814 823 822 823
Merger-related expense 21,733 - - - -
Cancellation cost on early termination of interest-
rate exchange agreements 4,423 - - - -
Other non-interest expense 70,051 69,769 67,641 66,224 66,046
------- -------- -------- -------- --------
Total non-interest expense 97,160 71,296 69,146 68,874 67,668
-------- -------- -------- -------- --------
Income (loss) before income tax expense (benefit)
and extraordinary item (19,322) 27,985 32,351 29,454 26,795
Income tax expense (benefit) (7,683) 11,230 12,917 11,692 10,563
-------- -------- -------- -------- --------
Income (loss) before extraordinary item (11,639) 16,755 19,434 17,762 16,232
Extraordinary item:
Penalties on early repayment of FHLB advances, net of
tax benefit of $578 (963) - - - -
-------- -------- -------- -------- --------
Net income (loss) (12,602) 16,755 19,434 17,762 16,232
Dividends on preferred stock 678 677 678 677 678
-------- -------- -------- -------- --------
Net income (loss) available to common shareholders $(13,280) $ 16,078 $ 18,756 $ 17,085 $ 15,554
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per common share:
Income (loss) before extraordinary item $ (.72) $ .93 $ 1.09 $ .99 $ .90
Extraordinary item (.05) - - - -
-------- -------- -------- -------- --------
Net income (loss) $ (.77) $ .93 $ 1.09 $ .99 $ .90
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Dividends declared $ .25 $ .25 $ .25 $ .25 $ .25
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
FINANCIAL RATIOS:
Return on average assets (2) (.67)% .89% 1.03% .94% .87%
Return on average common equity (2) (11.86) 14.56 17.58 16.48 15.24
Average total equity to average assets 6.33 6.18 5.98 5.83 5.78
Net interest margin (2)(3) 4.31 4.16 4.11 3.88 3.67
<FN>
- --------------------------------
(1) Includes interest-bearing deposits with banks, federal funds sold, U.S.
Government and other marketable securities held to maturity, securities
purchased under resale agreements and FHLB stock.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
</TABLE>
28
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------
1995 1994
------------------------------- -------------------------------
Interest Interest
Average Yields and Average Yields and
(Dollars in thousands) Balance Interest(1) Rates (2) Balance Interest(1) Rates (2)
------- ----------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Securities available
for sale $ 89,344 $ 1,612 7.22% $ 437,500 $ 5,955 5.44%
---------- -------- ---------- --------
Loans held for sale 191,529 3,966 8.28 316,484 5,207 6.58
---------- -------- ---------- --------
Mortgage-backed
securities
held to maturity 1,463,259 25,846 7.07 1,325,406 22,730 6.86
---------- -------- ---------- --------
Loans:
Residential real
estate 2,681,945 51,332 7.66 2,320,817 43,252 7.45
Commercial real
estate 985,350 21,866 8.88 1,034,267 21,536 8.33
Commercial business 187,611 4,493 9.58 197,088 3,963 8.04
Consumer 1,312,195 37,776 11.52 1,077,520 24,926 9.25
---------- -------- ---------- --------
Total loans(3) 5,167,101 115,467 8.94 4,629,692 93,677 8.09
---------- -------- ---------- --------
Investments:
Interest-bearing
deposits with banks 18,279 268 5.86 26,375 221 3.35
Federal funds sold 8,520 125 5.87 156,776 1,252 3.19
U.S. Government and
other marketable
securities
held to maturity 3,543 50 5.64 3,822 113 11.83
FHLB stock 81,099 1,457 7.19 84,766 1,288 6.08
---------- -------- ---------- --------
Total investments 111,441 1,900 6.82 271,739 2,874 4.23
---------- -------- ---------- --------
Total interest-
earning assets 7,022,674 148,791 8.47 6,980,821 130,443 7.47
-------- ----- -------- -----
Other assets(4) 447,275 520,249
---------- ----------
Total assets $7,469,949 $7,501,070
---------- ----------
---------- ----------
Liabilities and
Stockholders' Equity:
Noninterest-bearing
deposits $ 447,336 $ 422,199
---------- ----------
Interest-bearing
deposits:
Checking 545,519 1,925 1.41 576,785 2,019 1.40
Passbook and
statement 887,919 4,840 2.18 991,962 4,828 1.95
Money market 690,914 5,996 3.47 720,459 4,511 2.50
Certificates 2,726,346 35,544 5.21 2,863,923 35,583 4.97
---------- -------- ---------- --------
Total interest-
bearing
deposits 4,850,698 48,305 3.98 5,153,129 46,941 3.64
---------- -------- ---------- --------
Borrowings:
Securities sold
under repurchase
agreements 472,509 7,340 6.21 341,725 4,528 5.30
FHLB advances 1,005,734 15,240 6.06 934,435 12,839 5.50
Subordinated debt 50,676 1,336 10.55 50,676 1,367 10.79
Collateralized
obligations 41,793 751 7.19 43,201 551 5.10
Other borrowings 12,107 171 5.65 8,669 89 4.11
---------- -------- ---------- --------
Total borrowings 1,582,819 24,838 6.28 1,378,706 19,374 5.62
---------- -------- ---------- --------
Total interest-
bearing
liabilities(5) 6,433,517 73,143 4.55 6,531,835 66,315 4.06
-------- ----- -------- -----
Other liabilities(4) 116,356 113,696
---------- ----------
Total liabilities 6,997,209 7,067,730
Stockholders' equity:(4)
Preferred equity 25,019 25,019
Common equity 447,721 408,321
---------- ----------
472,740 433,340
---------- ----------
Total liabilities
and stockholders'
equity $7,469,949 $7,501,070
---------- ----------
---------- ----------
Net interest income $ 75,648 $ 64,128
-------- --------
-------- --------
Net interest rate spread 3.92% 3.41%
----- -----
----- -----
Net interest margin 4.31% 3.67%
----- -----
----- -----
<FN>
(1) Tax-exempt income was not significant and thus has not been presented on a
tax equivalent basis. Tax-exempt income of $127,000 and $103,000 was
recognized during the three months ended March 31, 1995 and 1994,
respectively.
(2) Annualized.
(3) Average balance of loans includes non-accrual loans and is presented net of
unearned income.
(4) Average balance is based upon month-end balances.
(5) Includes $638,000 and $2.2 million of interest expense on interest rate
exchange agreements for the three months ended March 31, 1995 and 1994,
respectively.
</TABLE>
29
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time TCF is a party to legal proceedings arising out of its general
lending and operating activities. 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 in damages. TCF
is also from time to time involved in litigation relating to its consumer credit
and mortgage banking operations and related consumer financial services,
including class action litigation. Management, after review with its legal
counsel, believes that the ultimate disposition of its litigation will not have
a material effect on TCF's financial condition.
On November 2, 1993, TCF 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's claim is based on the government's
breach of its contract with TCF, executed in connection with TCF's
acquisitions of certain savings institutions prior to the execution of FIRREA
in 1989, which allowed TCF 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. TCF's suit is
currently stayed pending a decision by the United States Circuit Court of
Appeals for the Federal Circuit in another case addressing the government's
liability for breach of supervisory goodwill contracts. There can be no
assurance that the government will be determined to be liable in connection
with the loss of supervisory goodwill or, even if a determination favorable
to TCF is made on the issue of the government's liability, that a measure of
damages will be employed that will permit any recovery on TCF's claim.
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 April 19, 1995, the Annual Meeting of the shareholders of TCF was held to
obtain the approval of shareholders of record as of March 1, 1995 in connection
with the five matters indicated below. Following is a brief description of each
matter voted on at
30
<PAGE>
the meeting, and the number of votes cast for, against or withheld, as well as
the number of abstentions and broker nonvotes, as to each such matter:
<TABLE>
<CAPTION>
Vote
------------------------------------------
Against or Broker
Matter For Withheld Abstain Nonvote
------ ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
1. Election of Directors:
Joseph P. Clifford 15,215,647 720,436 N/A N/A
Robert E. Evans 15,215,816 720,267 N/A N/A
Luella G. Goldberg 15,475,407 460,676 N/A N/A
Mark K. Rosenfeld 15,426,045 510,038 N/A N/A
Ralph Strangis 15,468,634 467,449 N/A N/A
2. Ratification of KPMG Peat
Marwick LLP as independent
public accountants for 1995. 15,777,189 108,844 50,050 0
3. Increase the maximum permissible
size of the Board of Directors
from 15 to 25 members. 14,029,242 1,791,687 115,154 0
4. Approval of the TCF Financial
1995 Incentive Stock Program. 11,022,922 2,890,326 187,169 1,835,666
5. Approval of the Directors Deferred
Compensation Plan and Trust
Agreement. 13,191,627 690,303 218,487 1,835,666
</TABLE>
ITEM 5. OTHER INFORMATION.
As previously disclosed, the Securities and Exchange Commission ("SEC") has
conducted an investigation, in which the Company fully cooperated, concerning
the appropriateness of the timing of loan and real estate provisions taken by
TCF in the second quarter of 1990. In 1994, the SEC Staff at its Midwestern
Regional Office indicated that the SEC had approved its recommendation that
administrative proceedings be instituted, naming the Company as the sole
respondent, and alleging that certain real estate assets were overvalued prior
to the second quarter of 1990 and that losses or reserves recognized or taken on
these assets during the second quarter of 1990 should have been recognized or
taken at various times during the preceding three quarters. Subsequently, TCF
instituted discussions with the SEC Staff to ascertain whether the proceedings
could be settled on a mutually acceptable basis, and these discussions were
ongoing as of May 1995. The Staff's allegations do not concern any matters
occurring later than the second quarter of 1990. TCF is of the view that the
ultimate resolution of the matter will not have a material effect on TCF's
overall financial condition, operations or profitability.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits on page 33 of this report.
(b) Reports on Form 8-K.
A current report on Form 8-K, dated February 8, 1995, was filed in connection
with the closing of TCF's acquisition of Great Lakes Bancorp, A Federal Savings
Bank on such date.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCF FINANCIAL CORPORATION
/s/ Lynn A. Nagorske
----------------------------------------
Lynn A. Nagorske, President, Chief
Operating Officer and Treasurer
(Principal Financial Officer)
/s/ Mark R. Lund
----------------------------------------
Mark R. Lund, Senior Vice President,
Assistant Treasurer and Controller
(Principal Accounting Officer)
Dated: May 12, 1995
32
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
Exhibit Sequentially
Number Description Numbered Page
------ ----------- -------------
4(a) Copies of instruments with respect N/A
to long-term debt will be furnished
to the Securities and Exchange
Commission upon request.
11 Computation of Earnings (Loss) Per 34
Common Share
27 Financial Data Schedule N/A
33
<PAGE>
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings (Loss) Per Common Share
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Computation of Earnings (Loss) Per Common Share Three Months Ended
for Statement of Operations: March 31,
- ----------------------------------------------- --------------------------------
1995 1994
---- ----
<S> <C> <C>
Income (loss) before extraordinary item $ (11,639) $ 16,232
Less: Dividends on preferred stock 678 678
----------- -----------
Income (loss) applicable to common stock before
extraordinary item (12,317) 15,554
Extraordinary item (963) -
----------- -----------
Income (loss) applicable to common stock $ (13,280) $ 15,554
----------- -----------
----------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 17,172,991 16,766,509
Dilutive effect of stock option plans and
common stock warrants after application
of treasury stock method - (1) 479,418
----------- -----------
17 172,991 17,245,927
----------- -----------
----------- -----------
Earnings (loss) per common share:
Income (loss) before extraordinary item $ (.72) $ .90
Extraordinary item (.05) -
----------- -----------
Net income (loss) $ (.77) $ .90
----------- -----------
----------- -----------
Computation of Fully Diluted Earnings (Loss)
Per Common Share (2):
- --------------------------------------------
Income (loss) before extraordinary item $ (11,639) $ 16,232
Add: Interest expense on 7 1/4% convertible
subordinated debentures 108 109
Less: Dividends on preferred stock 678 678
----------- -----------
Income (loss) applicable to common stock before
extraordinary item (12,209) 15,663
Extraordinary item (963) -
----------- -----------
Income (loss) applicable to common stock $ (13,172) $ 15,663
----------- -----------
----------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 17,172,991 16,766,509
Dilutive effect of stock option plans and
common stock warrants after application
of treasury stock method 420,524(3) 479,122
Dilutive effect from assumed conversion of
7 1/4% convertible subordinated debentures 291,229(3) 291,254
----------- -----------
17,884,744 17,536,885
----------- -----------
----------- -----------
Earnings (loss) per common share:
Income (loss) before extraordinary item $ (.69) $ .89
Extraordinary item (.05) -
----------- -----------
Net income (loss) $ (.74) $ .89
----------- -----------
----------- -----------
<FN>
- -------------------------------
(1) Effect is anti-dilutive and is therefore excluded from the calculation.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(3) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
</TABLE>
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1ST
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 202,188
<INT-BEARING-DEPOSITS> 5,390
<FED-FUNDS-SOLD> 10,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 89,693
<INVESTMENTS-CARRYING> 1,294,922
<INVESTMENTS-MARKET> 1,270,356
<LOANS> 5,237,533
<ALLOWANCE> 62,383
<TOTAL-ASSETS> 7,369,061
<DEPOSITS> 5,371,461
<SHORT-TERM> 722,738
<LIABILITIES-OTHER> 81,772
<LONG-TERM> 722,589
<COMMON> 175
0
27
<OTHER-SE> 470,299
<TOTAL-LIABILITIES-AND-EQUITY> 7,369,061
<INTEREST-LOAN> 115,467
<INTEREST-INVEST> 29,358
<INTEREST-OTHER> 3,966
<INTEREST-TOTAL> 148,791
<INTEREST-DEPOSIT> 48,305
<INTEREST-EXPENSE> 73,143
<INTEREST-INCOME-NET> 75,648
<LOAN-LOSSES> 6,688
<SECURITIES-GAINS> (21,287)
<EXPENSE-OTHER> 97,160
<INCOME-PRETAX> (19,322)
<INCOME-PRE-EXTRAORDINARY> (11,639)
<EXTRAORDINARY> (963)
<CHANGES> 0
<NET-INCOME> (12,602)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
<YIELD-ACTUAL> 4.31
<LOANS-NON> 38,207
<LOANS-PAST> 3,346
<LOANS-TROUBLED> 2,932
<LOANS-PROBLEM> 68,335
<ALLOWANCE-OPEN> 56,343
<CHARGE-OFFS> 2,373
<RECOVERIES> 1,650
<ALLOWANCE-CLOSE> 62,383
<ALLOWANCE-DOMESTIC> 42,142
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 20,241
</TABLE>
