<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994
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
incorporation or organization) Identification No.)
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
________________________
Securities registered pursuant to Section 12(b) of the Act
(all registered on the New York Stock Exchange):
COMMON STOCK (PAR VALUE $.01 PER SHARE)
PREFERRED SHARE PURCHASE RIGHTS
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
NONCUMULATIVE PERPETUAL PREFERRED STOCK,
SERIES A, PAR VALUE $.01 PER SHARE
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2011
________________________
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 1, 1995, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, computed by reference to the average of the
high and low prices on such date as reported by the New York Stock Exchange, was
$583,277,561.
As of March 1, 1995, there were outstanding 17,410,911 shares of the
registrant's common stock, par value $.01 per share, its only outstanding class
of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Specific portions of the registrant's annual report to shareholders for the
year ended December 31, 1994 are incorporated by reference into Parts I, II and
IV hereof.
Specific portions of the registrant's definitive proxy statement dated
March 15, 1995 are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
PART I
PAGE
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lending Activities. . . . . . . . . . . . . . . . . . . . . 3
Investment Activities . . . . . . . . . . . . . . . . . . . 9
Sources of Funds. . . . . . . . . . . . . . . . . . . . . . 11
Other Information . . . . . . . . . . . . . . . . . . . . . 12
Activities of Subsidiaries of TCF Financial . . . . . . . 12
Recent Accounting Developments. . . . . . . . . . . . . . 13
Competition . . . . . . . . . . . . . . . . . . . . . . . 14
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . 14
Employees . . . . . . . . . . . . . . . . . . . . . . . . 17
Regulation. . . . . . . . . . . . . . . . . . . . . . . . . 17
Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 30
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 30
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 32
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . 34
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 34
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . 34
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . 34
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 34
Item 13. Certain Relationships and Related Transactions. . . . . . . . 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Index to Consolidated Financial Statements . . . . . . . . . . . . . . 38
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
At December 31, 1994, TCF Financial Corporation ("TCF Financial", "TCF" or
the "Company"), a Delaware corporation based in Minneapolis, Minnesota, was the
holding company of four federally chartered savings banks, TCF Bank Minnesota
fsb ("TCF Minnesota"), TCF Bank Illinois fsb ("TCF Illinois"), TCF Bank
Wisconsin fsb ("TCF Wisconsin") and TCF Bank Michigan fsb ("TCF Michigan"). At
such date, TCF Wisconsin, TCF Illinois and TCF Michigan were wholly owned
subsidiaries of TCF Minnesota, the largest savings bank and third largest
depository institution headquartered in Minnesota, with $5.1 billion in assets.
With the completion of TCF's acquisition of Great Lakes Bancorp, A Federal
Savings Bank ("Great Lakes"), on February 8, 1995, Great Lakes was merged into
TCF Michigan, TCF Michigan became a direct wholly owned subsidiary of TCF
Financial and TCF Michigan was renamed "Great Lakes Bancorp, A Federal Savings
Bank." Unless otherwise indicated, references herein to TCF include its direct
and indirect subsidiaries. TCF Minnesota, TCF Illinois, TCF Wisconsin and TCF
Michigan are collectively referred to herein as the "TCF Savings Banks."
References herein to the "Holding Company" or "TCF Financial" refer to TCF
Financial Corporation on an unconsolidated basis. Where information is
incorporated in this report by reference to TCF's 1994 Annual Report, only those
portions specifically identified are so incorporated.
TCF Financial was organized in 1987 as the holding company for TCF
Minnesota, and its common stock has been listed on the New York Stock Exchange
since 1989. Prior to 1986 TCF Minnesota operated as a mutual savings and loan
association known as Twin City Federal Savings and Loan Association. In 1986,
TCF Minnesota converted from a mutual to a stock form of organization, and in
1989, it became a federal savings bank.
From its founding in 1923 until 1979, TCF Minnesota operated profitably,
engaging in traditional savings institution activities such as residential real
estate lending. In the early 1980's, in order to counter the effects of rising
interest rates and deregulation, TCF initiated several new lending and
investment activities, including commercial real estate lending outside the
Midwest. These activities ultimately proved unprofitable. TCF has since
positioned the TCF Savings Banks as "community banks" focusing on lending,
deposit products and other services offered in their local markets and has
significantly expanded their residential real estate and consumer lending
activities, including home equity lending. TCF's strategic emphasis on retail
banking has allowed it to fund its assets primarily with retail core deposits,
significantly reduce wholesale borrowings and lower its interest rate risk.
TCF's marketing strategy emphasizes attracting deposits held in checking
and passbook and statement savings accounts, which also provide TCF with a
significant source of fee income. TCF engages in commercial, residential and
consumer lending activities, and in the insurance services business, including
the sale of single premium tax-deferred annuities. TCF's lending activities
emphasize consumer (primarily home equity) and residential mortgage loans.
TCF's residential mortgage banking operations have grown significantly in recent
periods, and its residential loan servicing portfolio totaled $5.4 billion as of
December 31, 1994.
On February 8, 1995, TCF completed its acquisition of 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 as of December
31, 1994. In connection with the acquisition, TCF issued approximately 4.8
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 intends to redeem the 2.7 million shares of preferred stock as soon
as practicable after July 1, 1995, the date the preferred stock first becomes
redeemable at the option of the issuer. 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. This acquisition
was accounted for as a pooling-of-interests and, accordingly, TCF's historical
financial statements presented in future reports will be restated to include the
accounts and results of operations of Great Lakes. In connection with the
acquisition, it is expected that a pretax merger-related charge of approximately
$51.4 million will be incurred during the 1995 first quarter, primarily to
accrue for specific, identified costs related to the merger. The savings bank
resulting from the merger of Great Lakes and TCF Michigan, referred to herein as
"Great Lakes Bank", retained certain members of Great Lakes' board of directors
and Great Lakes' headquarters in Ann Arbor, Michigan. Great Lakes Bank now
operates 54 offices in Michigan and five offices in western Ohio. Additional
information concerning the Great Lakes
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acquisition is set forth in Note 2 of Notes to Consolidated Financial Statements
on pages 44 and 45 of TCF's 1994 Annual Report, incorporated herein by
reference.
On April 21, 1993, TCF issued approximately 2.2 million shares of its
common stock for all of the outstanding common stock of Republic Capital Group,
Inc. ("RCG"), a Milwaukee-based thrift holding company with approximately $1
billion in assets. TCF's consolidated financial statements give effect to the
merger, 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 results of operations
of RCG for all periods presented. As a result of the merger, TCF acquired RCG's
two wholly owned subsidiaries, Republic Capital Bank, F.S.B. (now TCF
Wisconsin), which had 24 branch offices in eastern Wisconsin, and Peerless
Federal Savings Bank (now TCF Illinois), which had six branch offices in the
Chicago area. Subsequent to the merger, TCF Minnesota's Illinois Division,
which had 22 branch offices, was merged into TCF Illinois.
On August 27, 1993, TCF Michigan, a newly formed subsidiary of TCF
Minnesota, acquired from the Resolution Trust Corporation ("RTC") $220.8 million
of insured deposits and 15 branch offices of First Federal Savings and Loan
Association, Pontiac, Michigan. TCF has accounted for this acquisition using
the purchase method of accounting.
Located in most significant markets in the state, TCF operated 66 bank
branches in Minnesota at December 31, 1994. It also operated 28 bank branches
in Illinois, 24 in Wisconsin, and 15 in Michigan at December 31, 1994. TCF
strives to develop innovative banking products and services. From 1988 through
December 31, 1994, TCF has established in Minnesota and Illinois 27 bank
branches in supermarkets operated by Cub Foods, a regional chain. These "in-
store" bank branches provide TCF with the opportunity to sell its consumer
products and services, including deposits and loans, at a relatively low entry
cost and feature extended hours, including Saturdays and Sundays. TCF's
"Totally Free"(SM) checking accounts and other deposit products provide it with
a significant source of low-cost funds and fee income. TCF has expanded its
automated teller machine ("ATM") network to 634 machines processing
approximately 2.2 million transactions monthly, and offers its customers a
telephone accessible voice communication system that has enabled TCF to respond
to approximately 4.1 million inquiries each month.
In recent years, significant new federal legislation has imposed numerous
new legal and regulatory requirements on thrift institutions. Among the most
significant of these requirements are new minimum regulatory capital levels and
enforcement actions that can be taken by regulators when an institution's
regulatory capital is deemed to be inadequate. Each of the TCF Savings Banks
currently exceeds all of the current and fully phased-in regulatory capital
requirements. As a result of the failure of a number of thrift institutions in
recent years and the obligation of the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") to fund debt
obligations of the Financing Corporation ("FICO"), the thrift industry faces the
prospect of significantly higher deposit insurance premiums than those paid by
banks, and/or other charges necessary to meet the obligations of the SAIF. In
the event the thrift industry is required to pay significantly higher deposit
insurance premiums than those paid by banks, this may have an adverse effect on
TCF's ability to attract and retain deposits in the TCF Savings Banks or in
Great Lakes Bank. Proposals recently made by the FDIC would result in deposit
insurance rates for thrift institutions that are significantly higher that those
required to be paid by banks. As a result, TCF recently filed applications with
the Office of the Comptroller of the Currency, and anticipates filing
applications with the FDIC and the Federal Reserve Board, seeking the formation
of national bank charters for proposed new national bank subsidiaries of TCF
that would operate in branch locations in which the TCF Savings Banks and Great
Lakes Bank now operate. The new national banks, if approved, would be insured
by the Bank Insurance Fund ("BIF") of the FDIC, which is expected to be able to
provide for significantly lower deposit insurance premiums than those to be
charged to institutions that are part of the SAIF. See "REGULATION."
As federally chartered savings banks, the TCF Savings Banks are subject to
regulation and examination by the Office of Thrift Supervision ("OTS"). The TCF
Savings Banks' deposits are insured to $100,000 by the FDIC, and as such these
institutions are subject to regulations promulgated by the FDIC. The TCF
Savings Banks are variously members of the Federal Home Loan Bank ("FHLB") of
Des Moines, Chicago and/or Indianapolis. TCF Financial is a savings and loan
holding company under the Home Owner's Loan Act ("HOLA") and is subject to
regulation and examination by the OTS and, in certain cases, by the FDIC. See
"REGULATION -- Regulation of TCF Financial." The executive offices of TCF
Financial are located at 801 Marquette Avenue, Suite 302, Minneapolis, Minnesota
55402. Its telephone number is (612) 661-6500.
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The following description includes detailed information regarding the
business of TCF and its subsidiaries.
LENDING ACTIVITIES
GENERAL
TCF's lending activities reflect its community banking philosophy,
emphasizing loans to individuals and small- to medium-sized businesses in its
primary market areas in Minnesota, Illinois, Wisconsin and Michigan. In recent
years, TCF has expanded its residential real estate and consumer lending
operations and placed relatively less emphasis on new commercial real estate
lending. TCF also emphasizes credit quality over asset growth.
TCF is expanding its consumer lending and consumer finance operations and
anticipates opening more than 20 new consumer finance offices during 1995, 13 of
which had been opened as of March 15, 1995. Most of these new offices will be
in areas outside TCF's traditional market areas. TCF opened 27 such offices in
1994 and as of December 31, 1994 had 46 consumer finance offices in 11 states.
TCF has also recently expanded its commercial business and commercial real
estate lending activity in its primary markets 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.
The following table sets forth the contractual amortization of TCF's loan
and mortgage-backed securities held to maturity portfolios at December 31, 1994,
excluding loans held for sale. Commercial business demand loans are reported due
within one year. This table does not include the effect of prepayments, which
is an important consideration in management's interest rate risk analysis.
Industry experience indicates that loans and mortgage-backed securities remain
outstanding for significantly shorter periods than their contractual terms.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 (1)
------------------------------------------------------------------------------------------
REAL ESTATE
------------------------------------
TOTAL MORTGAGE-
REAL COMMERCIAL TOTAL BACKED
RESIDENTIAL COMMERCIAL ESTATE BUSINESS CONSUMER LOANS SECURITIES
----------- ---------- ------ ---------- -------- ----- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year $ 48,795 $ 79,122 $ 127,917 $ 46,146 $ 120,271 $ 294,334 $ 48,045
---------- --------- ---------- --------- ---------- ---------- ---------
After 1 year:
1 to 2 years 41,080 89,722 130,802 13,457 88,168 232,427 54,818
2 to 3 years 62,233 101,108 163,341 11,205 96,937 271,483 109,496
3 to 5 years 170,797 161,339 332,136 10,887 158,769 501,792 297,496
5 to 10 years 327,773 176,580 504,353 2,528 349,175 856,056 288,928
10 to 15 years 230,076 19,134 249,210 1,346 290,064 540,620 180,075
Over 15 years 380,936 7,765 388,701 14,828 2,587 406,116 132,012
---------- --------- ---------- --------- ---------- ---------- ---------
Total after 1 year 1,212,895 555,648 1,768,543 54,251 985,700 2,808,494 1,062,825
---------- --------- ---------- --------- ---------- ---------- ---------
Total $1,261,690 $ 634,770 $ 1,896,460 $100,397 $ 1,105,971 $ 3,102,828 $ 1,110,870
---------- --------- ---------- --------- ---------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------- ---------
Amounts due after 1 year on:
Fixed-rate loans $ 688,631 $ 167,957 $ 856,588 $ 4,982 $ 75,015 $ 936,585 $ 935,209
Adjustable-rate loans 524,264 387,691 911,955 49,269 910,685 1,871,909 127,616
---------- --------- ---------- --------- ---------- ---------- ---------
Total after 1 year $1,212,895 $ 555,648 $ 1,768,543 $ 54,251 $ 985,700 $ 2,808,494 $ 1,062,825
---------- --------- ---------- --------- ---------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------- ---------
___________________________
<FN>
(1) Amounts presented are the gross balances before adjustment for net
discounts, premiums, deferred fees, and unearned discounts and finance
charges.
</TABLE>
RESIDENTIAL REAL ESTATE LENDING
TCF's residential real estate lending activities (first mortgage loans for
the financing of one- to four-family homes) are conducted through certain of the
TCF Savings Banks and through TCF Mortgage Corporation ("TCF Mortgage"), a
wholly owned subsidiary of TCF Minnesota. TCF Mortgage is headquartered in
Minneapolis, Minnesota and has 13 offices in Minnesota. Loan originations by
TCF Mortgage and certain of the TCF Savings Banks are predominantly secured by
properties in Minnesota, Illinois and Wisconsin. TCF engages in both
adjustable-rate and fixed-rate residential real estate lending. Although TCF
generally has retained conventional adjustable-rate loans in its portfolio and
sold fixed-
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rate loans and adjustable-rate Federal Housing Administration ("FHA") and
Veterans Administration ("VA") loans in the secondary market, during 1994 TCF
retained a greater portion of its fixed-rate residential real estate
originations than in past periods. Adjustable-rate residential real estate
loans held in TCF's portfolio totaled $533.1 million at December 31, 1994,
compared with $390.2 million at December 31, 1993.
Loan originations by TCF Mortgage include loans purchased from loan
correspondents and also loans purchased from Great Lakes Mortgage, a mortgage
origination joint venture formed in October 1990 between a subsidiary of TCF
Mortgage and Burnet Mortgage Corporation, an affiliate of Burnet Realty Inc.
Great Lakes Mortgage loan officers originate loans from certain offices of
Burnet Realty Inc.
TCF may from time to time engage in the purchase of interests in various
types of loans in the form of loan participations or mortgage-backed securities.
Servicing of these purchased assets generally is performed by others with a
portion of the interest paid by the borrower being retained by the seller to
cover servicing fees and costs. As of December 31, 1994, approximately $29.6
million, or 2.3%, of TCF's residential real estate loans receivable and
residential loans held for sale were serviced by others. In addition, $901.3
million of mortgage-backed securities held to maturity were serviced by others.
TCF sells residential real estate loans and loan participations in the
secondary market, primarily on a nonrecourse basis. TCF Mortgage retains
servicing rights for the majority of the loans it sells into the secondary
market. These sales provide additional funds for loan originations and also
generate fee income. TCF may also from time to time purchase or sell servicing
rights on residential real estate loan portfolios. At December 31, 1994, TCF
serviced for others $3.9 billion in residential real estate loans and loan
participations, compared with $3.6 billion at December 31, 1993. During 1994
and 1993, TCF sold servicing rights on $169 million and $44 million of loans
serviced for others at net gains of $2.4 million and $137,000, respectively.
TCF did not sell any servicing rights during 1992. At December 31, 1994, TCF's
capitalized purchased mortgage servicing rights from bulk servicing purchases
and other wholesale loan purchases totaled $12.2 million. TCF serviced
residential real estate loans for its own account, including loans held for
sale, of $1.5 billion at December 31, 1994.
Adjustable-rate residential real estate loans originated by TCF have
various adjustment periods and generally provide for limitations on the amount
the rate may adjust on each adjustment date, as well as the total amount of
adjustments over the lives of the loans. Accordingly, while this portfolio of
loans is rate sensitive, it may not be as rate sensitive as TCF's cost of funds.
In addition to such interest rate risk, TCF faces credit risks resulting from
potential increased costs to borrowers as a result of rate adjustments on
adjustable-rate loans in its portfolio, which will depend upon the magnitude and
frequency of shifts in market interest rates. Some adjustable-rate residential
real estate loans originated by TCF in prior periods did not provide for
limitations on rate adjustments. Credit risk may also result from declines in
the values of underlying real estate collateral.
TCF Mortgage and the TCF Savings Banks generally adhere to Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
VA or FHA guidelines in originating residential real estate loans. TCF
generally requires that all conventional real estate loans with loan-to-value
ratios in excess of 80% carry private mortgage insurance.
CONSUMER LENDING
TCF makes consumer loans for personal, family or household purposes, such
as the financing of home improvements, automobiles, vacations and education.
Most of TCF's consumer loans are originated in markets in which the TCF Savings
Banks or finance company subsidiaries have their offices. As previously
mentioned, TCF is expanding its finance company operations and anticipates
opening more than 20 new finance company offices during 1995, most of which will
be in areas outside its traditional market areas. TCF opened 27 such offices in
1994 and as of December 31, 1994 had 46 finance company offices in 11 states.
As a result of this expansion, TCF's finance company loan portfolio totaled
$201 million at December 31, 1994, compared with $136.5 million at December 31,
1993. Consumer lending, including finance company 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
finance company offices are generally less stringent than those historically
adhered to by the TCF Savings Banks and as a result carry a higher level of
credit risk and higher interest rates. Although credit quality
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cannot be guaranteed and increased losses are expected in an economic downturn,
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. Total consumer loans for the TCF
Savings Banks and finance company subsidiaries totaled $1.1 billion at December
31, 1994, with $136.5 million, or 12%, having fixed interest rates and $969.5
million, or 88%, having adjustable interest rates.
The consumer lending activities of the TCF Savings Banks include a full
range of consumer-oriented products including real estate secured loans, loans
secured by personal property and unsecured personal loans. Each of these loan
types can be made on an open- or closed-end basis. Closed-end loans are
available on either a variable- or fixed-rate basis. TCF also originates
student loans for resale. TCF Wisconsin is an issuer of credit cards which it
offers to customers of the TCF Savings Banks. TCF also engages to a limited
extent in the origination of consumer loans through the use of loan brokers.
Consumer loans having adjustable interest rates present a credit risk similar to
that posed by residential real estate loans as a result of increased costs to
borrowers in the event of a rise in rates (see discussion above under "--
Residential Real Estate Lending"). Consumer loans secured by real estate will
present additional credit risk in the event of a decline in the value of real
estate collateral.
TCF had $155.5 million of education loans held for sale at December 31,
1994, compared with $123.2 million at December 31, 1993. TCF generally retains
the student loans it originates until they are fully disbursed. Under a forward
commitment agreement with the Student Loan Marketing Association ("SLMA"), TCF
can sell the student loans to SLMA once they are fully disbursed, but must sell
the student loans to SLMA before they go into repayment status. These loans are
originated in accordance with designated guarantor and U.S. Department of
Education guidelines and may not involve any independent credit underwriting by
TCF. During the years ended December 31, 1994, 1993 and 1992, TCF sold $80.3
million, $65.3 million and $36.6 million of its student loans, respectively.
TCF subcontracts for the servicing of student loans in its portfolio. TCF's
future student loan origination activity will be dependent on continued support
of guaranteed student loan programs by the U.S. Government and TCF's ability to
continue to sell such loans to SLMA or other parties. Recent federal
legislation has limited the role of private lenders in originating student
loans, and this may reduce the volume of TCF's student loan originations in
future periods.
COMMERCIAL REAL ESTATE LENDING
TCF currently originates longer-term loans on commercial real estate and,
to a lesser extent, shorter-term construction loans. TCF's commercial lending
activity has declined in recent years, primarily as a result of more stringent
underwriting standards, unfavorable economic conditions and competition from
other lenders. Deterioration in the value and collectibility of commercial real
estate loans and the value of commercial real estate in certain markets, and the
effect of these developments on the performance of TCF's loan portfolio or TCF's
ability to market real estate assets, has been a significant concern to TCF
management. See "Financial Review -- Financial Condition - Non-Performing
Assets" on pages 33 and 34 of TCF's 1994 Annual Report, incorporated herein by
reference.
TCF's current strategy is to focus its commercial lending activities on
borrowers based in its primary markets and, at a minimum, to generate enough new
commercial lending activity to maintain the size of its commercial lending
portfolios. Due to TCF's increasing emphasis on lending to small- to medium-
sized businesses in its market areas, the portion of its commercial real estate
loan portfolio secured by properties located in its primary markets had
increased to 84% at December 31, 1994.
TCF's commercial real estate loans are generally originated with adjustable
interest rates or fixed interest rates for terms of up to five years. At
December 31, 1994, adjustable-rate loans represented 69% of commercial real
estate loans outstanding. At December 31, 1994, TCF had a total of 1,074
commercial real estate loans outstanding secured by properties located in its
primary markets. Of this total, 140 loans totaling $311.9 million had balances
exceeding $1 million. At December 31, 1994, the average individual balance of
commercial real estate loans was $562,000. Information regarding the types of
properties securing TCF's commercial real estate loans is set forth on page 69
of TCF's 1994 Annual Report, incorporated herein by reference.
At December 31, 1994, TCF's commercial construction and development loan
portfolio totaled $13.5 million. Construction and permanent commercial real
estate lending is generally considered to involve a higher level of risk than
single-family residential lending due to the concentration of principal in a
limited number of loans and borrowers. In
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addition, the nature of these loans is such that they are generally less
predictable and more difficult to evaluate and monitor. Construction and
permanent commercial real estate lending is also highly dependent on economic
conditions, which in certain markets are not favorable for this type of lending
activity. TCF's risk of loss on a construction and development loan is
dependent largely upon the accuracy of the initial estimate of the property's
value at completion of the project and the estimated cost (including interest)
of the project. If the estimate of construction or development cost proves to
be inaccurate or if economic conditions change, TCF may be required to advance
funds beyond the amount originally committed to permit completion of the
project. If the estimate of value proves to be inaccurate at any time before or
after maturity, TCF's loan may be secured by a project having a value which is
insufficient to assure full repayment. Borrowers, which are often limited
partnerships formed to purchase a specific property, may receive limited cash
flow from the property, be unable to service the total debt, and as a result
fail to make required loan payments.
At times prior to its acquisition by TCF, RCG had engaged in the business
of guaranteeing certain industrial development and housing revenue bonds issued
by government authorities to finance commercial and multi-family real estate
projects for private owners/developers. In the event of a default by the
borrowers, TCF, as acquiring entity, may be required to fund the amount of its
guarantee or acquire the then outstanding bonds, and in order to recover these
amounts may be forced to foreclose on the underlying real estate. In such an
event, TCF would be subject to the risk of market declines in the values of such
properties. Management has considered these guarantees in its review of the
adequacy of industrial revenue bond reserves. The balance of such financial
guarantees at December 31, 1994 and 1993 was $18.6 million and $20.8 million,
respectively. TCF no longer engages in the business of issuing such guarantees.
Additional information concerning such guarantees is set forth in Note 16 of
Notes to Consolidated Financial Statements on pages 54 through 56 of TCF's 1994
Annual Report, incorporated herein by reference.
COMMERCIAL BUSINESS LENDING
TCF has engaged in general commercial business lending operations since
1983. Commercial business loans may be secured by various types of business
assets, including commercial real estate, and in some cases may be made on an
unsecured basis. At December 31, 1994, TCF had $100.4 million in commercial
business loans outstanding, with an average individual balance of $431,000.
Prior to 1993, TCF experienced a reduction in its commercial business
lending activities. TCF attributed this reduction to more stringent
underwriting standards as well as to uncertain economic conditions. In 1993 and
1994, TCF has sought to expand its commercial business lending activity by
lending to small and medium-sized businesses and professionals through the TCF
Savings Banks. TCF's commercial business lending activities encompass loans
with a broad variety of purposes, including corporate working capital loans and
loans to finance the purchase of equipment or other acquisitions. TCF also
makes loans to individuals who use the funds for business or personal purposes.
As part of its commercial business and commercial real estate lending
activities, TCF also issues standby letters of credit. At December 31, 1994,
TCF had 37 such standby letters of credit outstanding in the aggregate amount of
$18.1 million.
Recognizing the generally increased risks associated with commercial
business lending, TCF originates commercial business loans in order to increase
its short-term, variable-rate asset base and to contribute to its profitability
through the higher rates earned on these loans. TCF concentrates on originating
commercial business loans primarily to middle-market companies based in its
primary markets with borrowing requirements of less than $10 million.
Approximately 86% of TCF's commercial business loans outstanding at December 31,
1994 were to borrowers based in its primary markets.
CLASSIFIED ASSETS, LOAN DELINQUENCIES AND DEFAULTS
TCF has established a classification system for individual commercial loans
or other assets based on OTS regulations under which all or part of a loan or
other asset may be classified as "substandard," "doubtful," "loss" or "special
mention." It has also established overall ratings for various credit
portfolios. A loan or other asset is placed in the substandard category when it
is considered to have a well-defined weakness. A loan or other asset is placed
in the doubtful category when some loss is likely but there is still sufficient
uncertainty to permit the asset to remain on the books at its full value. All
or a portion of a loan or other asset is classified as loss when it is
considered uncollectible, in which case it is generally charged off. In some
cases, loans or other assets for which there is perceived some possible exposure
to credit loss are classified as special mention. Loans and other assets that
are classified are subject to periodic review of their appropriate regulatory
classifications. See "REGULATION -- Classification of Assets."
6
<PAGE>
The following table summarizes information about TCF's non-accrual,
restructured and past due loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 9.5 $ 17.4 $ 16.1 $ 20.7 $ 27.8
Restructured loans 3.0 7.4 48.6 29.0 20.2
------ ------ ------ ------ ------
Total non-accrual and restructured
loans $ 12.5 $ 24.8 $ 64.7 $ 49.7 $ 48.0
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Accruing loans 90 days or more past due $ 2.0 $ 2.9 $ 1.3 $ 2.6 $ 2.8
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
The accrual of interest income is generally discontinued when loans become
90 days past due with respect to either principal or interest unless such loans
are adequately secured and in the process of collection. See "Financial Review
-- Financial Condition - Non-Performing Assets" on pages 33 and 34 of TCF's 1994
Annual Report, incorporated herein by reference, for information regarding other
problem loans in TCF's portfolio.
TCF has established loan loss reserves for known and anticipated problem
loans as well as for loans which are not currently known to require a specific
reserve allocation. Total loan loss reserves at December 31, 1994 were $31.6
million, which amounts to 1.02% of gross loans outstanding. The following table
summarizes the allocation of the allowance for loan losses (includes general and
specific loss allocations):
<TABLE>
<CAPTION>
ALLOCATIONS AS A PERCENTAGE OF
GROSS LOANS OUTSTANDING BY TYPE(1)
AT DECEMBER 31, AT DECEMBER 31,
------------------------------------------------------- -----------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
--------- -------- ------- -------- ------- ----- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate $ 1,671 $ 1,789 $ 1,932 $ 1,930 $ 2,553 .13% .17% .22% .27% .35%
Commercial real estate 8,916 10,209 9,151 15,371 16,660 1.40 1.49 1.10 1.70 1.74
Commercial business 1,563 1,556 900 1,406 1,770 1.56 1.74 1.12 1.57 1.76
Consumer 10,027 6,777 7,266 6,713 7,615 .91 .74 .80 .75 .78
Unallocated 9,471 5,724 -- -- -- N.A N.A -- -- --
--------- --------- --------- --------- ---------
Total allowance balance $ 31,648 $ 26,055 $ 19,249 $ 25,420 $ 28,598 1.02 .94 .72 .98 1.04
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<FN>
___________________________
(1) Excluding loans held for sale.
N.A. - Not applicable.
</TABLE>
The following table summarizes the percentage of the outstanding balance
of gross loans in each category to total gross loans, excluding loans held
for sale:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residential real estate 40.7% 38.5% 32.1% 27.3% 26.2%
Commercial real estate 20.5 24.9 31.0 34.8 34.7
Commercial business 3.2 3.3 3.0 3.5 3.6
Consumer 35.6 33.3 33.9 34.4 35.5
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
7
<PAGE>
The following table summarizes additional information about TCF's allowance
for loan losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 26,055 $ 19,249 $ 25,420 $ 28,598 $ 16,552
Adjustments for pooling-of-interests -- (56) -- -- --
Charge-offs:
Residential real estate (860) (728) (1,117) (843) (1,915)
Commercial real estate (2,699) (11,754) (15,043) (15,841) (7,166)
Commercial business (633) (59) (978) (1,519) (1,354)
Consumer (3,548) (3,491) (4,381) (6,275) (6,924)
-------- -------- -------- -------- --------
(7,740) (16,032) (21,519) (24,478) (17,359)
-------- -------- -------- -------- --------
Recoveries:
Residential real estate 222 260 290 403 963
Commercial real estate 1,250 1,372 885 933 300
Commercial business 34 101 740 95 257
Consumer 926 954 1,010 1,279 1,040
-------- -------- -------- -------- --------
2,432 2,687 2,925 2,710 2,560
-------- -------- -------- -------- --------
Net charge-offs (5,308) (13,345) (18,594) (21,768) (14,799)
Provision charged to operations 10,901 20,207 12,423 18,590 23,858
Acquired allowance -- -- -- -- 2,987
-------- -------- -------- -------- --------
Balance at end of year $ 31,648 $ 26,055 $ 19,249 $ 25,420 $ 28,598
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net loan charge-offs to average loans
outstanding (1) .18% .50% .69% .83% .53%
Year-end allowance as a percentage of year-end gross
loan balance (1) 1.02 .94 .72 .98 1.04
<FN>
_________________________________
(1) Excluding loans held for sale.
</TABLE>
In addition to its allowance for loan losses, TCF had an allowance for real
estate losses of $730,000 and an industrial revenue bond reserve of $2.8 million
at December 31, 1994. Additional information concerning TCF's allowances for
loan and real estate losses and industrial revenue bond reserves is set forth in
"Financial Review -- Financial Condition - Allowances for Loan and Real Estate
Losses and Industrial Revenue Bond Reserves" on pages 31 to 33 and in Note 8 of
Notes to Consolidated Financial Statements on pages 48 and 49 of TCF's 1994
Annual Report, incorporated herein by reference.
A summary of the industrial revenue bond reserves follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- --------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,689 $ 1,463 $ 2,881 $ 408 $ --
Adjustments for pooling-of-interests -- 225 -- -- --
Provisions for losses -- 1,726 767 2,473 2,008
Net (charge-offs) recoveries 70 (725) (2,185) -- (1,600)
-------- -------- -------- -------- --------
Balance at end of year $ 2,759 $ 2,689 $ 1,463 $ 2,881 $ 408
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Prior to being acquired by TCF, RCG 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 December 31, 1994 and 1993 was $18.6 million and $20.8
million, respectively. Management has considered these guarantees in its review
of the adequacy of the industrial revenue bond reserves.
8
<PAGE>
A summary of the allowance for real estate losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 1,968 $ 2,291 $ 7,603
Adjustments for pooling-of-interests - (513) -
Provision for losses 2,373 11,743 22,054
Charge-offs (3,611) (11,553) (27,366)
-------- -------- ---------
Balance at end of year $ 730 $ 1,968 $ 2,291
-------- -------- ---------
-------- -------- ---------
</TABLE>
Real estate acquired through foreclosure (including real estate in judgment
and in-substance foreclosures) is carried at the lower of cost or fair value
minus estimated costs to sell the properties. See "OTHER INFORMATION--Recent
Accounting Developments."
Real estate charge-offs in 1993 reflect $4.2 million in charge-offs of
TCF's investment in New York City cooperative apartment units, and sales of
commercial real estate properties at less than previously estimated fair values.
TCF's remaining investment in the cooperative units (excluding loans to
purchasers of cooperative units and loans to the cooperative apartment
corporations secured by underlying real estate) totaled $528,000 and $1.8
million at December 31, 1994 and 1993, respectively.
Real estate charge-offs in 1992 exceeded the allowance for real estate
losses at December 31, 1991 primarily due to a decline in the market value of
cooperative units and other commercial real estate properties and sales of
commercial real estate properties at less than previously estimated fair values.
The presence of various factors added a degree of uncertainty to management's
determination of the estimated fair values of certain foreclosed commercial real
estate properties at December 31, 1991. These factors included the existence of
a number of large out-of-territory properties which have a substantially greater
risk of loss, the inability to gain access and obtain updated appraisals for
certain in-substance foreclosed properties, the limited market for certain of
the properties, and environmental concerns for one property which was
subsequently sold. TCF disposed of a number of foreclosed commercial real
estate properties in 1992 at lower prices in order to reduce future legal and
other expenses, minimize future holding costs and reduce TCF's exposure to
further declines in market values. Reducing non-performing assets in 1992
enabled TCF to improve its financial performance and regulatory ratings.
The allowance for real estate losses is based on management's periodic
analysis of real estate holdings. In this analysis, management considers
factors including, but not limited to, general economic and market conditions,
geographic location, composition and appraisals of the real estate holdings and
property conditions. The carrying values of foreclosed real estate are based on
appraisals, prepared by certified appraisers, whenever possible. TCF reviews
each external commercial real estate appraisal it receives for accuracy,
completeness and reasonableness of assumptions used. A renewed weakness in
commercial real estate markets may result in further declines in values of the
properties or the sale of individual properties at less than previously
estimated values, resulting in additional charge-offs. TCF recognizes the
effect of such events in the periods in which they occur.
When property acquired in settlement of loans is sold, TCF may also provide
financing for the sale and, in some cases, may provide a "loan to facilitate,"
which is a loan that may be made at below market rates or feature other terms
not normally offered to other borrowers. If a loan to facilitate is made at a
rate below market, TCF records a loan discount in order to bring the yield on
the loan to a market interest rate.
INVESTMENT ACTIVITIES
Federal savings banks such as the TCF Savings Banks have authority to
invest in various types of liquid assets, including United States Treasury
obligations and securities of various federal agencies, certificates of deposit
at insured banks, bankers' acceptances and federal funds. The TCF Savings Banks
must maintain minimum levels of liquid assets specified by the OTS. These
minimum levels are subject to change. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. The TCF Savings Banks
9
<PAGE>
must also meet reserve requirements of the Federal Reserve Board ("FRB"), which
are imposed based on amounts on deposit in various types of deposit categories.
See "REGULATION -- Liquidity and Reserve Requirements."
In May, 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." TCF adopted SFAS No. 115
effective January 1, 1994. Information on TCF's adoption of SFAS No. 115 is
provided in Note 1 of Notes to Consolidated Financial Statements on pages 43 and
44 of TCF's 1994 Annual Report, incorporated herein by reference.
Following is a table indicating the investments comprising TCF's portfolio,
excluding securities available for sale:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-bearing deposits with banks $ 190,698 $ 10,512 $ 26,534
---------- --------- ---------
Federal funds sold 6,900 105,500 100,000
---------- --------- ---------
U.S. Government and other marketable securities held to maturity:
U.S. Government and agency obligations 50 66,961 51,428
Corporate bonds -- 3,000 12,981
Bankers' acceptances -- 6,997 24,842
Commercial paper 3,478 3,244 17,817
Other -- 1,058 26,561
---------- --------- ---------
3,528 81,260 133,629
---------- --------- ---------
Federal Home Loan Bank stock 42,525 37,849 33,601
---------- --------- ---------
$ 243,651 $ 235,121 $ 293,764
---------- --------- ---------
---------- --------- ---------
</TABLE>
Information regarding the carrying values and fair values of TCF's
investment securities portfolio is set forth in Note 3 of Notes to Consolidated
Financial Statements on page 46 of TCF's 1994 Annual Report, incorporated herein
by reference. A summary of yields by scheduled maturities for indicated
investment securities at December 31, 1994 and December 31, 1993 is set forth on
page 68 of TCF's 1994 Annual Report, incorporated herein by reference.
Following is a table indicating the investments comprising TCF's securities
available for sale portfolio:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
1994 1993 1992
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government and other marketable securities:
U.S. Government and agency obligations $ 50,912 $ -- $ 1,000
Commercial paper 14,843 -- --
Other 30 10,236 --
--------- --------- ---------
65,785 10,236 1,000
--------- --------- ---------
Mortgage-backed securities -- -- 255,624
--------- --------- ---------
$ 65,785 $ 10,236 $ 256,624
--------- --------- ---------
--------- --------- ---------
</TABLE>
Information regarding the carrying values and fair values of TCF's
securities available for sale portfolio is set forth in Note 4 of Notes to
Consolidated Financial Statements on page 47 of TCF's 1994 Annual Report,
incorporated herein by reference. A summary of yields by scheduled maturities
for securities available for sale at December 31, 1994 and December 31, 1993 is
set forth on page 68 of TCF's 1994 Annual Report, incorporated herein by
reference.
10
<PAGE>
SOURCES OF FUNDS
DEPOSITS
Deposits are the primary source of TCF's funds for use in lending and for
other general business purposes. Deposit inflows and outflows are significantly
influenced by economic conditions, interest rates, money market conditions and
other factors. Although TCF's overall levels of deposits have recently
stabilized, demand for certain types of deposit products, such as certificates
of deposit, has declined in recent periods. Higher-cost borrowings may be used
to compensate for reductions in normal sources of funds, such as deposit inflows
at less than projected levels or net deposit outflows, or to support expanded
activities.
Consumer and commercial deposits are attracted principally from within
TCF's primary market areas through the offering of a broad selection of deposit
instruments including consumer and commercial demand deposit accounts,
Negotiable Order of Withdrawal or "NOW" (interest-bearing checking) accounts,
money market accounts, regular savings accounts, certificates of deposit and
retirement savings plans.
The composition of TCF's deposits has a significant impact on its cost of
funds. In recent years, TCF's marketing strategy has emphasized attracting
deposits held in checking and regular savings accounts. These accounts provide
significant fee income and are a source of low-interest cost funds. Checking
and savings accounts comprised 41% of total deposits at December 31, 1994, up
from 40% of total deposits at December 31, 1993, and 36% at December 31, 1992.
In addition, there were approximately 826,000 retail checking and savings
accounts at December 31, 1994, compared with approximately 805,000 and 750,000
such accounts at December 31, 1993 and 1992, respectively. The acquisition of
deposits by TCF Michigan contributed to the increase in such accounts in 1993.
Total deposits at TCF as of December 31, 1994 were $3.8 billion, down $282.9
million from total deposits at December 31, 1993. The following table sets
forth the deposit flows for each of the years in the three-year period ended
December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net withdrawal of deposits $ (407,349) $ (275,816) $ (233,836)
Adjustments for pooling-of-interests -- (7,529) --
Deposits purchased -- 246,040 --
Interest credited 124,405 135,155 181,554
----------- ---------- ------------
Net increase (decrease) in deposits $ (282,944) $ 97,850 $ (52,282)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The following table shows rate and maturity information as of December 31,
1994, and rate information as of December 31, 1993, for TCF's certificates of
deposit:
<TABLE>
<CAPTION>
INTEREST CATEGORY
-----------------------------------------------------------------
1.00 - 3.00- 4.00- 6.00- 8.00- % OF
MATURITY WITHIN THE YEAR ENDING 2.99% 3.99% 5.99% 7.99% 13.99% TOTAL TOTAL
------------------------------- --------- ---------- ---------- -------- -------- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995 $ 87,706 $ 225,476 $ 796,485 $ 178,705 $ 25,853 $ 1,314,225 72.1%
December 31, 1996 15 35,768 160,631 104,592 5,638 306,644 16.8
December 31, 1997 1 11,310 60,500 35,076 595 107,482 5.9
Thereafter -- 29 61,426 32,361 1,769 95,585 5.2
--------- ---------- ---------- --------- --------- ----------- -----
Total at December 31, 1994 $ 87,722 $ 272,583 $1,079,042 $ 350,734 $ 33,855 $ 1,823,936 100.0%
--------- ---------- ---------- --------- --------- ----------- -----
--------- ---------- ---------- --------- --------- ----------- -----
Total at December 31, 1993 $ 158,517 $ 707,886 $ 608,909 $ 367,300 $ 134,348 $ 1,976,960
--------- ---------- ---------- --------- --------- -----------
--------- ---------- ---------- --------- --------- -----------
</TABLE>
Information concerning TCF's deposits is set forth in "Financial Review --
Financial Condition - Deposits" on page 35 and in Note 12 of Notes to
Consolidated Financial Statements on pages 50 and 51 of TCF's 1994 Annual
Report, incorporated herein by reference.
11
<PAGE>
BORROWINGS
The FHLB System functions as a central reserve bank providing credit for
thrift institutions through a regional bank located within a particular thrift's
assigned region. As members of the FHLB System, the TCF Savings Banks are
required to own a minimum level of FHLB capital stock and are authorized to
apply for advances on the security of such stock and certain of their loans and
other assets (principally securities which are obligations of, or guaranteed by,
the United States Government), provided certain standards related to
creditworthiness have been met. TCF's FHLB advances totaled $650.9 million at
December 31, 1994, compared with $396.7 million at December 31, 1993. FHLB
advances are made pursuant to several different credit programs. Each credit
program has its own interest rates and range of maturities. The FHLB prescribes
the acceptable uses to which the advances pursuant to each program may be made
as well as limitations on the size of advances. Acceptable uses prescribed by
the FHLB have included expansion of residential mortgage lending and meeting
short-term liquidity needs. In addition to the program limitations, the amounts
of advances for which an institution may be eligible are generally based on the
FHLB's assessment of the institution's creditworthiness. See "REGULATION --
Federal Home Loan Bank System."
As an additional source of funds, TCF may sell securities subject to its
obligation to repurchase these securities under repurchase agreements ("reverse
repurchase agreements") with the FHLMC or major investment bankers utilizing
government securities or mortgage-backed securities as collateral. Reverse
repurchase agreements totaled $170.1 million at December 31, 1994, compared with
$129.8 million at December 31, 1993. Generally, securities with a value in
excess of the amount borrowed are required to be deposited as collateral with
the counterparty to a reverse repurchase agreement. The creditworthiness of the
counterparty is important in establishing that the overcollateralized amount of
securities delivered by TCF is protected and it is TCF's policy to enter into
reverse repurchase agreements only with institutions with a satisfactory credit
history.
The use of reverse repurchase agreements may expose TCF to certain risks
not associated with other sources of funds, including possible requirements to
provide additional collateral and the possibility that such agreements may not
be renewed. If for some reason TCF were no longer able to obtain reverse
repurchase agreement financing, it would be necessary for TCF to obtain
alternative sources of short-term funds. Such alternative sources of funds, if
available, may be higher- cost substitutes for the reverse repurchase agreement
funds.
Information concerning TCF's FHLB advances, reverse repurchase agreements
and other borrowings, and exposure to interest rate risk is set forth in
"Financial Review -- Financial Condition - Asset/ Liability Management -
Interest Rate Risk," on pages 36 and 37, in Note 13 of Notes to Consolidated
Financial Statements on pages 51 and 52, and in the tables which set forth
maximum and average borrowing levels on page 68 of TCF's 1994 Annual Report,
incorporated herein by reference.
OTHER INFORMATION
ACTIVITIES OF SUBSIDIARIES OF TCF FINANCIAL
TCF's business operations include those conducted by direct and indirect
subsidiaries of TCF Financial. The TCF Savings Banks are permitted to invest an
amount equal to 2% of their assets (excluding those of its subsidiaries) in
subsidiaries called service corporations. Up to an additional 1% of assets may
be invested in certain types of community development projects. Under OTS
regulations, the ability of thrift institutions to invest an additional amount
up to 50% of their risk-based capital in conforming loans to service
corporations is tied to an institution's compliance with regulatory capital
requirements. Service corporations are authorized by regulation to engage in
various activities reasonably related to the activities of federal savings
associations as approved by the OTS. See "REGULATION -- Limitations on Certain
Investments."
In addition to investments in service corporations, the TCF Savings Banks
are also permitted to form subsidiaries known as operating subsidiaries.
Operating subsidiaries are permitted to engage in activities permitted for
federal savings associations and are not subject to the service corporation
investment limitations. See "REGULATION -- Limitations on Certain Investments."
During the year ended December 31, 1994, TCF subsidiaries were principally
engaged in the following activities:
12
<PAGE>
Mortgage Banking
TCF Mortgage Corporation, a subsidiary of TCF Minnesota, originates, sells
and services residential mortgage loans. At December 31, 1994, it operated 10
offices in the Minneapolis-St. Paul metropolitan area, and an office each in
Rochester, Faribault and St. Cloud, Minnesota. A subsidiary of TCF Mortgage
Corporation is involved in a joint venture, known as Great Lakes Mortgage, with
Burnet Mortgage Corporation, an affiliate of Burnet Realty Inc., for the
origination of residential mortgage loans from offices of Burnet Realty.
Annuities and Investment Services
TCF Financial Insurance Agency, Inc., TCF Financial Insurance Agency
Illinois, Inc., TCF Financial Insurance Agency Wisconsin, Inc. and TCF Financial
Insurance Agency Michigan, Inc. are insurance agencies engaging in the sale of
single premium tax-deferred annuities. TCF Securities, Inc., which commenced
business in November 1993, engages in the sale of mutual fund products of Putnam
Investments.
Insurance, Title Insurance and Appraisal Services
TCF Agency Minnesota, Inc., TCF Agency Wisconsin, Inc. and TCF Agency
Illinois, Inc. provide various types of insurance, principally credit-related
insurance, marketed primarily to TCF's customers. In the event TCF becomes a
bank holding company, it could be required to discontinue insurance operations
which are not credit related. North Star Title, Inc. is a title insurance agent
for several title insurance underwriters, operating primarily in Minnesota and
Illinois and providing title insurance, real estate abstracting, and closing
services to affiliates and third parties. North Star Real Estate Services, Inc.
provides real estate appraisal services to its affiliates and to third parties.
In the event TCF becomes a bank holding company, it could be required to divest
its title insurance operations, or to restrict its title insurance and related
activities. See "REGULATION -- Regulation of TCF Financial and Affiliate and
Insider Transactions."
Consumer Finance
TCF Financial Services, Inc. and TCF Consumer Financial Services, Inc.,
make loans to consumers for personal, family or household purposes such as the
financing of home improvements, automobiles and vacations.
RECENT ACCOUNTING DEVELOPMENTS
During the past several years, there has been an ongoing review of the
accounting principles and practices used by financial institutions for certain
types of transactions. This review is expected to continue by thrift and
banking regulators, the Securities and Exchange Commission ("SEC"), the FASB,
the American Institute of Certified Public Accountants ("AICPA") and other
organizations. As a result of this process, there have been new accounting
pronouncements which have had an impact on TCF. Further developments may be
forthcoming in light of this ongoing review process. See "REGULATION --
Accounting and Investments."
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." In October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." Additional information on SFAS No. 114 and SFAS No. 118 is set
forth in "Financial Review--Financial Condition - Non-Performing Assets" on
pages 33 and 34 of TCF's 1994 Annual Report, incorporated herein by reference.
In June 1994, the FASB 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."
Additional information on this proposed statement is set forth in "Financial
Review--Results of Operations - Non-Interest Expense" on pages 27 and 28 of
TCF's Annual Report, incorporated herein by reference.
In November 1993, the FASB issued an Exposure Draft of a Proposed Statement
of Financial Accounting Standards, "Accounting for the Impairment of Long-Lived
Assets." This proposed statement addresses the accounting for the impairment of
long-lived assets, identifiable intangibles, and goodwill related to those
assets. It would establish guidance for recognizing and measuring impairment
losses and would require that the carrying amount of impaired assets be reduced
to fair value. This proposed statement would require long-lived assets and
identifiable intangibles to be held and
13
<PAGE>
used by an entity to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. In performing the review for recoverability, the entity would
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future net cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss would be recognized. Otherwise, an impairment
loss would not be recognized. The proposed statement would be effective for
financial statements issued for fiscal years beginning after June 15, 1995. It
is too early to predict whether the proposed statement will be adopted in its
current form, or what effect, if any, it will have on TCF's results of
operations.
In October 1993, the Accounting Standards Executive Committee of the AICPA
issued a proposed SOP, "Identifying and Accounting for Real Estate Loans that
Qualify as Real Estate Investments." This proposed SOP applies to all entities
that make or acquire real estate loans. It provides guidance on identifying and
accounting for real estate loans that qualify as real estate investments for
financial reporting purposes. Such loans may include real estate acquisition,
development, and construction ("ADC") loans, loans on operating real estate,
convertible mortgages, and shared appreciation (participating) mortgages. It
requires real estate loans that do not meet certain criteria to be classified
and accounted for as real estate investments. For purposes of applying the
proposed SOP, a loan classified and accounted for as a real estate investment
is considered the equivalent of an investment by the lender in a hypothetical
partnership, the assets of which include the subject real estate. The proposed
SOP does not apply to (1) troubled debt restructurings, foreclosures, or in-
substance foreclosures relating to real estate loans accounted for as loans
using the criteria set forth in the proposed SOP, (2) debtors, (3) real estate
loans resulting from the lender's sale of real estate, (4) permanent mortgage
real estate loans on one- to four-family residential properties, or (5) small
real estate loans evaluated for impairment by the lender in the aggregate. The
proposed SOP would apply to real estate loans entered into or purchased after
December 31, 1994. Earlier application is encouraged. It is too early to
predict whether the proposed SOP will be adopted in its current form, or what
effect, if any, it will have on TCF's results of operations or regulatory
capital.
COMPETITION
TCF Minnesota is the largest savings bank and third largest depository
institution headquartered in Minnesota. TCF Illinois, TCF Wisconsin and TCF
Michigan compete with a number of larger depository institutions in their market
areas. The TCF Savings Banks experience significant competition in attracting
and retaining deposits and in lending funds. TCF believes the primary factors
in competing for deposits are the ability to offer attractive rates and
products, convenient office locations and supporting data processing systems and
services. Direct competition for deposits comes primarily from commercial banks
and credit unions, and from other savings institutions. Additional significant
competition for deposits comes from institutions selling money market mutual
funds and corporate and government securities. The primary factors in
competing for loans are interest rates, loan origination fees and the range of
services offered. TCF competes for origination of loans with commercial banks,
mortgage bankers, mortgage brokers, consumer finance companies, credit unions,
insurance companies and other savings institutions.
ACQUISITIONS
Since 1992, TCF has been actively exploring a number of possible
acquisition opportunities in the Midwest. As previously noted, during 1995 TCF
completed its acquisition of Great Lakes and during 1993 TCF acquired RCG and
certain deposit liabilities and assets of First Federal Savings and Loan
Association, Pontiac, Michigan. In addition, in 1993, TCF acquired from
Prospect Federal Savings Bank its Lombard, Illinois branch, with more than $24
million in deposits.
Prior to 1990, TCF expanded its operations through the acquisition of a
number of savings and loan associations. In accordance with generally accepted
accounting principles, certain of these acquisitions were accounted for using
the purchase method of accounting. All assets acquired and liabilities assumed
were adjusted to fair market value as of the dates of acquisition. In
accordance with SFAS No. 109, a deferred tax asset was recorded for the tax
benefits resulting from the difference in value assigned to various acquired
assets under the purchase method of accounting and their tax basis. To the
extent required under SFAS No. 109, a tax valuation allowance was also recorded.
The fair market value of the liabilities assumed exceeded the fair market value
of the assets acquired in each of the acquisitions. The difference, goodwill
and deposit base intangibles, has been recorded in TCF's consolidated financial
statements as an asset. For acquisitions initiated or completed prior to
September 30, 1982, goodwill is being amortized over 25 years on a straight-line
basis. For acquisitions initiated or completed after September 30, 1982,
goodwill is being amortized by the level-
14
<PAGE>
yield method based upon the outstanding balances, and over the estimated
remaining lives, of the long-term assets acquired. Deposit base intangibles are
amortized over 10 years on a straight-line basis. TCF periodically re-evaluates
the periods of amortization to determine whether current conditions warrant
revised estimates of useful lives. Following these acquisitions, numerous legal
and regulatory restrictions were imposed on the TCF Savings Banks' ability to
include such goodwill and deposit base intangibles as part of regulatory
capital. See "REGULATION -- Regulatory Capital Requirements."
The fair market value of the assets acquired and liabilities assumed in
acquisitions accounted for using the purchase method of accounting generally
differed from the face amount of such assets and liabilities. The resultant
premiums and discounts are being amortized over the expected remaining lives of
such assets and liabilities. The fair market value of acquired loans and
mortgage-backed securities for these acquisitions was generally determined to be
less than the unpaid principal balance. The difference, loan discount, results
primarily from the fact that the acquired loans had contractual interest rates
lower than prevailing market rates at the date of acquisition. The loan
discount, for loans not subsequently sold, is being amortized into income using
the level-yield method over the remaining contractual lives of the loans,
adjusted for anticipated prepayments.
The following table sets forth the actual effect on results of operations
for the years since acquisition through 1994 and the proforma effect on future
years' results of operations of the amortization of the valuation adjustments
recorded in connection with TCF's acquisitions. The proforma amortizations have
been calculated on the basis of the assumptions explained above. If these
assumptions are not realized, the actual amortization of these valuation
adjustments will vary. The category in the table entitled "Amortization of
Other Discounts and Premiums" includes discounts and premiums equal to the
difference between the fair market values of the assets (other than loans)
acquired and the liabilities assumed and the recorded values of such assets and
liabilities on the books of the acquired entities at the dates of acquisition.
Such discounts and premiums are being amortized, where applicable, using the
straight-line method over periods of up to 40 years with respect to depreciable
premises and equipment, and using the level-yield method with respect to
interest-earning assets and interest-bearing liabilities.
15
<PAGE>
<TABLE>
<CAPTION>
AMORTIZA- EFFECT ON GOODWILL
TION AMORTIZATION NET INCOME REDUCTION
AMORTIZA- OF OTHER OF GOODWILL (LOSS) BEFORE DUE TO
TION DISCOUNTS AND DEPOSIT WRITE-OFF/ INCOME THE RECOGNITION
OF LOAN AND BASE REDUCTION OF TAX OF ACQUIRED
DISCOUNTS PREMIUMS INTANGIBLES GOODWILL EXPENSE TAX BENEFITS(3)
---------- -------- ----------- ------------ ------------ ----------------
(IN THOUSANDS)
Year Ended December 31,
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Actual:
Prior to 1990 $ 50,850 $ (701) $ (47,768) $ (6,898)(1) $ (4,517) $ (74,427)
1990 5,177 89 (4,723) (10,169)(2) (9,626) --
1991 3,266 622 (3,853) -- 35 (6,975)
1992 2,585 122 (3,830) -- (1,123) (1,884)
Adjustments for pooling-
of-interests (69) 164 (104) -- (9) --
1993 1,756 106 (2,957) -- (1,095) --
1994 1,051 86 (3,257) -- (2,120) --
--------- ------ --------- --------- --------- ----------
64,616 488 (66,492) (17,067) (18,455) (83,286)
--------- ------ --------- --------- --------- ----------
Proforma:
1995 358 20 (3,198) -- (2,820) --
1996 217 23 (3,182) -- (2,942) --
1997 124 19 (2,953) -- (2,810) --
1998 106 13 (2,799) -- (2,680) --
1999 102 10 (2,794) -- (2,682) --
2000-2004 302 2 (10,927) -- (10,623) --
2005-2029 -- 17 (1,995) -- (1,978) --
--------- ------ --------- --------- --------- ----------
1,209 104 (27,848) - (26,535) --
--------- ------ --------- --------- --------- ----------
Total $ 65,825 $ 592 $ (94,340) $ (17,067) $ (44,990) $ (83,286)
--------- ------ --------- --------- --------- ----------
--------- ------ --------- --------- --------- ----------
<FN>
_______________________
(1) The premium received on the sale of seven branches of TCF's Texas thrift
subsidiary in 1987 was applied to reduce goodwill.
(2) Represents the write-off of all remaining goodwill associated with TCF's
Texas thrift subsidiary in connection with restructuring activities
undertaken by TCF during the second quarter of 1990.
(3) Represents the reduction of goodwill due to the realization of acquired tax
benefits resulting from the reduction of tax valuation allowances as
required by SFAS No. 109. These benefits were not recorded at the time of
acquisition because of the uncertainty of realization.
</TABLE>
The following summarizes TCF's acquisitions since 1988 that were accounted
for using the purchase method of accounting:
<TABLE>
<CAPTION>
AT ACQUISITION DATE
--------------------------------------------
FAIR
VALUE OF FAIR VALUE DEPOSIT
LIABILITIES OF ASSETS BASE
DATE ACQUIRED ASSUMED ACQUIRED INTANGIBLES
------------- ------------- ---------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Peerless Federal Savings
Bank, Chicago, Illinois (1) December 30, 1989 $ 209.2 $ 207.1 $ 2.1
Lombard branch office of
Prospect Federal Savings
Bank, Lombard, Illinois August 16, 1993 25.3 25.3 --
First Federal Savings and Loan
Association, Pontiac,
Michigan (2) August 27, 1993 223.7 209.1 14.6
-------- -------- -------
$ 458.2 $ 441.5 $ 16.7
-------- -------- -------
-------- -------- -------
<FN>
--------------------------------
(1) Acquisition was entered into by RCG prior to its acquisition by TCF.
(2) TCF acquired $220.8 million of insured deposits and 15 branch offices of
First Federal Savings and Loan Association, Pontiac, Michigan from the RTC.
</TABLE>
16
<PAGE>
EMPLOYEES
As of December 31, 1994, TCF had approximately 3,600 employees, including
850 part-time employees. TCF provides its employees with a comprehensive
program of benefits, some of which are on a contributory basis, including
comprehensive medical and dental plans, life insurance, accident insurance,
short- and long-term disability coverage, a pension plan and a shared
contribution stock ownership-401(k) plan.
REGULATION
LEGISLATIVE AND REGULATORY DEVELOPMENTS
TCF Financial, as a publicly-held thrift holding company, and the TCF
Savings Banks, as federally chartered savings banks with deposits insured by the
FDIC, are subject to a number of laws and regulations that have undergone change
in recent years. These laws and regulations impose restrictions on activities,
minimum capital requirements, lending and deposit restrictions, and numerous
other requirements.
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") was signed into law. A number of significant changes resulted
from this legislation, including more stringent capital requirements,
limitations on thrift activities, expanded regulatory enforcement measures and
changes to the deposit insurance system. The TCF Savings Banks (other than TCF
Michigan, which was newly chartered by the OTS in August 1993) were chartered by
the Federal Home Loan Bank Board ("FHLBB"). Under FIRREA, the FHLBB was
abolished and its thrift chartering and certain regulatory functions passed to
the newly created OTS, under the Treasury Department. All of the TCF Savings
Banks are members of the FHLB System. FIRREA created a new independent agency
known as the Federal Housing Finance Board ("FHFB"), which is the governing
authority for the FHLB System. Under FIRREA, the Federal Savings and Loan
Insurance Corporation ("FSLIC") was abolished and the role of the FSLIC as the
insurer of thrift deposits passed to the FDIC through its SAIF.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
enacted by Congress in late 1991, requires federal regulators to impose a
conservator or receivership on undercapitalized institutions and generally
requires such early intervention when an institution's tangible capital falls
below 2% of total assets, provides for the assessment of deposit insurance
premiums based on assessed risk in the institution's asset portfolio, allows for
charges for FDIC examinations, authorizes federal regulators to establish
operating and other standards for insured institutions and their holding
companies, requires certain disclosures for savings accounts and imposes
liability on TCF Financial for capital deficiencies of the TCF Savings Banks
under certain circumstances, among other significant changes.
The Resolution Trust Corporation Completion Act, enacted in late 1993
accelerated the closing of the RTC to December 31, 1995 and reduced the maximum
authorization for the SAIF to $8 billion from $32 billion through 1998, or until
the SAIF reserve ratio reaches 1.25% of estimated insured deposits, whichever
occurs earlier. Among a number of provisions dealing with the management and
operation of the RTC and transitional issues relating to the transfer of the
RTC's operations to the FDIC, the legislation restricts the use of SAIF funds to
pay losses of the SAIF by requiring the Chairperson of the FDIC to certify that
SAIF members are unable to pay additional premiums to cover such losses. It is
not clear at this time what effect this legislation might have on future deposit
insurance premiums to be paid by the TCF Savings Banks, but it could result in a
premium increase or a competitive disadvantage to savings associations generally
as a result of their failure to realize the benefits of lower deposit insurance
premiums which may become available to commercial banks.
In September 1994, the Riegle Community Development and Regulatory
Improvement Act ("RCDRIA") was enacted. This legislation created a new federal
program to assist community development banks serving economically distressed
communities, and also made several changes to FDICIA designed to make certain
regulatory requirements less burdensome, among other changes. Also in September
1994, the Riegle-Neal Interstate Banking Efficiency Act of 1994 ("RNIBEA") was
enacted. Under this legislation, provisions of the Federal Deposit Insurance
Act ("FDIA") and the Bank Holding Company Act of 1956 were amended, effective
September 29, 1995, to permit bank holding company acquisitions of banks in any
state, subject to certain requirements, and also to permit depository
institutions with the same depository holding company parent to enter into
arrangements under which a depository institution may act as agent for an
affiliated depository institution. Among other changes, RNIBEA also amended
HOLA and the FDIA to permit
17
<PAGE>
interstate bank mergers and acquisitions of out-of-state branches, effective
June 1, 1997, in states that do not prohibit such transactions, provided that
certain conditions are met.
In recent years the legislative and regulatory environment has changed
significantly for savings institutions, and future significant legislative and
regulatory change is possible which will have an uncertain and possibly negative
effect on TCF. The Clinton Administration has recently proposed consolidating
all of the federal bank and thrift regulatory agencies. Legislative proposals
for tax reform have sought the elimination of certain tax benefits for single
premium annuities, which, if adopted, could impair TCF's ability to market
annuity products. Recent legislation has limited the role of private lenders in
education loans, and recent tax legislation has raised corporate tax rates,
among other changes. Financial institutions have also increasingly been the
subject of private class action lawsuits challenging escrow account practices,
private mortgage insurance requirements and other practices, and TCF expects
this trend will continue.
The Community Reinvestment Act ("CRA") and other fair lending laws and
regulations impose nondiscriminatory lending requirements on financial
institutions. In recent periods, federal regulatory agencies involved in the
enforcement of the CRA, including the FRB, the OTS and the Department of Justice
("DOJ"), have indicated they will be seeking a more rigorous enforcement of the
CRA. The DOJ is authorized to use the full range of its enforcement authority
under the fair lending laws. The DOJ has authority to commence pattern or
practice investigations of possible lending discrimination on its own initiative
or through referrals from the federal financial institutions regulatory
agencies, and to file lawsuits in federal court where there is reasonable cause
to believe that such violations have occurred. The DOJ is also authorized to
bring suit based on individual complaints filed with the Department of Housing
and Urban Development where one of the parties to the complaint elects to have
the case heard in federal court. A successful challenge to an institution's
performance under the CRA and related laws and regulations could result in a
wide variety of sanctions, including the required payment of damages and civil
money penalties, prospective and retrospective injunctive relief and the
imposition of restrictions on mergers and acquisitions activity. Private parties
may also have the ability to challenge an institution's performance under fair
lending laws in private class action litigation. The ultimate effects of the
foregoing or other possible legal and regulatory developments cannot be
predicted but may have an adverse impact on TCF.
The TCF Savings Banks are subject to periodic examination by the OTS and
the FDIC. Thrift regulatory authorities may impose on criticized institutions
and, in certain cases, their holding companies, a number of restrictions or new
requirements, including but not limited to growth limitations, dividend
restrictions, individual increased regulatory capital requirements, increased
loan and real estate loss reserve requirements, increased supervisory
assessments, activity limitations or other restrictions that could have an
adverse effect on such institutions, their holding companies or holders of their
debt and equity securities.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
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 late March 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.
REGULATORY CAPITAL REQUIREMENTS
FIRREA mandated significant new regulatory capital requirements for thrift
institutions. Under minimum regulatory capital regulations issued pursuant to
FIRREA by the Director of the OTS, thrift institutions are required to have
"core capital" equal to no less than 3% of adjusted total assets and "tangible
capital" equal to no less than 1.5% of adjusted total assets. In addition,
thrift institutions are required to maintain "risk-based capital" equal to 8% of
risk-weighted assets.
18
<PAGE>
Under FDICIA, banking and thrift regulators are required to take prompt
regulatory action against institutions which are undercapitalized. FDICIA
requires banking and thrift regulators to categorize institutions as "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." A savings institution will
be deemed to be well-capitalized if it: (i) has a total risk-based capital ratio
of 10% or greater; (ii) has a Tier 1 (core) risk-based capital ratio of 6% or
greater; (iii) has a leverage (core) ratio of 5% or greater; and (iv) is not
subject to any order or written directive by the OTS to meet and maintain a
specific capital level for any capital measure. The TCF Savings Banks are
considered to be well-capitalized.
In addition to the regulatory action required to be taken with respect to
undercapitalized institutions, FDICIA also calls upon each financial institution
regulatory agency, in consultation with other federal banking agencies, to
review its capital standards at least once every two years to ensure that the
standards are sufficient to prevent or minimize loss to the deposit insurance
funds. In addition, the regulatory agencies are required to revise their risk-
based capital standards to make sure that they take adequate account of
interest-rate risk, concentration of credit risk, and the risks of non-
traditional activities.
Tangible capital is generally defined as core capital (see discussion
below) less intangible assets except that savings institutions may include the
same dollar amount of purchased mortgage servicing rights in tangible capital
that they include in core capital.
Core capital generally includes common stockholder's equity, retained
earnings, non-cumulative perpetual preferred stock and minority interests in the
equity accounts of fully consolidated subsidiaries, less any "unidentifiable"
intangible assets. Purchased mortgage servicing rights are exempted from the
general requirement that unidentifiable intangible assets be excluded from
capital, but the amount of servicing rights includible in capital is limited to
the lower of 90% of fair market value to the extent determinable or the current
amortized book value determined under generally accepted accounting principles
("GAAP"). In addition, as a matter of OTS policy, the amount of such purchased
mortgage servicing rights included in core capital may not exceed the amount
that would be included if the savings association were an insured state non-
member bank governed by the FDIC's capital regulation.
The OTS published a final rule on intangible assets in February 1994,
effective March 4, 1994. The final rule implements Section 475 of FDICIA, which
requires banking regulators to determine the amount of purchased mortgage
servicing rights that may be includible in capital. The final rule defines
"qualifying intangible assets" as purchased mortgage servicing rights and
purchased credit card relationships, but excludes core deposit intangibles
arising after March 4, 1994. Such assets may be included in core capital
calculations up to 50% of core capital, subject to a sublimit of 25% of core
capital in the case of purchased credit card relationships. Under the rule,
these assets must be valued at the lower of 90% of fair market value or 100% of
remaining unamortized book value.
In May 1994, the OTS, along with other federal banking agencies, published
a joint notice of proposed rulemaking relating to risk-based capital
requirements for recourse and direct credit substitutes designed to result in
more consistent treatments of recourse and similar transactions among the
banking agencies. The OTS has proposed to change capital requirements for the
treatment of guarantee-type arrangements (such as standby letters of credit)
that provide for the absorption of first-dollar losses and has proposed to make
certain other changes for clarity and to include language codifying agency
regulatory guidance. TCF does not believe that the proposed rule, if adopted,
will have a material effect on the risk-based capital requirements of the TCF
Savings Banks.
Prior to January 1, 1995, eligible savings institutions were permitted to
include in core capital "qualifying supervisory goodwill" consisting of
"supervisory goodwill" up to the following percentages of adjusted total assets
for the periods indicated:
<TABLE>
<CAPTION>
Period Applicable Percentage
<S> <C>
Prior to January 1, 1992 . . . . . . . . . . . . . . 1.5%
January 1, 1992 to December 31, 1992 . . . . . . . . 1.0%
January 1, 1993 to December 31, 1993 . . . . . . . . 0.75%
January 1, 1994 to December 31, 1994 . . . . . . . . 0.375%
Thereafter . . . . . . . . . . . . . . . . . . . . . 0.0%
</TABLE>
"Supervisory goodwill" includes goodwill resulting from the acquisition,
merger, consolidation, purchase of assets or other business combination
occurring before April 12, 1989, of: (i) a savings association where the fair
market value
19
<PAGE>
of assets was less than the fair market value of liabilities at the acquisition
date or (ii) a "problem institution." TCF believes that all of its goodwill
is qualifying supervisory goodwill.
Under the risk-based capital requirement, risk-weighted assets are
determined by multiplying each of an institution's assets by specified risk
weights. Certain off-balance sheet items must be converted into on-balance
sheet equivalent amounts and then multiplied by specified risk weights.
Applicable risk weights range from 0% to 100%. Cash, certain obligations of the
federal government and similar items have a 0% risk weight. Certain government
or agency insured or guaranteed loans or securities backed by these loans are
risk-weighted at 20%. Loans secured by a first mortgage on a borrower's
principal residence and certain qualifying commercial real estate loans are
risk-weighted at 50%. Other consumer and commercial loans and other assets
generally are risk-weighted at 100%.
An institution may use "supplementary capital" to satisfy the risk-based
capital requirement in an amount up to 100% of its core capital. Supplementary
capital includes certain permanent capital instruments such as cumulative
perpetual preferred stock and certain maturing capital instruments issued
pursuant to OTS regulations.
In determining their compliance with capital standards, institutions are
precluded under FIRREA and related capital rules from including in capital their
investment in subsidiaries engaged in activities which are impermissible for a
national bank (subject, with certain exceptions, to a five-year "phase-out"
period which expired on July 1, 1994). Institutions are also required, subject
to the same phase-out period, to deduct from risk-based capital investments that
would be considered equity investments under GAAP, that portion of land loans
and nonresidential construction loans which have a loan-to-value ratio in excess
of 80% and the amount of their investment in certain real estate assets acquired
in satisfaction of debts previously contracted if the investment is to be held
for a period longer than five years (or such longer period approved by the OTS).
The TCF Savings Banks are required to exclude certain of their investments under
the foregoing rules.
The following table sets forth the TCF Savings Banks' calculation of their
tangible, core and risk-based capital and applicable percentages of adjusted
assets, together with the excess over the minimum capital requirements at
December 31, 1994:
<TABLE>
<CAPTION>
TCF MINNESOTA TCF ILLINOIS TCF WISCONSIN TCF MICHIGAN
---------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $ 292,825 5.81% $ 44,819 6.30% $ 39,502 6.05% $ 16,003 7.20%
Tangible capital requirement 75,634 1.50 10,670 1.50 9,800 1.50 3,332 1.50
--------- ---- --------- ---- --------- ---- --------- ----
Excess $ 217,191 4.31% $ 34,149 4.80% $ 29,702 4.55% $ 12,671 5.70%
--------- ---- --------- ---- --------- ---- --------- ----
--------- ---- --------- ---- --------- ---- --------- ----
Core capital $ 320,673 6.34% $ 46,717 6.55% $ 39,502 6.05% $ 20,004 8.85%
Core capital requirement 151,704 3.00 21,397 3.00 19,600 3.00 6,784 3.00
--------- ---- --------- ---- --------- ---- --------- ----
Excess $ 168,969 3.34% $25,320 3.55% $ 19,902 3.05% $ 13,220 5.85%
--------- ---- --------- ---- --------- ---- --------- ----
--------- ---- --------- ---- --------- ---- --------- ----
Risk-based capital $ 350,096 12.01% $ 51,441 12.55% $ 43,820 12.78% $ 20,169 20.90%
Risk-based capital requirement 233,292 8.00 32,786 8.00 27,430 8.00 7,720 8.00
--------- ---- --------- ---- --------- ---- --------- ----
Excess $ 116,804 4.01% $ 18,655 4.55% $ 16,390 4.78% $ 12,449 12.90%
--------- ---- --------- ---- --------- ---- --------- ----
--------- ---- --------- ---- --------- ---- --------- ----
</TABLE>
On January 1, 1995, the amount of qualifying supervisory goodwill
includible in core and risk-based capital decreased from .375% to 0% of tangible
assets. Although it will not impact the TCF Savings Banks' results of operations
or their 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 31,
1995.
The OTS has 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. A savings institution's interest
rate risk is measured in terms of the sensitivity of its "net portfolio value."
Net portfolio value is defined generally as the present value of expected cash
inflows from existing assets and off-balance sheet contracts less the present
value of expected cash outflows from existing liabilities. The interest rate
risk component creates a capital requirement based upon the decline in an
institution's net portfolio value that would result from an immediate 200 basis
point increase or decrease (whichever results in the greater decline) in
prevailing interest rates. The OTS has defined as "above normal" any decline in
an institution's net portfolio value that exceeds 2% of the present value of its
assets. A savings institution with a greater than normal interest rate risk is
required to deduct from total capital, for purposes of calculating its risk-
based capital
20
<PAGE>
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the present value of its total
assets. Management does not believe the interest rate risk component will have
a significant impact on the TCF Savings Banks' risk-based capital requirements.
In the event a savings institution fails to comply with any of its existing
or future minimum regulatory capital requirements or applicable capital adequacy
standards, it would be required to file and implement a capital plan with the
appropriate regulatory agencies, would be subjected to restrictions on growth
and the payment of dividends, could have restrictions imposed on its ability to
form new branches, invest in service corporations or operating subsidiaries and
make equity risk investments, or be precluded from issuing securities as a means
of raising additional capital, among other negative effects. Such failure could
also permit the OTS to require that the institution subject itself to a
restrictive business plan or supervisory agreement that could impose limits on
dividends or compensation of officers and employees or impose other
restrictions. Such failure could also permit the FDIC to initiate action
resulting in the termination of deposit insurance.
The ability of the TCF Savings Banks to maintain compliance with regulatory
capital requirements may be adversely affected by unanticipated losses or lower
levels of earnings, by new or increased regulatory capital requirements or by
other factors. There is virtually no limit on the authority of the OTS or FDIC
to take any appropriate action with respect to conditions or activities it
considers unsafe or unsound, including failure to comply with minimum regulatory
capital requirements.
Great Lakes Bank's regulatory capital position is not as favorable as that
of the TCF Savings Banks. Management believes that the regulatory capital of
Great Lakes Bank will meet the requirements of a "well-capitalized" institution
following the restructuring actions contemplated during the first quarter of
1995. In the event that there is a shortfall in Great Lakes Bank's regulatory
capital necessary to attain "well-capitalized" status, TCF Financial intends to
infuse additional capital into Great Lakes Bank so that it will be considered
"well-capitalized".
RESTRICTIONS ON DISTRIBUTIONS
Dividends or other capital distributions from TCF Minnesota to TCF
Financial, especially in the event of diminished earnings from other direct
subsidiaries of TCF Financial, may be necessary in order for TCF Financial to
pay dividends on its common stock, to make payments on the subordinated debt
issued by TCF Financial, or for other cash needs. The TCF Savings Banks'
ability to make any capital distributions in the future may require regulatory
approval and may be restricted by their regulatory authorities. The TCF Savings
Banks' ability to make any such distributions depends on their earnings and
ability to meet minimum regulatory capital requirements in effect during future
periods. These capital adequacy standards may be higher than existing minimum
capital requirements.
Capital distributions by institutions such as the TCF Savings Banks,
including dividends, stock repurchases, redemptions of securities and cash-out
mergers, are subject to restrictions tied to the institutions' capital levels
after giving effect to such a transaction. Under OTS regulations, institutions
identified as "Tier 1" institutions (see definitions below) generally are
authorized to make capital distributions during a calendar year up to the higher
of 100% of their net income to date during the calendar year plus the amount
that would reduce by one-half their surplus capital ratio at the beginning of
the calendar year or 75% of their net income over the most recent four-quarter
period. "Surplus capital ratio" refers to the percentage by which an
association's capital-to-assets ratio exceeds the ratio of its fully phased-in
capital requirement to its assets. Institutions identified as "Tier 2"
institutions may make capital distributions up to 75% of their net income over
the most recent four-quarter period. For purposes of computing the foregoing
amount, a Tier 2 institution must deduct the amount of capital distributions it
has previously made during the most recent four-quarter period. "Tier 3"
institutions would not be permitted to make capital distributions unless they
receive prior written approval from the OTS or unless such a distribution is
made in accordance with an approved capital plan.
"Tier 1" institutions are those which would have capital, immediately prior
to and on a pro forma basis after giving effect to a proposed capital
distribution, that is equal to or greater than the amount of their fully phased-
in capital requirements. "Tier 2" institutions have capital, immediately prior
to and on a pro forma basis after giving effect to a proposed capital
distribution, that is equal to or in excess of their minimum regulatory capital
requirements, but is less than the amount of applicable fully phased-in capital
requirements. "Tier 3" institutions have capital, immediately prior to or on a
pro forma basis after giving effect to a proposed capital distribution, that is
less than the amount of their
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minimum regulatory capital requirements. The capital distribution rule would
also reflect any individual minimum capital requirement and if such a
requirement is imposed, general minimum capital requirements would need to be
adjusted accordingly. The OTS may also prohibit any capital distribution that
would otherwise be permitted if it determines that such a distribution would
constitute an unsafe and unsound practice. Among the circumstances deemed to
pose such a risk would be a capital distribution by a Tier 1 or Tier 2
institution whose capital is decreasing because of substantial losses. If an
institution has been notified that it is in need of more than normal
supervision, the OTS has the discretion to treat an institution otherwise
meeting the criteria considered a Tier 1 institution as a Tier 2 or Tier 3
institution if it is deemed necessary to ensure the association's safe and sound
operation. As of December 31, 1994, none of the TCF Savings Banks had an
individual minimum capital requirement and all of these institutions met their
fully phased-in capital requirements, and therefore would expect to be eligible
for treatment as Tier 1 institutions. As a result, as of such date the TCF
Savings Banks would be limited to capital distributions up to the higher of 100%
of their net income during the calendar year plus the amount that would reduce
by one-half their surplus capital ratio at the beginning of the calendar year,
or 75% of their net income over the most recent four-quarter period, assuming
the OTS did not determine that such a distribution would be contrary to the safe
and sound operation of the institutions. In December 1994, the OTS issued a
notice of proposed rulemaking which would modify the capital distribution
regulations to incorporate the prompt corrective action capital standards
promulgated by FDICIA, and which would permit savings associations with a CAMEL
rating of "1" or "2" which are not held by a holding company to make capital
distributions without providing prior notice to the OTS. TCF does not believe
that the proposed rule, if adopted, would materially change the capital
distribution restrictions applicable to it or to the TCF Savings Banks.
During 1986, TCF Minnesota converted from a federally chartered mutual
association to a federally chartered stock savings and loan association. At
that time, TCF Minnesota established a liquidation account in an amount equal to
its regulatory net worth as of April 30, 1986. Liquidation accounts have also
been established in the conversions of TCF Wisconsin, TCF Illinois and Great
Lakes. A liquidation account is maintained for the benefit of eligible
depositors who have continued to maintain their deposits in an institution since
the conversion. In the event of a liquidation, each eligible depositor will be
entitled to receive a liquidation distribution from the liquidation account in
the proportionate amount of the then current adjusted balance for deposits held
before any liquidation distribution may be made with respect to the
stockholders. The balance attributable to the liquidation account is decreased
by a proportionate amount as each accountholder closes an account or reduces the
balance in such account as of any subsequent fiscal year-end. Except for the
repurchase of stock and payment of dividends, the existence of the liquidation
account will not restrict the use or application of a savings institution's net
worth. A savings institution may not declare or pay a cash dividend or
repurchase any of its capital stock if it would cause its regulatory capital to
be reduced below the amount required for the liquidation account.
SAFETY AND SOUNDNESS STANDARDS
On November 18, 1993, the OTS and various banking regulatory agencies
jointly published a notice of proposed rulemaking dealing with standards for the
safe and sound operation of financial institutions, the adoption of which is
required by FDICIA. The proposed regulations would require savings institutions
to maintain internal controls and information systems and internal audit systems
that are appropriate for the size, nature and scope of the institution's
business. The proposed rule would also require certain basic standards to be
observed in loan documentation, credit underwriting, interest rate risk
exposure, and asset growth. Among other new requirements, savings institutions
would also be called upon to maintain safeguards to prevent the payment of
compensation, fees and benefits that are excessive or that could lead to
material financial loss, and to take into account factors such as compensation
practices at comparable institutions.
In late 1994, RCDRIA amended the FDICIA safety and soundness requirements
on which the proposed safety and soundness rule was based and it is now unclear
what new safety and soundness standards will be adopted by the banking agencies.
Under RCDRIA, safety and soundness standards relating to asset quality, earnings
and stock valuation are left to the discretion of the agencies. In addition,
the new law permits the safety and soundness standards of FDICIA to be adopted
in the form of guidelines rather than regulations and removes depository
institution holding companies from the required safety and soundness standards.
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REGULATION OF TCF FINANCIAL AND AFFILIATE AND INSIDER TRANSACTIONS
TCF Financial and TCF Minnesota are subject to regulation as savings and
loan holding companies. They are required to register with the OTS and are
subject to OTS regulations, examinations and reporting requirements relating to
savings and loan holding companies. As subsidiaries of savings and loan holding
companies, the TCF Savings Banks are subject to certain restrictions in their
dealings with TCF Financial and with other companies affiliated with TCF
Financial, and also with each other. Under FDICIA, the TCF Savings Banks are
required to conform to regulatory standards promulgated by the OTS relating to
operations and management, asset quality, earnings, stock valuation, and
compensation of officers, employees or directors.
In connection with the reorganization of TCF Minnesota into a holding
company structure in 1987, TCF Financial was required to undertake that, as long
as it controls TCF Minnesota, it will cause the regulatory capital of TCF
Minnesota to be maintained at a level consistent with that required by
applicable regulations and, as necessary or appropriate, TCF Financial will
infuse sufficient additional equity capital to comply with such requirement. As
a result of FDICIA, TCF Financial may also be required to make up certain
capital deficiencies of the TCF Savings Banks.
HOLA prohibits a savings and loan holding company, directly or indirectly,
from (i) acquiring control of another savings institution (or a holding company
thereof) without the prior approval of the OTS, (ii) acquiring 5% or more of the
voting shares of another savings institution (or a holding company thereof)
which is not a subsidiary; or (iii) acquiring control of a savings institution
not insured by the FDIC. Under HOLA, the OTS is prohibited from approving an
acquisition that would result in the formation of a multiple savings and loan
holding company controlling insured institutions in more than one state unless
(i) such company, or an insured institution subsidiary thereof, is authorized to
acquire an institution, or operate a home or branch office, in an additional
state pursuant to an emergency acquisition, (ii) such company controls an
insured institution subsidiary which operated a home or branch office in the
additional state on March 5, 1987, or (iii) state law in the state of the
institution to be acquired specifically authorizes such an acquisition. In
connection with changes in control, savings institutions may, depending on the
circumstances, also be subject to the Bank Merger Act or Change in Bank Control
Act.
As amended by FIRREA, HOLA provides generally that an insured savings
institution subsidiary of a holding company is subject to the restrictions on
affiliate transactions set forth in Federal Reserve Act Sections 23A and 23B.
In addition, an insured institution may not buy securities from an affiliate,
except for shares of stock of a subsidiary, and it may not make loans to an
affiliate engaged in a non-banking activity. As a result of FIRREA and FDICIA,
thrift institutions are subject to Sections 22(g) and 22(h) of the Federal
Reserve Act, which restrict a financial institution's ability to make loans to
"insiders" (executive officers, directors and certain shareholders). The OTS
has also adopted the FRB's Regulation O, which implements legislative
restrictions on insider loan transactions.
HOLA authorizes the OTS or the FDIC to identify holding company activities
that present excessive risk to insured institutions, and to restrict, among
other things, dividends to TCF Financial (or to TCF Minnesota by the other TCF
Savings Banks) and other affiliate transactions. If one or more of the TCF
Savings Banks were to lose their status as a Qualified Thrift Lender, TCF
Financial and/or TCF Minnesota would possibly be treated as a bank holding
company, resulting in additional restrictions on its activities and other
possible negative effects. Under HOLA, multiple savings and loan holding
companies such as TCF Financial may engage only in the following activities:
furnishing or performing management services for a savings association
subsidiary; conducting an insurance agency or escrow business; holding, managing
or liquidating assets owned or acquired from a savings association subsidiary;
holding or managing properties used or occupied by a savings association
subsidiary; acting as trustee under a deed of trust; any activity approved as an
activity under Section 4(c)(8) of the Bank Holding Company Act of 1956, as
amended (the "Bank Holding Company Act"), by the FRB (unless prohibited by the
Director of the OTS) or in which multiple savings and loan holding companies
were authorized to engage on March 5, 1987; or purchasing of stock in certain
qualified stock issuances which have been approved by the Director of the OTS.
As discussed above, TCF has recently filed with appropriate banking
agencies applications for the formation of new national bank subsidiaries. In
the event these applications are approved and these banks are formed, TCF would
become a bank holding company subject to the regulatory authority of the Federal
Reserve System and its activities would become limited to those permitted for
bank holding companies under Regulation Y. In such event, TCF may be required
to divest its title insurance operations, or to restrict its title insurance
operations and related activities. In addition, it could be
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required to discontinue insurance operations which are not credit-related and to
transfer annuity operations to its depository institution subsidiaries.
RESTRICTIONS ON CHANGE IN CONTROL
Federal and state laws and regulations contain a number of provisions which
impose restrictions on changes in control of financial institutions such as the
TCF Savings Banks, and which require regulatory approval prior to any such
changes in control. With the passage of FIRREA in 1989, these laws and
regulations became less restrictive, especially with respect to the acquisition
of thrifts by bank holding companies which became permissible under FIRREA. The
Certificate of Incorporation of TCF Financial and a Shareholder Rights Plan
adopted by TCF Financial in 1989, among other items, contain features which may
inhibit a change in control of TCF Financial.
INTERSTATE OPERATIONS
In April 1992, the OTS issued a statement of policy, effective May 11,
1992, amending its then-existing statement of policy on branching by federal
savings associations. The new statement of policy deletes restrictions on the
branching of federal associations to permit nationwide branching to the extent
permitted by federal statutes, provided the institution meets certain tests
(domestic building and loan test, minimum capital requirements and satisfactory
Community Reinvestment Act record). Under the new policy statement, it is
believed that the TCF Savings Banks may branch into any state with the approval
of the OTS.
REGULATORY SUPERVISION
The TCF Savings Banks are subject to examination and supervision by the OTS
and the FDIC. The TCF Savings Banks are also subject to regulations governing
such matters as mergers, establishment of branch offices and subsidiary
investments and activities, and to general investment authority under
regulations applicable to federally chartered savings banks. As a result of its
insurance, mortgage banking and consumer finance activities, TCF is also subject
to state regulation and examination authority in various states. Recent federal
legislation, including both FIRREA and FDICIA, has resulted in increased costs
for the TCF Savings Banks including examination fees, supervisory assessments,
application fees and deposit insurance premiums. In addition, the TCF Savings
Banks expect reduced dividends from FHLB stock due to substantial contributions
which will be required from the FHLBs to fund FICO bonds or due to other adverse
developments in the FHLB System. Increased financial pressure on the FHLB
System may also result in higher FHLB advance rates in the future.
FEDERAL HOME LOAN BANK SYSTEM
The TCF Savings Banks are members of the FHLB System, consisting of twelve
regional FHLBs. The FHLB System functions as a central reserve credit facility
for member institutions. As members of the FHLB System, the TCF Savings Banks
are entitled to borrow funds from their respective FHLBs. As a result of
FIRREA, the FHLB System is now administered by the FHFB rather than the FHLBB.
As a result of the failure of a number of savings institutions and
reductions in outstanding loans to its members, the FHLB System has become less
profitable and its continued viability may depend upon its ability to attract
new members. The TCF Savings Banks are required to own capital stock of their
respective FHLBs in an amount at least equal to the greater of 1% of the
aggregate outstanding balance of home mortgage loans and similar obligations,
1/20th of advances and letters of credit from the FHLB or .3% of assets. The
TCF Savings Banks are in compliance with this requirement.
At December 31, 1994, TCF's outstanding FHLB advances totaled $650.9
million. These advances were secured by shares of FHLB stock and by a pledge of
all notes and related mortgages and certain other assets held by TCF. The
maximum amount of credit which a FHLB will advance for purposes other than
meeting withdrawals varies from time to time in accordance with changes in
policies of the FHFB and the FHLB. Interest rates charged for advances vary
depending upon maturity, the cost of funds to the FHLB, and the purpose of the
borrowing.
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LIQUIDITY AND RESERVE REQUIREMENTS
FIRREA amended HOLA to require that the Director of the OTS adopt
regulations providing for a minimum liquidity requirement for thrift
institutions. The minimum liquidity requirement must be in a range of 4% to 10%
of an institution's withdrawable accounts and borrowings payable on demand or
with maturities of one year or less. Current OTS regulations, which may be
modified by the Director of the OTS in accordance with FIRREA, provide that each
thrift institution must maintain an average daily balance for each calendar
month of liquid assets (cash, certain time deposits, certain bankers'
acceptances, specified corporate obligations and specified United States
government, state or federal agency obligations) equal to at least 5% of the sum
of its average daily balance of net withdrawable deposit accounts (the amount of
all withdrawable accounts less the unpaid balance of all loans on the security
of such accounts) plus borrowings payable in one year or less. These
regulations also provide that each thrift institution must maintain an average
daily balance for each calendar month of short-term liquid assets (generally
those having maturities of six months or less or twelve months or less,
depending on the asset) equal to at least 1% of its average daily balance of net
withdrawable deposit accounts plus short-term debt. The TCF Savings Banks have
maintained liquidity ratios in excess of these requirements. As a result of
FDICIA, institutions with liquidity shortages may be restricted in their ability
to borrow from the Federal Reserve "discount window."
The TCF Savings Banks are also subject to Federal Reserve Board ("FRB")
reserve requirements imposed under Regulation D. These requirements, which are
subject to change from time to time, call for minimum levels of reserves based
on amounts held in transaction accounts. The TCF Savings Banks are in
compliance with these reserve requirements.
INSURANCE OF ACCOUNTS
Under FIRREA, the deposits of the TCF Savings Banks are insured by the FDIC
up to $100,000 per insured depositor. Pursuant to FDICIA, the FDIC was required
to assess deposit premiums based on assessed risk in an institution's asset
portfolio no later than January 1, 1994. In October 1992, the FDIC issued a
rule implementing a transitional risk-based premium system effective January 1,
1993 that raised deposit insurance premiums for institutions that pose greater
risk to the deposit insurance system. Under the transitional risk-based system,
the FDIC placed each insured institution in one of nine risk categories based on
capital ratios and the FDIC's assessment of supervisory risk posed by an
institution. These initial risk-based premiums ranged from .23% to .31% of
total insured deposits. On June 17, 1993, the FDIC adopted a final rule
establishing a permanent risk-based assessment system effective with the semi-
annual assessment period commencing January 1, 1994. Except for limited
changes, the permanent system is substantially the same as the transitional
system previously in effect.
As a result of the failure of a number of thrift institutions in recent
years and the obligation of the SAIF to fund debt obligations of FICO, the
thrift industry faces the prospect of significantly higher deposit insurance
premiums than those paid by banks, and/or other charges necessary to meet the
obligations of the SAIF. As a result, TCF recently filed applications with the
Office of the Comptroller of the Currency, and anticipates filing applications
with the FDIC and the FRB, seeking the formation of national bank charters for
proposed new national bank subsidiaries of TCF that would operate in branch
locations in which the TCF Savings Banks and Great Lakes Bank now operate. The
new national banks, if approved, would be insured by the BIF of the FDIC, which
is expected to be able to provide for significantly lower deposit insurance
premiums than those to be charged to institutions that are part of the SAIF.
The TCF Savings Banks currently pay risk-based insurance premiums to the SAIF at
the lowest-risk rate of .23%. Current proposals by the FDIC relating to deposit
insurance premium rates for banks call for reductions in deposit insurance
premiums for banks from the current lowest-risk weight of .23% for members
insured by BIF to .04%. See "--Regulation of TCF Financial and Affiliate and
Insider Transactions."
QUALIFIED THRIFT LENDER
Savings institutions are subject to restrictions on permissible investments
that are generally known as Qualified Thrift Lender ("QTL") requirements. These
requirements were relaxed by FDICIA, but the new legislation retained FIRREA's
penalties for failing to meet the QTL test. An institution failing the QTL test
is required to become a commercial bank or is subject to a number of
restrictions, including: (i) a requirement that the institution not make any new
investment or engage in any new activity unless such investment or activity
would be permissible for a national bank; (ii) a requirement that the
institution not establish any new branch office at any location at which a
national bank located in
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the institution's home state may not establish a branch; (iii) ineligibility for
new FHLB advances; and (iv) any restrictions on the payment of dividends to
which a national bank would be subject. Where an institution still does not
meet QTL requirements three years from the date on which it should have and
failed to do so, the institution will be required to divest any investment or
discontinue any activity which is impermissible for a national bank and will be
required to repay any outstanding FHLB advances. Any savings and loan holding
company which holds a thrift that fails to meet the QTL test will, within one
year after the date on which the thrift should have become or ceases to be a
QTL, be deemed to be a bank holding company subject to all the provisions of the
Bank Holding Company Act and other statutes applicable to bank holding
companies. Such a development would impose a number of additional activity,
capital and other restrictions on any such thrift holding company. The TCF
Savings Banks are in compliance with all QTL requirements.
ACCOUNTING AND INVESTMENTS
During the past several years, there has been an ongoing review by thrift
and banking regulators, the SEC, the FASB, the AICPA and other organizations of
the accounting principles and practices used by financial institutions for
certain types of transactions. As a result of this process, there have been new
accounting pronouncements which have had an impact on TCF. This review is
expected to continue, and further developments may be forthcoming. For
information regarding new accounting pronouncements issued as a result of this
review, see "BUSINESS -- Other Information - Recent Accounting Developments."
EXAMINATIONS AND REGULATORY SANCTIONS
Institutions regulated by the OTS are subject to examination by the OTS and
the FDIC. Any insured institution which does not operate in accordance with or
conform to OTS or FDIC regulations, policies and directives may be sanctioned
for noncompliance. Subsidiaries of TCF are also subject to state and/or self-
regulatory organization licensing, regulation and examination requirements in
connection with certain insurance, mortgage banking, securities brokerage and
consumer finance activities. Proceedings may be instituted against any insured
institution or any director, officer, employee or person participating in the
conduct of the affairs of such institution who engages in unsafe or unsound
practices, including the violation of applicable laws, regulations, orders,
agreements or similar items. If the assets of an institution are overvalued on
its books, it may be ordered to establish and maintain a specific reserve in an
amount equal to the determined overvaluation, which may result in a charge
against operations to the extent of the overvaluation. FDIC insurance may be
terminated, after notice and hearing, upon a finding that an insured institution
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operating, does not meet minimum regulatory capital requirements, or
has violated any applicable law, rule, regulation or order of or condition
imposed by the FDIC. Upon termination, funds then on deposit continue to be
insured for at least six months and for up to two years, and due notice of such
termination must be provided to the institution's accountholders.
Under FIRREA, the FDIC, in addition to the OTS, has examination authority
over savings associations. OTS rules finalized in 1990 include, among other
costs and fees, new fees to cover the daily costs of examination and supervision
of specific institutions. See "--Regulatory Supervision" above. FIRREA also
substantially increased enforcement remedies, including civil money penalties,
that may be assessed against an institution or an institution's directors,
officers, employees, agents or independent contractors. For knowing violations
and under certain other aggravated circumstances, penalties up to $1 million per
day may be assessed. For lesser violations where there is a pattern of
misconduct, or under certain other circumstances, a penalty of up to $25,000 per
day may be imposed. Other violations may result in penalties of up to $5,000
per day. Violations of laws and regulations may also subject an institution's
officers and directors to removal and to criminal penalties.
LIMITATIONS ON CERTAIN INVESTMENTS
As federally chartered institutions, the TCF Savings Banks are generally
prohibited from investing directly in equity securities and real estate (other
than that used for offices and related facilities or acquired through, or in
lieu of, foreclosure or on which a contract purchaser has defaulted). In
addition, their authority to invest directly in service corporations is limited
to a maximum of 2% of their assets, plus an additional 1% of assets if the
amount over 2% is used for specified community or inner-city development
purposes. The TCF Savings Banks are also permitted, if their risk-based capital
is in compliance with the then-applicable minimum requirements, to make
additional loans in an amount not exceeding 50% of their risk-based capital to
service corporations of which they own more than 10% of the stock.
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Any failure to meet their minimum capital requirements may disallow any such
additional investment authority. At December 31, 1994, TCF Minnesota was
authorized to have investments in and loans to service corporations and joint
ventures of up to $246.8 million. TCF Minnesota's investments in and loans to
its service corporations and joint ventures totaled $90.2 million at that date.
In October 1992, the OTS issued a final rule under which savings
associations are authorized to establish and acquire "operating subsidiaries"
which may engage only in activities savings associations are authorized to
engage in directly. Operating subsidiaries are generally excluded from the
scope of the service corporation regulations, including limitations on
investments in service corporations.
Savings associations generally must provide a 30-day notice to the FDIC and
the OTS prior to acquiring or forming a new subsidiary or prior to engaging in a
new activity through a subsidiary. If the OTS or FDIC determine that any such
subsidiary or activity poses a threat to the safety and soundness of the
institution or is inconsistent with existing law or sound banking practices,
they may issue an order directing the institution not to proceed with such
plans.
LOANS-TO-ONE BORROWER RESTRICTION
Under FIRREA, all loans to a single borrower or to related borrowers are
generally limited to 15% of an institution's unimpaired capital and unimpaired
surplus, plus an additional 10% for loans fully secured by readily marketable
collateral. In addition, institutions which meet their fully phased-in capital
requirements are permitted under FIRREA to make loans to develop domestic
residential housing units, not to exceed the lesser of $30 million or 30% of the
institution's unimpaired capital and unimpaired surplus, subject to certain
conditions and other limitations. The OTS applies a definition of unimpaired
capital and unimpaired surplus in determining the maximum loans-to-one borrower
permitted for thrift institutions which is generally the same as the definition
employed by the Comptroller of the Currency. All of the TCF Savings Banks are
in compliance with applicable loans-to-one borrower limitations. Such
limitations are not expected to have a material effect on TCF's lending
activities.
CLASSIFICATION OF ASSETS
Under OTS rules, an asset is classified substandard when it has a well-
defined weakness or weaknesses. A substandard asset is one that is inadequately
protected by the net worth or paying capacity of the obligor or by the
collateral, if any. An asset is classified doubtful where some loss seems very
likely but there is still sufficient uncertainty to permit the asset to remain
on the books at its full value. The possibility of a loss on an asset
classified doubtful is high, but because of important and reasonably specific
pending factors which may work to the strengthening of the asset, its
classification as loss is deferred until its more exact status may be
determined. An asset, or a portion thereof, is classified as loss when it is
considered uncollectible and of such little value that continuance as an asset
without establishment of a specific reserve is not warranted. Assets that do
not warrant classification as substandard, doubtful or loss, but possess credit
deficiencies or potential weaknesses deserving management's close attention are
classified as special mention.
Assets may be classified in whole or in part, and part of an asset may be
classified in one category, and part in a different category. Insured
institutions are required to self-classify their assets. These classifications
are reviewed as part of the regulatory examination process. An institution is
required to have general valuation allowances that are adequate in light of its
level of classified assets. When an asset or portion of an asset has been
classified as loss, the institution must either charge off 100% of the portion
classified as loss or establish a specific valuation allowance in a like amount.
Specific allowances may not be included in regulatory capital, while general
loan loss reserves are included in risk-based capital, subject to certain
limitations.
OTHER EFFECTS OF RECENT LEGISLATION
Insured institutions failing after 1989 are to be resolved by the RTC,
which receives funding from a newly created Resolution Funding Corporation
("REFCORP"). REFCORP receives funds from the United States Treasury, the thrift
industry (through deposit insurance premiums) and from the FHLBs. In addition,
FIRREA, FDICIA and other recent legislation has or is expected to result in
other increased costs for TCF, including the cost of examinations, application
fees and deposit insurance premiums, and higher advance rates on FHLB
borrowings.
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OTHER LAWS AND REGULATIONS
TCF is subject to a wide array of other laws and regulations, both federal
and state, including, but not limited to, usury laws, the CRA and regulations
thereunder, the Equal Credit Opportunity Act and Regulation B, Regulation E
Electronic Funds transfer requirements, the Truth-in-Lending Act and Regulation
Z, the Real Estate Settlement Procedures Act and Regulation X. TCF is also
subject to laws and regulations that may impose liability on lenders and owners
for clean-up costs and other costs stemming from hazardous waste located on
property securing real estate loans made by lenders or on real estate that is
owned by lenders following a foreclosure or otherwise. Although TCF's lending
procedures include measures designed to limit lender liability for hazardous
waste clean-up or other related liability, TCF has engaged in significant
commercial lending activity, and recent court decisions have expanded the
circumstances under which lenders have been held liable for clean up costs
relating to hazardous wastes.
TAXATION
FEDERAL TAXATION
Permissible Bad Debt Reserves and Net Operating Losses
TCF files consolidated federal income tax returns. TCF has been an accrual
basis taxpayer since January 1, 1987. Thrift institutions, such as the TCF
Savings Banks, are subject to federal income tax under the Internal Revenue Code
of 1986 (the "Code") in the same general manner as other corporations except for
the application of special bad debt reserve rules discussed below and certain
other provisions.
Under applicable provisions of the Code, a savings institution that holds
60% or more of its assets in "qualifying assets" (as defined in the Code) is
permitted to maintain reserves for bad debts and to make annual additions to
such reserves which qualify as deductions from taxable income. All of the TCF
Savings Banks are in compliance with this requirement.
A qualifying savings institution may elect annually to compute its
allowable additions to bad debt reserves under either the percentage of taxable
income method or the experience method. The percentage of taxable income method
of calculating bad debt reserves limits the applicable percentage deduction to
8% of taxable income and cannot cause the reserves to exceed 6% of qualifying
loans at the end of the taxable year. TCF originally utilized the percentage of
taxable income method to compute its annual addition to bad debt reserves. As a
result of the carryback of net operating losses ("NOLs") to 1970, TCF's taxable
income for 1970 through 1982 was determined to be zero. Because of these NOLs,
the recalculation of net income, and settlement of an Internal Revenue Service
("IRS") examination, TCF recomputed its qualifying additions to the bad debt
reserve from 1970 through 1982 using a method agreed to with the IRS as part of
the settlement discussed below. TCF currently uses the experience method to
calculate its additions to tax bad debt reserves.
Alternative Minimum Tax
The federal tax law imposes an alternative minimum tax based on alternative
minimum taxable income of corporations. The computation of alternative minimum
taxable income more closely reflects earnings and profits. For the year ended
December 31, 1994 TCF was not subject to the alternative minimum tax.
IRS Audit History
The consolidated tax returns for the years ended 1979 through 1982 have
been reviewed by the IRS. The IRS had proposed certain adjustments. In October
1992, the Joint Committee of Congress approved a settlement agreement between
TCF and the IRS. The settlement allowed a loss deduction on the sale of
mortgage loans which the IRS had contended should be disallowed. The settlement
also allowed, based on a tax court ruling, certain tax bad debt losses that were
not previously deducted in TCF's tax returns. The allowance of the bad debt
deductions created a $2.8 million NOL benefit during 1992. The IRS has recently
commenced an examination of TCF's federal income tax returns for 1992 and 1993.
28
<PAGE>
See "Financial Review -- Results of Operations - Income Taxes" on pages 28
and 29, Note 1 of Notes to Consolidated Financial Statements on pages 43 and 44
and Note 14 of Notes to Consolidated Financial Statements on pages 52 and 53 of
TCF's 1994 Annual Report, incorporated herein by reference, for additional
information regarding income taxes of TCF.
STATE TAXATION
TCF and its subsidiaries that operate in Minnesota are subject to Minnesota
state taxation. A Minnesota corporation's income or loss is allocated based on
a three-factor apportionment of the corporation's Minnesota gross receipts,
payroll and property over the total gross receipts, payroll and property of all
corporations in the unitary group. The corporate tax rate in Minnesota is 9.8%.
The Minnesota Alternative Minimum Tax rate is 5.8%.
TCF and its subsidiaries that operate in Illinois are subject to Illinois
state taxation. The Illinois corporate tax rate is 7.3%. Illinois corporate
income or loss is apportioned in a similar manner to Minnesota. For all TCF
entities operating in Illinois, except the TCF Savings Banks, the three factor
apportionment method is used. For the TCF Savings Banks, income is allocated
using only the sales factor in accordance with Illinois financial organization
tax law.
TCF and its subsidiaries that operate in Wisconsin are subject to Wisconsin
state taxation. The Wisconsin state tax rate is 7.9%, and is computed on a
separate company basis. For all TCF entities operating in Wisconsin, except the
TCF Savings Banks, the three factor apportionment method is used. For the TCF
Savings Banks, income is allocated using only the sales and payroll factors in
accordance with Wisconsin financial organization tax law.
TCF and its subsidiaries that operate in Michigan are subject to Michigan
state taxation. The corporate tax rate in Michigan is 2.30% and is computed on
taxable business activity in Michigan. For all TCF entities operating in
Michigan, except for the TCF Savings Banks, the three factor apportionment
method is used. For the TCF Savings Banks, income is allocated using only the
sales factor in accordance with Michigan financial organization tax law.
Currently, TCF and its subsidiaries file state income tax returns in
Alabama, Arizona, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New
Mexico, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Utah and Wisconsin, and local income tax returns in
certain cities.
ITEM 2. PROPERTIES
OFFICES
At December 31, 1994, TCF owned the buildings and land for 71 of its bank
branch offices, owned the buildings but leased the land for 5 of its bank branch
offices and leased the remaining 57 bank branch offices. The properties related
to the bank branch offices owned by TCF, including vacant land upon which
permanent offices may be constructed, had a depreciated cost of approximately
$50.1 million at December 31, 1994. At December 31, 1994, the aggregate net
book value of leasehold improvements associated with leased bank branch office
facilities was $5.9 million. See Note 9 of Notes to Consolidated Financial
Statements on page 49 of TCF's 1994 Annual Report, incorporated herein by
reference.
Leases for TCF's offices expire at various dates, with most leases expiring
during the period from 1995 through 2005.
29
<PAGE>
The following table sets forth the net book value of the branch offices
owned and leasehold improvements on properties leased by TCF at December 31,
1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Offices in Minnesota:
Minneapolis (home office) $ 7,772
Minneapolis/St. Paul area (50 offices) 18,761
Rochester area (5 offices) 976
Crookston area (3 offices) 493
Mankato area (4 offices) 1,489
Pipestone area (3 offices) 623
-------
Total Minnesota (66 offices) 30,114
-------
Offices in Illinois:
Chicago area (17 offices) 6,140
Rockford area (5 offices) 1,085
Joliet area (6 offices) 795
-------
Total Illinois (28 offices) 8,020
-------
Offices in Wisconsin:
Milwaukee area (10 offices) 6,491
Southeast area (8 offices) 5,909
Fox Valley area (4 offices) 1,278
Madison area (2 offices) 323
-------
Total Wisconsin (24 offices) 14,001
-------
Offices in Michigan:
Pontiac area (15 offices) 3,799
-------
Total $55,934
-------
-------
</TABLE>
In addition to the above-referenced branch offices, TCF owned and leased
other facilities with an aggregate net book value of $9.3 million at December
31, 1994.
COMPUTER EQUIPMENT
TCF maintains depositor and borrower customer files on a batch and/or on-
line basis, utilizing an IBM computer system. TCF's general ledger accounting
and information reporting systems are generally maintained on the mainframe
computer. The net book value of all computer equipment was $8.1 million at
December 31, 1994. TCF also leases a variety of data processing equipment at a
total annual rental of $2 million.
ITEM 3. 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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
30
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
TCF's common stock trades on the New York Stock Exchange under the symbol
"TCB." The following table sets forth the high and low prices and dividends
declared for TCF's common stock. The stock prices represent the high and low
sale prices for the common stock on the New York Stock Exchange Composite Tape,
as reported by THE WALL STREET JOURNAL.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
<S> <C> <C> <C>
1994:
First Quarter $34 1/4 $28 1/2 $.25
Second Quarter 35 7/8 30 .25
Third Quarter 43 1/8 34 .25
Fourth Quarter 42 1/2 35 3/8 .25
1993:
First Quarter $35 $28 $.125
Second Quarter 34 1/8 27 3/4 .1875
Third Quarter 40 30 3/4 .1875
Fourth Quarter 39 7/8 30 7/8 .1875
</TABLE>
As of March 1, 1995, there were 9,590 record holders of TCF's common stock.
The Board of Directors of TCF has not adopted a formal dividend policy.
The Board of Directors intends to continue its present practice of paying
quarterly cash dividends on TCF's common stock as justified by the financial
condition of TCF. The declaration and amount of future dividends will depend on
circumstances existing at the time, including TCF's earnings, financial
condition and capital requirements, the cash available to pay such dividends
(derived mainly from dividends and distributions from its direct subsidiaries,
including TCF Minnesota), as well as regulatory and contractual limitations and
such other factors as the Board of Directors may deem relevant. OTS regulations
limit the amount of dividends TCF Minnesota may pay on its capital stock.
Restrictions on the ability of TCF Minnesota to pay cash dividends or possible
diminished earnings of the other direct and indirect subsidiaries of the Holding
Company may limit the ability of the Holding Company to pay dividends in the
future to holders of its common stock and interest on the subordinated debt sold
by the Holding Company in 1992. See "REGULATION -- Legislative and Regulatory
Developments," "REGULATION -- Regulatory Capital Requirements," "REGULATION --
Restrictions on Distributions" and Note 15 of Notes to Consolidated Financial
Statements on page 54 of TCF's 1994 Annual Report, incorporated herein by
reference. Federal income tax rules may also limit dividend payments under
certain circumstances. See "TAXATION," and Note 15 of Notes to Consolidated
Financial Statements on page 54 of TCF's 1994 Annual Report, incorporated herein
by reference.
31
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data of TCF
and its subsidiaries, and should be read in conjunction with the Consolidated
Financial Statements and related notes appearing on pages 38 through 64 TCF's
1993 Annual Report, incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ----------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 357,641 $ 357,601 $ 398,431 $ 436,309 $ 478,738
Interest expense 152,512 173,177 231,225 293,385 357,421
---------- ----------- ---------- ---------- ----------
Net interest income 205,129 184,424 167,206 142,924 121,317
Provision for credit losses 10,901 21,933(1) 13,190 21,063 25,866
---------- ----------- ---------- ---------- ----------
Net interest income after provision
for credit losses 194,228 162,491 154,016 121,861 95,451
Gain (loss) on sale of loans, mortgage-
backed securities and investments, net -- -- 832 1,041 (2,585)
Gain on sale of securities
available for sale, net 2,035 649 3,362 498 --
Gain on sale of loan servicing, net 2,353 137 -- 4,732 5,582
Gain from pension settlement -- -- -- -- 5,978
Other non-interest income 112,906 118,829 103,150 89,256 80,314
Provision for real estate losses 2,373 11,743(2) 22,054 20,898 20,274
Write-off of goodwill -- -- -- -- 10,169
Amortization of goodwill and other
intangibles 3,257 2,957 3,830 3,853 4,723
Merger-related expense -- 5,494 -- -- --
Other non-interest expense 208,227 195,294 177,261 170,001 160,588
---------- ----------- ---------- ---------- ----------
Income (loss) before income tax expense 97,665 66,618 58,215 22,636 (11,014)
Income tax expense 40,302 28,647 12,956 8,385 1,448
---------- ----------- ---------- ---------- ----------
Net income (loss) $ 57,363 $ 37,971 $ 45,259 $ 14,251 $ (12,462)(3)
---------- ----------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ----------
Per common share:
Net income (loss) $ 4.63 $ 3.04 $ 3.74 $ 1.45 $ (1.34)(4)
---------- ----------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ----------
Dividends declared $ 1.00 $ .6875 $ .475 $ .40 $ .40
---------- ----------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ----------
Average common and common equivalent
shares outstanding 12,383 12,504 12,112 9,813 9,320
---------- ----------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ------------ ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
FINANCIAL CONDITION DATA:
<S> <C> <C> <C> <C> <C>
Total assets $ 5,068,269 $ 5,025,530 $ 5,021,596 $ 4,987,966 $ 5,108,419
Investments (5) 243,651 235,121 293,764 426,392 368,784
Securities available for sale 65,785 10,003 256,624 42,048 --
Loans held for sale 200,509 421,893 285,524 223,616 173,507
Mortgage-backed securities
held to maturity 1,114,613 1,237,202 1,139,583 1,340,905 1,412,198
Loans 3,081,808 2,745,146 2,656,926 2,566,084 2,706,428
Goodwill 13,355 14,549 16,446 21,593 31,831
Deposits 3,819,614 4,102,558 4,004,708 4,056,990 4,168,109
Federal Home Loan Bank advances 650,863 396,692 516,337 525,039 497,976
Other borrowings 217,420 178,740 185,595 155,862 211,718
Stockholders' equity 327,191 295,608 261,785 180,635 166,889
Tangible net worth 313,836 281,059 245,339 159,042 135,058
Book value per share 27.06 23.91 21.62 18.46 17.76
Tangible book value per share 25.96 22.74 20.26 16.25 14.37
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
KEY RATIOS AND OTHER DATA:
Net interest margin 4.59% 4.04% 3.60% 3.14% 2.53%
Net interest rate spread during the period 4.22 3.73 3.35 3.00 2.44
Return on average assets 1.19 .77 .91 .29 (.24)(3)
Return on average equity 18.65 13.73 19.53 8.27 (7.20)(3)
Average equity to average assets 6.39 5.64 4.63 3.47 3.29
Average interest-earning assets to average
interest-bearing liabilities 110.57 108.30 105.19 102.14 101.27%
Dividend payout ratio 21.60% 22.62% 12.70% 27.59% N.A.
Number of full service bank offices 133 133 110 108 107
_______________________
<FN>
N.A. - not applicable
(1) Includes $7,000 in merger-related provisions.
(2) Includes $700 in merger-related provisions.
(3) Amounts reflect a net loss of $12.5 million due to certain second quarter
1990 balance sheet restructuring activities undertaken to strengthen TCF's
balance sheet, increase reserves for loan and real estate losses, improve
future profitability and reduce exposure to interest rate risk. These
restructuring activities included provisions for credit and real estate
losses of $25 million, the closing of TCF's Texas thrift subsidiary and the
associated write-off of $10.2 million of goodwill, and sales of mortgage-
backed securities, collateralized mortgage obligation residuals and loan
servicing rights for a combined net gain of $224,000.
(4) Assumes that the shares of RCG common stock issued in conjunction with
RCG's acquisition and conversion to stock ownership of certain subsidiaries
had been outstanding for all periods presented.
(5) Includes interest-bearing deposits with banks, federal funds sold, U.S.
Government and other marketable securities held to maturity and FHLB stock.
</TABLE>
For additional information concerning yields earned on interest-earning
assets, rates paid on interest-bearing liabilities, and changes in net interest
income, see "Financial Review -- Results of Operations - Net Interest Income" on
pages 21 through 25 of TCF's 1994 Annual Report, incorporated herein by
reference.
33
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Financial Review on pages 21 through 37 of TCF's 1994 Annual Report,
presenting management's discussion and analysis of TCF's financial condition and
results of operations, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements, Independent Auditors' Report, Selected Quarterly Financial Data and
Other Financial Data set forth on pages 38 through 69 of TCF's 1994 Annual
Report are incorporated herein by reference. See Index to Consolidated
Financial Statements on page 38 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of TCF is set forth
on pages 4 through 21 of TCF's definitive proxy statement dated March 15, 1995
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers of
TCF is set forth on pages 12 through 20 of TCF's definitive proxy statement
dated March 15, 1995 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of TCF's common stock by TCF's directors,
executive officers, and certain other shareholders is set forth on pages 10
through 12 of TCF's definitive proxy statement dated March 15, 1995 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between TCF
and management is set forth on pages 17 and 21 of TCF's definitive proxy
statement dated March 15, 1995 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statements
See Index to Consolidated Financial Statements on page 38 of this
report.
34
<PAGE>
2. Financial Statement Schedules
All schedules to the Consolidated Financial Statements normally
required by the applicable accounting regulations are omitted
since the required information is included in the Consolidated
Financial Statements or the Notes thereto or is not applicable.
3. Exhibits
See Index to Exhibits on page 38 of this report.
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K, dated September 12, 1994 (amended September
23, 1994) was filed in connection with TCF's execution of an Agreement and Plan
of Reorganization, dated September 8, 1994 relating to its acquisition of Great
Lakes Bancorp, A Federal Savings Bank. A Current Report on Form 8-K, dated
February 8, 1995 was filed in connection with the completion of the acquisition
of Great Lakes Bancorp, A Federal Savings Bank.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) 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
Registrant
By /s/ WILLIAM A. COOPER
---------------------------
William A. Cooper
Chairman of the Board and
Chief Executive Officer
Dated: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ WILLIAM A. COOPER Chairman of the Board, Chief Executive March 28, 1995
----------------------------------- Officer and Director
William A. Cooper
/s/ JOSEPH P. CLIFFORD Vice Chairman of the Board and Director March 28, 1995
-----------------------------------
Joseph P. Clifford
/s/ THOMAS A. CUSICK Vice Chairman of the Board and Director March 28, 1995
-----------------------------------
Thomas A. Cusick
/s/ ROBERT E. EVANS Vice Chairman of the Board and Director March 28, 1995
-----------------------------------
Robert E. Evans
/s/ ROBERT J. DELONIS Chairman and Chief Executive Officer of March 28, 1995
----------------------------------- Great Lakes Bancorp and Director
Robert J. Delonis
/s/ LYNN A. NAGORSKE President, Chief Operating Officer and March 28, 1995
----------------------------------- Treasurer (Principal Financial Officer)
Lynn A. Nagorske
/s/ MARK R. LUND Senior Vice President, Assistant Treasurer March 28, 1995
----------------------------------- and Controller (Principal Accounting
Mark R. Lund Officer)
/s/ BRUCE G. ALLBRIGHT Director March 28, 1995
-----------------------------------
Bruce G. Allbright
/s/ RUDY E. BOSCHWITZ Director March 28, 1995
-----------------------------------
Rudy E. Boschwitz
/s/ JOHN M. EGGEMEYER, III Director March 28, 1995
-----------------------------------
John M. Eggemeyer, III
/s/ LUELLA G. GOLDBERG Director March 28, 1995
-----------------------------------
Luella G. Goldberg
/s/ DANIEL F. MAY Director March 28, 1995
-----------------------------------
Daniel F. May
/s/ THOMAS J. MCGOUGH Director March 28, 1995
-----------------------------------
Thomas J. McGough
/s/ MARK K. ROSENFELD Director March 28, 1995
-----------------------------------
Mark K. Rosenfeld
/s/ RALPH STRANGIS Director March 28, 1995
-----------------------------------
Ralph Strangis
36
<PAGE>
/s/ RONALD A. WARD Director March 28, 1995
-----------------------------------
Ronald A. Ward
/s/ ROY E. WEBER Director March 28, 1995
-----------------------------------
Roy E. Weber
</TABLE>
37
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of TCF and its subsidiaries,
included in TCF's 1994 Annual Report, are incorporated herein by reference in
this report:
PAGE
IN 1994
DESCRIPTION ANNUAL REPORT
----------- -------------
Independent Auditors' Report 65
Consolidated Statements of Financial Condition at
December 31, 1994 and 1993 38
Consolidated Statements of Operations for each of
the years in the three-year period ended
December 31, 1994 39
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended
December 31, 1994 40
Consolidated Statements of Stockholders' Equity
for each of the years in the three-year period
ended December 31, 1994 42
Notes to Consolidated Financial Statements 43
Selected Quarterly Financial Data (unaudited) 66
Other Financial Data 68
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
--- ----------- ---
2 Agreement and Plan of Reorganization and Plan of Merger
[incorporated by reference to Exhibit 2 to TCF Financial
Corporation's Current Report on Form 8-K and Form 8-K/A
Amendment No.1 to Current Report on Form 8-K, dated
September 8, 1994, No. 0-16431 (filed September 12, 1994 and
September 26, 1994, respectively)]
3(a) Restated Certificate of Incorporation of TCF Financial
Corporation, as amended [incorporated by reference to Exhibit
3(a) to Amendment No. 2 on Form 8, dated May 6, 1988, to TCF
Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, No. 0-16431 (filed May 7,
1988)]
3(b) Bylaws of TCF Financial Corporation, as amended [incorporated
by reference to Exhibit 3(b) to Amendment No. 2 on Form 8,
dated May 6, 1988, to TCF Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987, No.
0-16431 (filed May 7, 1988)]
4(a) Rights Agreement, dated as of May 23, 1989, between TCF
Financial Corporation and Manufacturers Hanover Trust Company
[incorporated by reference to Exhibit 1 to TCF Financial
Corporation's Registration Statement on Form 8-A, No. 0-16431
(filed May 25, 1989)]
38
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
4(b) Certificate of Designation for Noncumulative Perpetual
Preferred Stock [incorporated by reference to Exhibit B of the
Agreement and Plan of Reorganization filed as Exhibit 2 to TCF
Financial Corporation's Current Report on Form 8-K and Form 8K/A
Amendment No. 1 to Current Report on Form 8-K, dated September 8,
1994, No. 0-16431 (filed September 12, 1994 and September 26,
1994, respectively)]
4(c) Indenture dated March 1, 1986 between Great Lakes Federal Savings
Association and J. Henry Schroder Bank & Trust Company
[incorporated by reference to Exhibit 4.4 to TCF Financial
Corporation's Registration Statement on Form S-4, No. 33-56137
(filed December 12, 1994)]
4(d) Warrant Agreement dated as of June 29, 1990 between Great Lakes
Bancorp, A Federal Savings Bank, and the Bank of New York
[incorporated by reference to Exhibit 4.5 to TCF Financial
Corporation's Registration Statement on Form S-4, No. 33-56137
(filed December 12, 1994)]
4(e) Supplement to Warrant Agreement dated as of September 1, 1994
between Great Lakes Bancorp, A Federal Savings Bank, and the
Bank of New York [incorporated by reference to Exhibit 4.6 to
TCF Financial Corporation's Registration Statement on Form S-4,
No. 33-56137 (filed December 12, 1994)]
4(f) Copies of instruments with respect to long-term debt will be
furnished to the Securities and Exchange Commission upon
request.
10(a) Stock Option and Incentive Plan of TCF Financial Corporation,
as amended [the Plan and First Amendment to the Plan
incorporated by reference to Exhibit 10.1 to TCF Financial
Corporation's Registration Statement on Form S-4, No. 33-14203
(filed May 12, 1987), Second Amendment, Third Amendment and
Fourth Amendment to the Plan incorporated by reference to
Exhibit 10(a) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987, No. 0-
16431; Fifth Amendment to the Plan incorporated by reference to
Exhibit 10(a) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, No. 0-
16431; amendment dated January 21, 1991, incorporated by
reference to Exhibit 10(a) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990, No. 0-16431, and as further amended by amendment
dated January 28, 1992 and amendment dated March 23, 1992
(effective April 15, 1992), incorporated by reference to
Exhibit 10(a) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, No. 0-
16431]
10(b) Amended and Restated TCF Financial Corporation Executive
Deferred Compensation Plan [incorporated by reference to Plan
filed with registrant's definitive proxy statement dated March
16, 1994, No. 0-16431]
10(c) Trust Agreement for TCF Financial Corporation Executive
Deferred Compensation Plan, as amended [the Trust Agreement
incorporated by reference to Exhibit 10(c) to TCF Financial
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, No. 0-16431; amendment effective April
1, 1991, incorporated by reference to Exhibit 10(c) to TCF
Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431, and as
further amended by amendment dated March 23, 1992, incorporated
by reference to Exhibit 10(c) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1991, No. 0-16431]
39
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
10(d) Amended and Restated Employment Agreement of William A. Cooper,
dated July 1, 1993 [incorporated by reference to Exhibit 10(d)
to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, No. 0-16431]
10(e) Severance Agreement of Joseph P. Clifford, dated August 22,
1988 [incorporated by reference to Exhibit 19(b) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1988, No. 0-16431] and amendment
thereto dated December 4, 1990 [incorporated by reference to
Exhibit 10(e) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990,
No. 0-16431]
10(f) Severance Agreement of Thomas A. Cusick, dated August 22, 1988
[incorporated by reference to Exhibit 19(c) to TCF Financial
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated
December 4, 1990 [incorporated by reference to Exhibit 10(f) to
TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431]
10(g) Severance Agreement of William E. Dove, dated August 22, 1988
[incorporated by reference to Exhibit 19(d) to TCF Financial
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1988, No. 0-16431] and amendment thereto
dated December 4, 1990 [incorporated by reference to Exhibit
10(g) to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, No. 0-16431]
10(h) Severance Agreement of Robert E. Evans, dated August 23, 1988
[incorporated by reference to Exhibit 19(e) to TCF Financial
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1988, No. 0-16431] and amendment thereto
dated December 4, 1990 [incorporated by reference to Exhibit
10(h) to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, No. 0-16431]
10(i) Severance Agreement of Lynn A. Nagorske, dated August 22, 1988
[incorporated by reference to Exhibit 19(f) to TCF Financial
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1988, No. 0-16431] and amendment thereto
dated December 4, 1990 [incorporated by reference to Exhibit
10(i) to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, No. 0-16431]
10(j) Severance Agreement of Gregory J. Pulles, dated August 23, 1988
[incorporated by reference to Exhibit 19(g) to TCF Financial
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1988, No. 0-16431] and amendment thereto
dated December 4, 1990 [incorporated by reference to Exhibit
10(j) to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, No. 0-16431]
10(k) Severance Agreement of James E. Tuite, dated August 23, 1988
[incorporated by reference to Exhibit 19(i) to TCF Financial
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1988, No. 0-16431] and amendment thereto
dated December 4, 1990 [incorporated by reference to Exhibit
10(l) to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, No. 0-16431]
10(l) Severance Agreement of Neil I. Whitehouse, dated August 23,
1988 [incorporated by reference to Exhibit 19(j) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1988, No. 0-16431] and amendment
thereto dated December 4, 1990 [incorporated by reference to
Exhibit 10(m) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990,
No. 0-16431]
40
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
10(m) Severance Agreement of Barry N. Winslow, dated December 30,
1988 and amendment thereto dated December 4, 1990 [incorporated
by reference to Exhibit 10(n) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990, No. 0-16431]
10(n) Supplemental Employee Retirement Plan, as amended [the Plan, as
amended by amendment dated September 21, 1989 (effective
January 1, 1990) incorporated by reference to Exhibit 10(n) to
TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, No. 0-16431; amendment
dated July 31, 1990 (effective August 31, 1990) incorporated by
reference to Exhibit 10(o) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990, No. 0-16431]; as amended by amendment dated June 26,
1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(o) Trust Agreement for TCF Financial Corporation Supplemental
Employee Retirement Plan, dated August 21, 1991 [incorporated
by reference to Exhibit 10.16 to TCF Financial Corporation's
Registration Statement on Form S-2, filed November 15, 1991,
No. 33-43988]
10(p) TCF Financial Corporation Senior Officer Deferred Compensation
Plan [the Plan incorporated by reference to Exhibit 10(o) to
TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, No. 0-16431; amendment
effective April 1, 1991, incorporated by reference to Exhibit
10(p) to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, No. 0-16431]; as
amended by amendments dated June 26, 1994, December 18, 1994 and
January 23, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . .
10(q) Trust Agreement for TCF Financial Corporation Senior Officer
Deferred Compensation Plan [incorporated by reference to
Exhibit 10(p) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, No. 0-
16431; amendment effective April 1, 1991, incorporated by
reference to Exhibit 10(q) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990, No. 0-16431]; as amended by amendment dated December 18,
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(r) TCF Stock Award Program for Outside Directors [incorporated by
reference to Exhibit 10.19 to TCF Financial Corporation's
Registration Statement on Form S-2, filed November 15, 1991,
No. 33-43988]; as renewed by Directors Stock Grant Program adopted
June 26, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(s) Management Incentive Plan-Executive [incorporated by reference to Plan
filed with registrant's definitive proxy statement dated March 16, 1994,
No. 0-16431]
10(t) Supplemental Pension Agreement with James E. Tuite, dated June
27, 1991 [incorporated by reference to Exhibit 10.21 to TCF
Financial Corporation's Registration Statement on Form S-4,
No. 33-57290 (filed January 22, 1993)]
10(u) Supplemental Pension Agreement with Robert E. Evans, dated July
9, 1991 [incorporated by reference to Exhibit 10.22 to TCF
Financial Corporation's Registration Statement on Form S-4,
No. 33-57290 (filed January 22, 1993)]
10(v) Employment Agreement of Robert J. Delonis, dated February 9, 1995 . .
10(w) TCF Directors Deferred Compensation Plan [incorporated by refernce to
plan filed with registrant's definitive proxy statement dated March 15,
1995, No. 0-16431]
11 Statement regarding computation of per share earnings . . . . . . . .
13 TCF Financial Corporation 1994 Annual Report . . . . . . . . . . . .
21 Subsidiaries of TCF Financial Corporation (as of March 23,
1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 Consent of KPMG Peat Marwick LLP dated March 29, 1995 . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . .
41
<PAGE>
EXHIBIT 10(n)
EXCERPT FROM MINUTES
PERSONNEL COMMITTEE MEETING
TCF FINANCIAL CORPORATION
JUNE 26, 1994
---------------------------------------------------------------------------
RE: SERP & SENIOR OFFICER DEFERRED COMPENSATION PLAN
Following discussion, and upon motion duly made, seconded and carried,
the following resolutions were adopted:
WHEREAS, this Committee has the authority to amend the Senior Officer
Deferred Compensation Plan and the Supplemental Employee Retirement Plan
("SERP") and desires to do so to provide that Executive Vice Presidents of
insured institution subsidiaries are eligible for both plans;
NOW, THEREFORE, IT IS HEREBY
RESOLVED, that section 1.d. of the Senior Officers Deferred Compensation
Plan is amended to read as follows:
Employees eligible to participate in this Plan are Employees of a Company who
hold the office of Senior Vice President of TCF Financial Corporation or TCF
Bank Minnesota fsb or President or Executive Vice President of an insured
institution subsidiary of TCF Financial or President of a direct or indirect
subsidiary of TCF Financial; PROVIDED, that an Employee who is eligible to
participate in the TCF Financial Executive Deferred Compensation Plan shall
not be eligible to participate in this Plan.
FURTHER RESOLVED, that Section II(b) of the SERP is amended to read as
follows:
ELIGIBLE EMPLOYEE. Employees of TCF Financial Corporation ("TCF Financial")
or any of its direct or indirect subsidiaries, including TCF Bank Minnesota
fsb ("TCF Bank" or "TCF Banking"), are eligible for this Plan if they are
eligible to participate in either the TCF Financial Executive Deferred
Compensation Plan or the TCF Financial Senior Officer Deferred Compensation
Plan.
FURTHER RESOLVED, that the appropriate officers are authorized and
directed to implement these resolutions and amendments and these amendments
shall be effective for the 1994 plan year of both plans.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby
certify that the foregoing is a true and correct copy of excerpt of minutes
of the Personnel Committee of the Corporation meeting held on June 26, 1994,
and that the minutes have not been modified or rescinded as of the date
hereof.
/s/ Gregory J. Pulles
--------------------------------------
Gregory J. Pulles
(Corporate Seal)
Dated: March 28, 1995
<PAGE>
EXHIBIT 10(p).1
EXCERPT FROM MINUTES
PERSONNEL COMMITTEE MEETING
TCF FINANCIAL CORPORATION
JUNE 26, 1994
---------------------------------------------------------------------------
RE: SERP & SENIOR OFFICER DEFERRED COMPENSATION PLAN
Following discussion, and upon motion duly made, seconded and carried,
the following resolutions were adopted:
WHEREAS, this Committee has the authority to amend the Senior Officer
Deferred Compensation Plan and the Supplemental Employee Retirement Plan
("SERP") and desires to do so to provide that Executive Vice Presidents of
insured institution subsidiaries are eligible for both plans;
NOW, THEREFORE, IT IS HEREBY
RESOLVED, that section 1.d. of the Senior Officers Deferred Compensation
Plan is amended to read as follows:
Employees eligible to participate in this Plan are Employees of a Company who
hold the office of Senior Vice President of TCF Financial Corporation or TCF
Bank Minnesota fsb or President or Executive Vice President of an insured
institution subsidiary of TCF Financial or President of a direct or indirect
subsidiary of TCF Financial; PROVIDED, that an Employee who is eligible to
participate in the TCF Financial Executive Deferred Compensation Plan shall
not be eligible to participate in this Plan.
FURTHER RESOLVED, that Section II(b) of the SERP is amended to read as
follows:
ELIGIBLE EMPLOYEE. Employees of TCF Financial Corporation ("TCF Financial")
or any of its direct or indirect subsidiaries, including TCF Bank Minnesota
fsb ("TCF Bank" or "TCF Banking"), are eligible for this Plan if they are
eligible to participate in either the TCF Financial Executive Deferred
Compensation Plan or the TCF Financial Senior Officer Deferred Compensation
Plan.
FURTHER RESOLVED, that the appropriate officers are authorized and
directed to implement these resolutions and amendments and these amendments
shall be effective for the 1994 plan year of both plans.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby
certify that the foregoing is a true and correct copy of excerpt of minutes
of the Personnel Committee of the Corporation meeting held on June 26, 1994,
and that the minutes have not been modified or rescinded as of the date
hereof.
/s/ Gregory J. Pulles
--------------------------------------
Gregory J. Pulles
(Corporate Seal)
Dated: March 28, 1995
<PAGE>
EXHIBIT 10(p).2
EXCERPT FROM MINUTES
PERSONNEL COMMITTEE MEETING
TCF FINANCIAL CORPORATION
DECEMBER 18, 1994
----------------------------------------------------------------------------
RE: Senior Officer Deferred Compensation Plan
Following discussion, and upon motion duly made, seconded and carried,
the following resolutions were adopted:
WHEREAS, this Committee has authority to recommend
amendments to the Senior Officer Deferred Compensation
Program for adoption by the board; and
WHEREAS, an amendment (the "Amendment") has been proposed
to change the payout schedule, effective for distributions
commencing on or after 1/1/97 for those participants who
consent to this change pursuant to the plan, to an installment
payout method over 15 years in all cases, subject to potential
negotiation with this Committee of a faster payment schedule in
consideration of such things as possible execution of a
non-competition agreement which is reasonable in scope
(however, this 15-year installment payment period shall apply
to terminations due to disability or death on or after 1/1/95 of
participants who consent to the amendment in accordance with
the terms of this Amendment);
NOW, THEREFORE, IT IS HEREBY
RESOLVED, that this Committee hereby recommends for board
approval the following Amendment revising Section 4 of the
Senior Officer Deferred Plan and Section 4.3 of the Senior
Officer Trust to allow investment in TCF common stock (and
other investments) during any period after leaving the company when
the senior officer continues to have an account in the plan
and restating Section 5 of the Senior Officer Deferred
Compensation Plan to read as follows, effective for
terminations of employment on or after January 1, 1997, except as
otherwise provided in this Amendment:
AMENDMENTS TO TCF FINANCIAL SENIOR OFFICER DEFERRED COMPENSATION PLAN
Sections 4.c. and 5 of the Plan document are amended to read
as follows:
4. TRUST. ... c. An Employee's right to direct the
investment of the Employee's separate account shall continue
during any period of distribution subsequent to the Employee's
termination of employment in the same manner as if the Employee had
continued as an active Employee, although the Committee may,
in its discretion, add additional registered mutual funds or
collective or common trustee funds which are available only
for the accounts of terminated Employees if the Committee deems
such funds to be particularly appropriate or suitable for such
accounts.
<PAGE>
5. PAYMENT OF DEFERRED AMOUNTS. Not later than 30 days
following the first day of the calendar month next following
the termination of an Employee's employment or disability (as
defined herein), the Committee shall direct the Trustee to
commence distribution of the amounts credited to such
Employee's Account. Commencing within such 30 day period,
the balance credited to the Employees Account shall be paid
as follows:
a. For distributions commencing on or after January 1,
1997 (or distributions commencing on or after January 1, 1995
after a termination of employment due to death or disability),
payment shall be in fifteen annual installments except that the
Committee may determine on a case by case basis to approve a
different payment schedule for an Employee after taking into
account whether such a schedule would be in the best interests
of TCF Financial, including whether the Employee has executed a
non-competition agreement in form and scope reasonably
acceptable to the Committee, and such other factors as the
Committee considers appropriate in each case. Any alternative
payment schedule approved by the Committee under this
paragraph 5.a. may be in the form of installments over such
period as the Committee selects, in the form of a lump sum, or any
combination of installments and lump sum payments as the
Committee determines to be in TCF Financial's best interests.
For distributions commencing prior to January 1, 1997 and not
after a termination of employment due to death or disability, and
for distributions from the Accounts of Employees who did not
consent to the terms of this paragraph 5.a., the balance in
the Account shall be paid as provided in paragraph h of this
section.
b. The first payment under paragraph 5.a. shall be paid on a date
selected by the Committee which is no later than 30 days after the
Committee's direction as to the form and timing of distributions is made.
Succeeding installments (if any) shall be paid on January 31 of each
calendar year following the calendar year in which the first payment
was made.
c. Each payment shall be made in cash or in kind as the
Committee, in its discretion, shall determine, and each annual
installment payment shall have a value equal to the amount
credited to Employee's Account as of the first day of the calendar
month in which the installment is paid multiplied by a
fraction, the numerator of which is one and the denominator of
which is the number of installments remaining to be paid,
including the current installment.
d. For purposes of this section, an Employee's
employment is considered to terminate as of the date which is
the later of (i) Employee's last date of service for the
Company, or (ii) the last date on which there is an employment
relationship between the Employee and a Company.
e. For purposes of this section, an Employee is disabled
as of the date the Employee is eligible for payments under the
long term disability plan of a Company.
f. In the event installment payments commence and any
installments are unpaid at the time of Employee's death, the
payments shall be made at the times and in such amounts as if
Employee were living to the persons specified in paragraph 7.a.
<PAGE>
g. For purposes of this section, an Employee's termination
of employment is considered a retirement if it occurs on or
after the date the employee has attained age 55.
h. For distributions to Employees who did not consent to
the terms of paragraph 5.a. or distributions otherwise not
subject to the terms of Paragraph 5.a., distribution shall
occur or commence within 30 days after the Employee's termination
of employment and shall consist of a single lump sum equal to
the total value of the Employee's Account as of the first day
of the calendar month in which the distribution is made unless the
termination of employment was due to retirement or disability
(as defined herein), in which case the distribution shall be
in five annual installments PROVIDED THAT the Committee shall
reduce the number of installments as necessary to provide for
annual payments of at least $15,000 or, if the value of the
Employee's Account is less than $15,000 as of any annual
installment payment date, the Account shall be paid in full as
of such installment payment date.
i. Notwithstanding any other provision of this Section 5
or any payment schedule approved by the Committee pursuant to
this Section 5 and regardless of whether payments have
commenced under this Section 5, in the event that the Internal
Revenue Service should finally determine with respect to an
Employee who has terminated employment with the Company that
part or all of the value of the Employee's Deferred Amounts or
Plan Account which have not actually been distributed to the
Employee, or that part or all of a related Trust Account which
has not actually been distributed to the Employee, is
nevertheless required to be included in the Employee's gross income
for federal and/or State income tax purposes, then the
Deferred Amounts or the Account or the part thereof that was
determined to be includible in gross income shall be distributed to
the Employee in a lump sum as soon as practicable after such
determination without any action or approval by the Committee.
A "final determination" of the Internal Revenue Service for
purposes of this paragraph 5.i. is a determination in writing by
said Service ordering the payment of additional tax, reporting
of additional gross income or otherwise requiring Plan amounts
to be included in gross income, which is not appealable or which
the Employee does not appeal within the time prescribed for
appeals.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation
do hereby certify that the foregoing is a true and correct copy of
excerpt of minutes of the Personnel Committee of the Corporation
meeting held on December 18, 1994, and that the minutes have not
been modified or rescinded as of the date hereof.
/s/ Gregory J. Pulles
--------------------------------
Gregory J. Pulles
(Corporate Seal)
Dated: March 28, 1995
<PAGE>
EXHIBIT 10(p).3
EXCERPT FROM MINUTES
PERSONNEL COMMITTEE MEETING
TCF FINANCIAL CORPORATION
JANUARY 23, 1995
------------------------------------------------------------------------
[PROVIDE DEFERRED COMPENSATION PLAN COVERAGE TO GLBC EXECUTIVES]
Following discussion, and upon motion duly made, seconded and
carried, the following resolutions were adopted:
WHEREAS, this board of directors is authorized to adopt amendments to
the executive deferred compensation plans and the Chairman of Great Lakes
has requested an amendment to the Senior Officer Deferred Compensation
Plan in order to provide deferral compensation opportunities to select
executives of Great Lakes after the consummation of the merger;
NOW, THEREFORE, IT IS HEREBY
RESOLVED, that this Board hereby amends section 1.d of the Senior
Officers Deferred Compensation Plan to add the following sentence at the
end thereof: Effective on and after February 9, 1995, employees of Great
Lakes Bancorp, A Federal Savings Bank ("Great Lakes") are eligible for
this plan if they hold the officer position of Senior Vice President or
above and are selected for eligibility in the plan by the Chairman and
President of Great Lakes.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby
certify that the foregoing is a true and correct copy of excerpt of minutes
of the Personnel Committee of the Corporation meeting held on January 23,
1995, and that the minutes have not been modified or rescinded as of the
date hereof.
/s/ Gregory J. Pulles
-------------------------------------
Gregory J. Pulles
(Corporate Seal)
Dated: March 28, 1995
<PAGE>
EXHIBIT 10(q)
EXCERPT FROM MINUTES
PERSONNEL COMMITTEE MEETING
TCF FINANCIAL CORPORATION
DECEMBER 18, 1994
---------------------------------------------------------------------------
RE: Trust Agreement -- Senior Officer Deferred Compensation Plan
Following discussion, and upon motion duly made, seconded and carried,
the following resolutions were adopted:
Section 4.3 of the Trust Agreement is amended to read as follows:
SECTION 4.3. An Employee's right to direct the investment of
the Employee's separate account shall continue during
any period of distribution subsequent to the Employee's
termination of employment in the same manner as if the Employee had
continued as an active Employee, although the Committee may,
in its discretion, add additional registered mutual funds or
collective or common trustee funds which are available only for the
accounts of terminated Employees if the Committee deems such
funds to be particularly appropriate or suitable for such
accounts.
FURTHER RESOLVED, that the appropriate officers of the
corporation are authorized and directed, upon approval of the
Amendment by the board of this corporation, to take all
actions necessary or appropriate to implement the provisions
of the Amendment.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby
certify that the foregoing is a true and correct copy of excerpt of minutes
of the Personnel Committee of the Corporation meeting held on December 18,
1994, and that the minutes have not been modified or rescinded as of the
date hereof.
/s/ Gregory J. Pulles
--------------------------------
Gregory J. Pulles
(Corporate Seal)
Dated: March 28, 1995
<PAGE>
EXHIBIT 10(r)
EXCERPT FROM MINUTES
PERSONNEL COMMITTEE MEETING
TCF FINANCIAL CORPORATION
JUNE 26, 1994
--------------------------------------------------------------------------
RE: Directors Stock Grant Program
Following discussion, and upon motion duly made, seconded and
carried, the following resolutions were adopted:
WHEREAS, this board has previously maintained a stock program for
directors whereby each director receives 1500 shares, with 500 shares to
vest for each year that TCF Financial achieves at least 13.5% ROTE and
currently maintains a directors fees deferral program which allows
directors to defer payment of their fees to their retirement from service
with the Board and beyond; and
WHEREAS, the shares initially issued in connection with the directors
stock grant program have all vested (except for shares issued to Dr. Ronald
A. Ward in 1993, the year he joined the board) and the Board desires to
renew the directors stock grant program as well as to expand the existing
deferred fees program to allow investment of deferred fees in TCF Stock;
NOW, THEREFORE, IT IS HEREBY
RESOLVED, that a directors stock grant program is hereby established
for 1994 under the following terms and conditions:
The award will be 1500 shares per eligible director with 500 shares
vesting for each fiscal year in which the return on equity ("ROE") of TCF
Financial Corporation exceeds 15%, or upon retirement from the board
pursuant to board retirement policy, or in any event on the ten year
anniversary date of the grant;
Eligible directors are Bruce G. Allbright, Daniel F. May, Preston
Townley, Luella G. Goldberg, Ralph Strangis, Rudy Boschwitz and Thomas J.
McGough. Vesting of shares shall occur only for a director who remains on
the board as of December 31 of the fiscal year on which the vesting is
based;
All shares awarded will come from treasury shares or shall be
purchased in the market, at TCF's discretion;
Vested shares will be distributed as soon as practicable after final
ROE is calculated for the fiscal year;
ROE will be calculated the same as under the 1994-96 annual incentive
program for executives;
The company will make a deferral option available to directors, in the
form of a nontaxable trust, to enable them to defer the receipt of vested
shares until retirement from the board in substantially, with the trust to
be in substantially the same form as the trust for the Executive Deferred
Compensation Plan.
<PAGE>
Questions of interpretation will be resolved by
the Chief Executive Officer, who may at his discretion consult with the
Personnel Committee of the Board prior to making a decision.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby
certify that the foregoing is a true and correct copy of excerpt of minutes
of the Personnel Committee of the Corporation meeting held on June 26,
1994, and that the minutes have not been modified or rescinded as of the
date hereof.
/s/ Gregory J. Pulles
--------------------------------------
Gregory J. Pulles
(Corporate Seal)
Dated: March 28, 1995
<PAGE>
EXHIBIT 10(v)
[CEO AGREEMENT]
EMPLOYMENT AGREEMENT
This Agreement is made and entered into this 9th day of February, 1995, by
and among Great Lakes Bancorp, a Federal Savings Bank, a federal savings bank
(the "Bank"), TCF Financial Corporation, a Delaware corporation ("TCF")(and,
as to each, any successor by operation of law or Section 10 hereof), and
Robert J. Delonis (the "Employee").
WHEREAS, Employee and Bank were previously parties to an employment
agreement and Employee wishes to relinquish all rights thereunder, pursuant
to Section 17 hereof, in order to enter into this new employment agreement
with Bank and TCF;
WHEREAS, the Board of Directors of the Bank and TCF believe it is in the
best interests of the Bank and TCF to enter into this Employment Agreement
("Agreement") with the Employee in order to assure management continuity of
the Bank consistent with TCF's goals and philosophies as sole shareholder of
the Bank, to reinforce and encourage the continued attention and dedication
of the Employee to his assigned duties following the acquisition of the Bank
by TCF and to provide assurance that the Employee will not be distracted by
the potentially disruptive circumstances which may arise from a change in
control of the Bank;
WHEREAS, the Boards believe that entering into this type of Agreement
with key employees will contribute significantly to the safety and soundness
of the Bank, will enhance the orderly operation of the Bank in conjunction
with TCF's other banks and subsidiaries and will encourage its orderly
adoption of TCF's established regulatory compliance procedures, business
practices and operating systems;
WHEREAS, the Boards of Directors of the Bank and TCF have approved and
authorized the execution of this Agreement with the Employee to take effect
upon the date stated in Section 4 below; and
WHEREAS, the Employee serves as a Director, as Chairman of the Board of
Directors and Chief Executive Officer of the Bank;
NOW, THEREFORE, in consideration of the respective terms and conditions
in this Agreement, it is agreed as follows:
1. EMPLOYMENT. The Employee is employed as Chairman and Chief
Executive Officer of the Bank and shall continue to render administrative and
management services to the Bank such as are customarily performed by persons
employed in this capacity. The Employee shall continue to devote his best
efforts and substantially all his business time and
1
<PAGE>
attention to the business of the Bank and its subsidiaries and affiliated
companies according to such reasonable standards as the Board shall establish.
2. COMPENSATION. The Bank agrees to pay the Employee during the term
of this Agreement an annual salary established by the Board of Directors at
the time this Agreement is signed (the "Commencement Date") of $260,000. The
Employee's salary shall be payable not less frequently than monthly and not
later than the tenth day of the following month. The amount of the
Employee's salary shall be reviewed not less often than annually by the
Bank's Board of Directors at the same time the salaries of other officers of
comparable rank at the Bank are customarily reviewed and may be increased or
decreased (but not decreased below the Employee's salary as of the
Commencement Date) as the Board in its absolute discretion may decide,
subject to the customary withholding tax and other employee taxes as
required. The Employee shall also be entitled to receive prompt reimbursement
of all reasonable expenses incurred in accordance with the polices applicable
to comparable officers of the Bank.
3. BENEFITS.
(a) PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS. The
Employee shall be entitled to participate in and receive benefits or awards
under all plans of the Bank relating to stock options, stock awards, stock
purchases, pension, thrift, profit-sharing, group life insurance, medical
coverage, education, cash or stock bonuses, and other retirement or employee
benefits that are now or later maintained by the Bank for the benefit of its
officers of comparable rank or for employees generally, upon the same terms
and conditions as are applicable to other participants in such plans.
Contemporaneously with the execution of this Agreement an award of restricted
stock is being made to Employee by TCF. Nothing contained in this Agreement
shall modify or affect the terms or provisions of any stock option or
restricted stock award made to Employee; Employee's rights pursuant to any
such awards shall be governed by the award agreement signed by Employee and
the plan under which the award was granted, rather than this Agreement.
(b) FRINGE BENEFITS. The Employee shall be eligible to participate in
and receive benefits under any other fringe benefits programs which may be or
become applicable to the Bank's or TCF's officers of comparable rank
(Employee shall be deemed for purposes of this subsection 3(b) to be the
equivalent of an Executive Vice President of TCF) or for Bank employees
generally, including use of an automobile, a reasonable expense account, the
payment of reasonable expenses for attending annual and periodic meetings of
trade associations, and any other benefits which are commensurate with the
responsibilities and functions to be performed by the Employee under this
Agreement.
4. TERM.
2
<PAGE>
(a) INITIAL TERM. The term of employment under this Agreement shall be
for a period of three years commencing on the Commencement Date subject to
earlier termination as provided herein and further subject to extension as
provided in Section 4(b).
(b) OPTION FOR TWO ONE-YEAR EXTENSIONS OF TERM. Employee may elect to
extend the term of this Agreement after the expiration of its initial term
for an additional term of one year, and thereafter for another additional
term of one year, provided that no such extension shall occur unless such
extension is approved in advance by the Board of the Bank following its
review of a formal performance evaluation of the Employee conducted by the
Board or a committee thereof and such approval (and the justification for it)
is reflected in the minutes of the Board and PROVIDED FURTHER, in the event
the Board of Directors of the Bank does not act to extend the term of this
Agreement pursuant to this Section 4(b), TCF hereby agrees to employ Employee
as an Executive Vice President under the terms of this Agreement at his
current location for the remainder of any such extended terms elected by
Employee. Reference to the term of this Agreement shall refer both to the
initial term and any such extensions thereof.
5. VACATIONS. The Employee shall be entitled, without loss of pay, to
be absent voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided
that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the Bank's policies.
(b) The timing of the vacations shall be scheduled in a reasonable
manner by the Employee and in compliance with the Bank's policies on taking
consecutive days of vacation.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of
time and for such valid and legitimate reasons as the Board of Directors in
its discretion may determine. Further, the Board of Directors shall, solely
at the Employee's request, be entitled to grant to the Employee a leave or
leaves of absence with or without pay and such time or times and upon such
terms and conditions as the Board, in its discretion, may determine.
6. TERMINATION OF EMPLOYMENT.
(a) The Board of Directors of Bank or TCF may terminate the Employee's
employment at any time with or without cause and upon such action by either
such board the Employee's services shall terminate with respect to both Bank
and TCF. If the employment of the Employee is involuntarily terminated other
than (i) for "cause" (as defined in the next Section) under this section
6(a), (ii) pursuant to Section 9 or (iii) by reason of death or disability as
provided in Sections 6(c) or 7 of this Agreement, the Bank shall: (1) pay the
3
<PAGE>
Employee's salary through the remaining term of this Agreement, at the time
such payments are due under Section 2 of this Agreement, reduced by the
amounts earned by the Employee from other employment during the remaining
term of this Agreement; (2) provide the Employee with health insurance
benefits maintained by the Bank for its senior officers or for its employees
generally during the remaining term of this Agreement or a period of eighteen
(18) months from the Termination Date whichever is less, and (3) thereafter
permit the Employee to purchase health insurance benefits, at the Bank's
group rate (or pay the employee the difference between that rate and any
higher rate he is required to pay because he cannot be included in the group
rate) until the Employee confirms that he has obtained comparable health
insurance at comparable cost to the Employee through another employer, dies
or reaches age 65, whichever comes first.
The Employee shall have no right to receive compensation or other benefits
for any period after termination for cause. Termination for cause shall
include termination for any reason set forth in Section 9 hereof, personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of
any provision of this Agreement. A termination shall not be for cause unless
it occurs after a board meeting at which the termination is reviewed, with
reasonable advance notice to the Employee of the meeting and the purpose
thereof and at which the Employee and his counsel (if any) has an opportunity
to present information and arguments concerning whether there is cause for
termination. The Employee shall not be deemed to have been terminated for
cause unless and until there shall have been delivered to the Employee a copy
of a resolution, duly adopted by not less than a disinterested majority of
the entire membership of the board stating that in the good faith opinion of
such board the Employee was guilty of conduct constituting cause (as defined
earlier in this paragraph) and stating the specific factual basis for the
board's opinion. In reaching its conclusions, such board shall be entitled
to conclusively rely upon any information presented or reviewed at the
meeting which the Employee has the opportunity to rebut and does not do so,
or with respect to which the board determines in good faith that the
Employee's rebuttal is not convincing, without any requirement to personally
interview witnesses or independently verify the information presented to it
(it being acknowledged that a meeting conducted in accordance with the
foregoing procedures constitutes a reasonable investigation) and the board
shall be absolutely protected against liability to Employee for its
dissemination of such information and its conclusions in compliance with the
requirements of this paragraph.
(b) This Agreement may be voluntarily terminated by the Employee at
any time upon 90 days written notice to the Bank or upon such shorter period
as may be agreed upon between the Employee and the Board of Directors of the
Bank. In the event of such voluntary termination, the Bank shall be
obligated only to pay the Employee's salary through the 90 days (or fewer)
remaining in the term of this Agreement. In the event, however, the OTS
prohibits such payment by the Bank, TCF shall be obligated to make such
payments.
4
<PAGE>
(c) In the event of death of the Employee during the term of this
Agreement, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive the salary due
the Employee through the last day of the calendar month in which the death
occurs.
(d) In the event the Bank purports to terminate the Employee for cause,
but it is determined by a court of competent jurisdiction or by an arbitrator
under Section 16 that the Employee was improperly terminated, the Employee
shall be entitled to reimbursement for all reasonable cost, including
attorney's fees, in challenging such termination or collecting such amounts.
Such reimbursement shall be in addition to all rights which the Employee is
otherwise entitled to under this Agreement.
(e) For purposes of this Agreement, the term "Date of Termination" or
"Termination Date" means the earlier of (i) the date upon which the Bank or
TCF gives notice to the Employee of the termination of his employment or (ii)
the date upon which the Employee ceases to serve as an employee of the Bank
or TCF.
7. DISABILITY. If the Employee shall become disabled or incapacitated
to the extent of being unable to perform the duties anticipated by this
Agreement, the Employee shall be entitled to receive disability benefits of
the type provided for other comparable officers of the Bank. In such event,
the rights of the Employee to receive the salary stated in Section 2 hereof
shall be suspended until the Employee is able to fully perform his duties.
In the event of Employee's termination of employment due to ongoing inability
to perform his duties, any benefits payable to Employee from the long term
disability plan of Bank or TCF on account of such disability shall be in lieu
of any other payments that would otherwise be payable under this Agreement
after a termination of employment.
8. CHANGE IN CONTROL COMPENSATION.
(a) ELIGIBILITY. In lieu of amounts the Employee might otherwise
receive under Section 6 or other Sections of this Agreement, in the event of
a termination of employment after a "change in control" (as herein defined)
the Employee shall be eligible to receive compensation, in the amounts and at
the times described in Section 8 (c), if:
(1) his employment with the Bank and all of its affiliates is
terminated within 18 months after there has been a change in control,
and
(2) the Employee's termination of employment is involuntary and is
not on account of death, a physical or mental disability such that the
Employee qualifies for benefits under any long term disability plan
maintained by the Bank or its affiliates, or cause, as defined in Section
6 of this Agreement. For purposes of Section 6 and this Section 8 an
"involuntary termination" or "involuntarily terminated" means termination
of the Employee's employment without the Employee's express written
5
<PAGE>
consent or material diminution of or interference with the Employee's
duties, responsibilities and benefits as Chairman and Chief Executive
Officer of the Bank. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to
the employee, shall constitute such diminution or interference unless
consented to in writing by the Employee: (a) a significant reduction
in the size or a material change in the location of the Employee's
office; (b) a reduction or adverse change in the scope or nature of the
secretarial or other administrative support of the Employee; (c) a
reduction or adverse change in the Employee's title and decision-making
responsibilities; (d) a reduction in the number or seniority of other
Bank personnel reporting to the Employee, other than as part of a
Bank-wide reduction in staff, or a reduction in the frequency with
which, or in the nature of the matters with respect to which, such
personnel are to report to the Employee; (e) an increase in the
number of, or a decrease in the seniority of, the persons (other
than the Board of Directors) to whom the Employee must report,
other than is normal and customary for an executive officer of a
similarly situated financial institution; or an increase in the
frequency of, or in the nature of matters with respect to which,
such reports by the Employee shall be required; (f) a reduction or
adverse change in the salary, perquisites, benefits, contingent
benefits or vacation time which had theretofore been provided to
the Employee, other than as part of an overall program applied
uniformly and with equitable effect to all members of the senior
management of the Bank; and (g) a material increase in the required
hours of work or the workload of the Employee.
(b) CHANGE IN CONTROL. For the purposes of this Agreement, a
"change in control" shall be deemed to have occurred if:
(1) the shareholders of TCF shall adopt a resolution providing
for its dissolution or liquidation, or for a merger, consolidation,
or other corporate reorganization of TCF under circumstances in
which TCF will not be the surviving party; or
(2) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934) (other than TCF or
any of its subsidiaries or any employee benefit plan of TCF or any
of its subsidiaries) becomes a beneficial owner, directly or
indirectly, of securities of TCF representing 25% or more of the
voting power of all of TCF's then outstanding securities; or
(3) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors
of TCF ceased for any reason to constitute at least a majority
thereof (unless the nomination of each new director was approved by
a vote of at least two thirds of the directors then still in office
who were directors at the beginning of such period); or
6
<PAGE>
(4) the Board of Directors of TCF shall approve the sale of all,
or substantially all, of the business or assets of TCF.
(5) the acquisition of control of the Bank (but not including the
acquisition of the Bank by TCF pursuant to the Agreement and Plan
of Reorganization dated September 8, 1994) as defined in 12 C.F.R.
[Section] 574.4, or any successor regulation, which would require the
filing of an application for acquisition of control or a notice of
change in control under 12 C.F.R. [Section] 574.3 or any successor
regulation.
(c) AMOUNT AND PAYMENT OF SEVERANCE PAY. The Employee shall receive:
(1) a lump sum cash payment, no later than 30 days after the
Termination Date, in an amount equal to three times the
Employee's annual rate of salary as of the Termination Date;
(2) continuation of coverage under the employer's group medical,
group life, and group long-term disability plans, if any, and under
any individual policy or policies of life insurance maintained by
his employer, with the same rate of employer contributions as for
active employees, until the earliest to occur of:
(i) the expiration of 24 months from the Employee's Termination
Date or, in the case of medical benefits only, if longer, until
the Employee confirms that he has obtained comparable health
insurance coverage at comparable cost to the Employee through
another employer, dies or reaches age 65, whichever occurs first;
or
(ii) the date on which the Employee obtains comparable coverage
at comparable cost provided by a new employer.
(3) a lump sum cash payment, payable no later than 30 days after
the Termination Date, in an amount equal to the sum of: (i) the
amount by which the fair market value of that number of shares of
stock subject to any stock option which is forfeited or which
otherwise becomes nonexercisable by the Employee by reason of
termination of employment (determined as of such Termination Date)
exceeds the option price for such shares; (ii) such additional
amounts (or the fair market value of such additional property) in
excess of the amount determined pursuant to subSection (i) that
would have been paid or distributed to Employee upon exercise of
any such forfeited stock options, had such options been
exercisable, and exercised, by Employee as of his Termination Date;
(iii) an amount equal to the fair market value of any shares of
restricted stock forfeited by the Employee by reason of such
termination of employment, determined as of such Termination Date;
and (iv) an amount equal to the amount that Employee would have
received if any stock appreciation right which is forfeited or
which otherwise becomes nonexercisable by
7
<PAGE>
such termination of employment had been exercisable, and exercised,
by Employee as of the Termination Date. It is understood and
agreed that this payment is to occur only to the extent Employee is
not entitled to exercise options or stock appreciation rights, or
to retain restricted stock, after the termination of employment
under the provisions of Employee's stock option, restricted stock,
or stock appreciation rights agreements.
(4) LIMITATIONS. If any part of the amounts to be paid to or for
the benefit of the Employee pursuant to this Section 8, as
determined by TCF's auditors, constitute "parachute payments"
within the meaning of section 280G of the Internal Revenue Code of
1986, as from time to time amended (the "Code"), such amounts shall
be reduced as provided below so that the aggregate present value of
all parachute payments to the Employee will be equal to 299% of the
Employee's "annualized includible compensation for the base
period," as such term is defined in section 280G(d)(1) of the Code.
Such reduction shall be made in the benefits provided pursuant to
subparagraph 8(c)(2), in the inverse order of their anticipated
payment, before any reductions are made in the amounts payable
pursuant to subSection 8(c)(1) or (3). For the purpose of this
subsection, present value shall be determined in accordance with
section 1274(b)(2) of the Code.
(5) FUNDING OF CHANGE IN CONTROL COMPENSATION. Nothing herein
contained shall require or be deemed to require the Bank or a
subsidiary to segregate, earmark, or otherwise set aside any funds
or other assets to provide for any payments required to be made
hereunder, and the rights of the terminating Employee to
compensation hereunder shall be solely those of a general,
unsecured creditor of the Bank. However, the Bank may, in its
discretion, deposit cash or property, or both, equal in value to
all or a portion of the amounts anticipated to be payable hereunder
for any or all Employees into a trust, the assets of which are to
be distributed at such times as determined by the trustee of such
trust; PROVIDED that such assets shall be subject at all times to
the rights of the Bank's general creditors.
9. OBLIGATIONS OF THE BANK SUBJECT TO FEDERAL BANKING LAW. The
obligations of the Bank (which includes TCF for these purposes) under this
Agreement shall be suspended or terminated in the circumstances stated below
and are further subject to any other applicable federal banking statutes,
regulations, orders and directives.
(a) If the Employee is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a
notice served under Section 9(e) of the Federal Deposit Insurance Act
("FDIC") (12 U.S.C. 1818(e)(3) or (g)(1)), the Bank's obligations under this
Agreement shall be suspended as of the date of service unless stayed by
appropriate proceedings. If the charges in the notice are dismissed the Bank
may in its discretion (i) pay the Employee all or part of the compensation
withheld which its obligations
8
<PAGE>
under this Agreement were suspended and (ii) reinstate in whole or in
part any of the obligations which were suspended.
(b) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an
order issued under Section 8(e)(4) or (g)(1) of the FDIC (12 U.S.C.
1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but vested rights of
the parties shall not be affected.
(c) If the Bank becomes in default (as defined in Section 3(x)(1) of
the FDIC (12 U.S.C. 1818(x)(1)), all obligations under this Agreement shall
terminate as of the date of default, but any vested rights of the parties
shall not be affected.
(d) All obligations under this Agreement may be terminated: (i) by the
Director of the Office of Thrift Supervision ("OTS") at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into
an agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) of the FDIC (12 U.S.C. 1823(c)); and
(ii) by the Director of the OTS or his designee at the time the Director of
the OTS or his designee approves a supervisory merger to resolve problems
related to operations of the Bank or when the Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition. Any rights of
the parties that have already vested, however, shall not be affected by such
action.
(e) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. [Section] 1828(k) and any regulations promulgated thereunder.
Notwithstanding any other limitations in this Agreement, the total payments to
Employee under this Agreement by the Bank may not exceed three times the
Employee's five year average compensation, as determined in accordance with
RB#27a of the OTS.
10. NO ASSIGNMENTS. This Agreement is personal to all of the parties
hereto, and no party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other parties.
(a) The Bank and TCF agree to require any successor to substantially
all of the business or assets of the Bank (other than a holding company of
the Bank in connection with a holding company reorganization) or TCF, as the
case may be, to assume and agree to perform this Agreement as written.
Failure of the Bank and TCF to do so will be a breach by the Bank and TCF
which entitles the Employee to compensation pursuant to Section 8(c).
(b) The rights of the Employee under this Agreement shall be
enforceable by his personal and legal representatives, heirs, devisees and
beneficiaries.
9
<PAGE>
11. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth below in this Agreement (provided that all notices to the
Bank shall be directed to the attention of the Board of Directors of the Bank
with a copy to the Secretary of the Bank), or to such other address as either
party may have furnished to the other in writing in accordance herewith.
12. AMENDMENTS. No amendments or additions to this Agreement shall
be binding unless in writing and signed by all parties, except herein
otherwise provided.
13. SECTION HEADING. The Section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
14. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States and the State of Michigan.
16. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
17. PRIOR CONTRACT. This Agreement supersedes any prior employment
contract between Employee and Bank or TCF and, upon execution of this
Agreement, any such prior contract shall be null and void.
18. JOINT BENEFITS AND OBLIGATIONS. Unless otherwise provided in this
Agreement, the benefits and obligations of the Bank hereunder are the joint
and several benefits and obligations of the Bank and TCF. Notwithstanding
the foregoing, Employee's compensation hereunder shall be charged solely to
the Bank unless a corporate allocation is duly agreed to by and between TCF
and the Bank or Employee's compensation is payable solely by TCF under
subsection 4(b) or subsection 6(b) hereof.
IN WITNESS WHEREOF, the parties have executed this agreement on the day
and year first hereinabove written.
10
<PAGE>
GREAT LAKES BANCORP,
A Federal Savings Bank
401 East Liberty Street
Ann Arbor, MI 48104
By: /s/ Barry N. Winslow
-------------------------
Title: President
----------------------
EMPLOYEE
/s/ Robert J. Delonis
----------------------------
TCF FINANCIAL CORPORATION
801 Marquette Avenue
Minneapolis, MN 55402
By: /s/ Thomas A. Cusick
-------------------------
Title: Vice Chairman
----------------------
<PAGE>
Exhibit 11 - Computation of Earnings Per Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
Computation of Earnings Per Share
for Statements of Operations: Year Ended December 31,
--------------------------------- ------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Income applicable to common stock $ 57,363 $ 37,971 $ 45,259
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 12,219,209 12,312,197 11,741,307
Dilutive effect of stock option plans after
application of treasury stock method 163,468 191,792 370,633
------------ ------------ ------------
12,382,677 12,503,989 12,111,940
------------ ------------ ------------
------------ ------------ ------------
Net income per common share $ 4.63 $ 3.04 $ 3.74
------------ ------------ ------------
------------ ------------ ------------
Computation of Fully Diluted
Earnings Per Share (1):
-------------------------
Income applicable to common stock $ 57,363 $ 37,971 $ 45,259
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 12,219,209 12,312,197 11,741,307
Dilutive effect of stock option plans after
application of treasury stock method 179,735 197,820 427,089
------------ ------------ ------------
12,398,944 12,510,017 12,168,396
------------ ------------ ------------
------------ ------------ ------------
Net income per common share $ 4.63 $ 3.04 $ 3.72
------------ ------------ ------------
------------ ------------ ------------
<FN>
--------------------------------
(1) 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%.
</TABLE>
EX.11
<PAGE>
EXHIBIT 13
----------
DESCRIPTION OF BUSINESS
TCF Financial Corporation is a stock savings bank holding company with more than
$7 billion in assets and 250 retail financial service offices at March 1, 1995.
Its bank subsidiaries operate in Minnesota, Illinois, Wisconsin, Michigan and
Ohio. Other TCF affiliates included mortgage banking, consumer finance, title
insurance, annuity, and mutual fund companies. TCF's common stock is listed on
the New York Stock Exchange under the symbol TCB.
TABLE OF CONTENTS
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 38
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 43
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 65
Selected Quarterly Financial Data. . . . . . . . . . . . . . . . . . . 66
Other Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 68
<PAGE>
FINANCIAL REVIEW
The financial review presents management's discussion and analysis of the
consolidated financial condition and results of operations of TCF Financial
Corporation ("TCF"). This review should be read in conjunction with the
consolidated financial statements and other financial data beginning on page 38.
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY -- TCF reported net income of $57.4 million for 1994,
compared with $38 million for 1993 and $45.3 million for 1992. Net income per
common share was $4.63 for 1994, compared with $3.04 for 1993 and $3.74 for
1992. Net income for 1994 represented an increase of 25.1% from the $45.9
million, or $3.67 per share, before merger-related charges for 1993. During
1993, TCF acquired Republic Capital Group, Inc. ("RCG") and recorded after-tax
merger-related charges totaling $7.9 million.
The 1994 results of operations show continued improvement in TCF's core
operating earnings. TCF's net interest income of $205.1 million and net
interest margin of 4.59% for 1994 were both record levels, representing
increases of 11.2% and 13.6%, respectively, over 1993 results. Non-interest
income totaled $117.3 million for 1994, compared with $119.6 million for 1993.
Operating expenses (non-interest expense excluding the provision for real estate
losses and 1993 merger-related expenses) totaled $211.5 million for 1994, up
6.7% from $198.3 million for 1993. Provisions for credit and real estate losses
totaled $13.3 million in 1994, compared with $33.7 million in 1993 and $35.2
million in 1992. Included in the provisions for credit and real estate losses
in 1993 are $7.7 million in merger-related provisions related to TCF's
acquisition of RCG.
TCF's net interest income of $184.4 million and net interest margin of
4.04% for 1993 increased 10.3% and 12.2%, respectively, over 1992 results. Non-
interest income, excluding gains on sales of investments and mortgage-backed
securities, increased 12.3% over 1992 to $119.6 million. Operating expenses
increased 9.5% over 1992 to $198.3 million.
TCF's net interest income of $167.2 million and net interest margin of
3.60% for 1992 increased 17% and 14.6%, respectively, over 1991 results. Non-
interest income, excluding gains on sales of investments, loans and mortgage-
backed securities, increased 12.7% over 1991 to $106.5 million. Operating
expenses increased 4.2% over 1991 to $181.1 million. TCF's 1992 results
reflected a 22% effective tax rate as a result of the recognition of non-
recurring tax benefits.
Return on average assets was a record 1.19% in 1994, compared with .77% in
1993 and .91% in 1992. Return on average equity was 18.65% in 1994, compared
with 13.73% in 1993 and 19.53% in 1992. Excluding merger-related charges,
return on average assets and return on average equity for 1993 were .94% and
16.59%, respectively.
NET INTEREST INCOME -- A significant component of TCF's earnings is net interest
income, which is the difference between interest earned on loans, mortgage-
backed securities held to maturity, investments and other interest-earning
assets (interest income) and interest paid on deposits, borrowings and other
interest-bearing liabilities (interest expense). This amount, when divided by
average interest-earning assets, is referred to as the net interest margin,
expressed as a percentage. Net interest income and net interest margin are
affected by changes in interest rates, the volume and the mix of interest-
earning assets and interest-bearing liabilities, and the level of non-performing
assets. The arithmetic difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities expressed as a percentage is
referred to as the net interest rate spread.
Net interest income was a record $205.1 million for the year ended
December 31, 1994, up from $184.4 million in 1993 and $167.2 million in 1992.
This represents an increase of 11.2% in 1994, following increases of 10.3%
in 1993 and 17% in 1992. Total average interest-earning assets decreased 1.9%
in 1994 and 1.7% in 1993, after increasing 2% in 1992. The net interest
margin for 1994 was a record 4.59%, compared with 4.04% in 1993 and 3.60% in
1992. In addition, TCF's net interest rate spread was 4.22% in 1994, compared
with 3.73% and 3.35% in 1993 and 1992, respectively.
[Chart] -- Net Interest Income
TCF Financial Corporation and Subsidiaries 21
--
<PAGE>
The following table presents TCF's average balance sheets, interest and
dividends earned or paid, and the related yields and rates on major categories
of TCF's interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------- ------------------------------- --------------------------------
INTEREST INTEREST INTEREST
YIELDS YIELDS YIELDS
(DOLLARS IN THOUSANDS) AVERAGE AND AVERAGE AND AVERAGE AND
BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities available for sale. . . $ 84,072 $ 3,673 4.37% $ 27,952 $ 1,471 5.26% $ 28,936 $ 2,406 8.31%
-------------------- --------------------- ---------------------
Loans held for sale. . . . . . . . 238,779 16,486 6.90 308,634 21,986 7.12 242,147 19,685 8.13
-------------------- --------------------- ---------------------
Mortgage-backed securities held
to maturity. . . . . . . . . . . 1,115,274 79,219 7.10 1,303,467 93,254 7.15 1,319,143 106,424 8.07
-------------------- --------------------- ---------------------
Loans:
Residential real estate . . . . 1,152,405 85,238 7.40 937,426 73,152 7.80 850,604 78,103 9.18
Commercial real estate . . . . . 653,709 55,323 8.46 753,882 65,472 8.68 862,398 81,744 9.48
Commercial business . . . . . . 84,101 7,150 8.50 79,964 6,059 7.58 82,822 6,869 8.29
Consumer . . . . . . . . . . . 983,208 102,575 10.43 907,564 85,923 9.47 884,825 83,181 9.40
-------------------- --------------------- ---------------------
Total loans (2). . . . . . . 2,873,423 250,286 8.71 2,678,836 230,606 8.61 2,680,649 249,897 9.32
-------------------- --------------------- ---------------------
Investments:
Interest-bearing deposits
with banks. . . . . . . . . . 23,383 979 4.19 26,467 917 3.46 38,835 1,808 4.66
Federal funds sold. . . . . . . 95,197 3,670 3.86 76,543 2,449 3.20 125,249 4,676 3.73
U.S. Government and other
marketable securities
held to maturity . . . . . . 3,614 271 7.50 103,765 4,267 4.11 172,090 10,792 6.27
FHLB stock. . . . . . . . . . . 39,718 3,057 7.70 34,900 2,651 7.60 32,521 2,743 8.43
-------------------- --------------------- ---------------------
Total investments. . . . . . 161,912 7,977 4.93 241,675 10,284 4.26 368,695 20,019 5.43
-------------------- --------------------- ---------------------
Total interest-
earning assets . . . . . 4,473,460 357,641 7.99 4,560,564 357,601 7.84 4,639,570 398,431 8.59
----------------- ---------------- ----------------
Other assets (3). . . . . . . . . 338,803 339,371 361,255
---------- ---------- ----------
Total assets. . . . . . . . . . $4,812,263 $4,899,935 $5,000,825
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Non-interest bearing deposits. . . $ 392,682 $ 365,678 $ 287,807
---------- ---------- ----------
Interest-bearing deposits:
Checking . . . . . . . . . . . 417,840 5,259 1.26 378,285 4,989 1.32 359,726 9,820 2.73
Passbook and statement. . . . . 762,576 14,384 1.89 732,800 16,359 2.23 675,208 21,725 3.22
Money market. . . . . . . . . . 460,286 11,644 2.53 492,128 12,436 2.53 465,716 16,258 3.49
Certificates. . . . . . . . . . 1,865,537 89,327 4.79 1,994,722 102,469 5.14 2,225,620 137,736 6.19
-------------------- --------------------- ---------------------
Total interest-bearing
deposits. . . . . . . . . 3,506,239 120,614 3.44 3,597,935 136,253 3.79 3,726,270 185,539 4.98
-------------------- --------------------- ---------------------
Borrowings:
Securities sold under
repurchase agreements . . . 122,216 6,441 5.27 123,119 6,184 5.02 103,285 7,763 7.52
FHLB advances . . . . . . . . . 369,780 20,781 5.62 435,693 25,085 5.76 500,495 28,471 5.69
Subordinated capital notes. . . 34,500 3,718 10.78 39,147 4,418 11.29 62,401 7,470 11.97
Other borrowings. . . . . . . . 13,059 958 7.34 15,239 1,237 8.12 18,120 1,982 10.94
-------------------- --------------------- ---------------------
Total borrowings . . . . . . 539,555 31,898 5.91 613,198 36,924 6.02 684,301 45,686 6.68
-------------------- --------------------- ---------------------
Total interest-bearing
liabilities . . . . . . 4,045,794 152,512 3.77 4,211,133 173,177 4.11 4,410,571 231,225 5.24
----------------- ---------------- ----------------
Other liabilities (3). . . . . . . 66,197 46,643 70,667
---------- ---------- ----------
Total liabilities . . . . . . . 4,504,673 4,623,454 4,769,045
Stockholders' equity (3) . . . . . 307,590 276,481 231,780
---------- ---------- ----------
Total liabilities
and stockholders'
equity . . . . . . . . . . . $4,812,263 $4,899,935 $5,000,825
---------- ---------- ----------
---------- ---------- ----------
Net interest income. . . . . . . . $205,129 $184,424 $167,206
-------- -------- --------
-------- -------- --------
Net interest rate spread . . . . . 4.22% 3.73% 3.35%
----- ----- -----
----- ----- -----
Net interest margin . . . . . . . 4.59% 4.04% 3.60%
----- ----- -----
----- ----- -----
<FN>
____________________________
(1) TAX-EXEMPT INCOME WAS NOT SIGNIFICANT AND THUS HAS NOT BEEN PRESENTED ON A
TAX EQUIVALENT BASIS. TAX-EXEMPT INCOME OF $329,000, $382,000 AND $609,000
WAS RECOGNIZED DURING THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992,
RESPECTIVELY.
(2) AVERAGE BALANCE OF LOANS INCLUDES NON-ACCRUAL LOANS, AND IS PRESENTED NET
OF UNEARNED INCOME.
(3) AVERAGE BALANCE IS BASED UPON MONTH-END BALANCES.
</TABLE>
22 TCF Financial Corporation and Subsidiaries
--
<PAGE>
In 1994, TCF's net interest income, net interest margin and interest rate
spread increased primarily due to increased yields and growth of consumer loans,
lower levels of non-performing assets, a lower cost of funds and the retention
of earnings. Net interest income increased $20.7 million, or 11.2%, even though
total average interest-earning assets decreased by $87.1 million, or 1.9% from
1993 levels. TCF's net interest margin improved by $5 million due to volume
changes and by $15.7 million due to rate changes. The favorable impact of the
lower cost of funds and increased residential and consumer loan volumes was
partially offset by the negative impact of decreased volumes in commercial real
estate loans, loans held for sale and mortgage-backed securities held to
maturity. Interest income was relatively unchanged in 1994 as a $5.5 million
increase due to higher yields on interest-earning assets was offset by a
decrease of $5.4 million due to declining volumes. Interest expense decreased
$20.7 million in 1994, of which $10.2 million was due to a lower cost of funds.
The increase in net interest income due to the lower cost of funds and higher
yields on interest-earning assets reflects in part the benefit from TCF's
changing asset/liability mix. TCF has also benefitted from increases in both
short- and long-term market interest rates as its interest rate-sensitive assets
tied to a variable index rate (e.g., prime) repriced at a faster rate than its
retail deposits. If market interest rates should decline, TCF may experience
compression in its interest margin as it is likely that the 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. 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 and the general increase 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 these rates continue to increase. See
"Financial Condition - Deposits" and "Financial Condition - Asset/Liability
Management - Interest Rate Risk."
In 1993, the net interest income, net interest margin and interest rate
spread increased primarily due to a lower cost of funds, growth in lower
interest-cost deposits and higher-yielding consumer loans, lower average levels
of non-earning assets, the retention of earnings and the favorable impact of
TCF's March 1993 redemption of $28.8 million of 12 5/8% subordinated capital
notes. Net interest income increased by $17.2 million, or 10.3%, even though
total average interest-earning assets decreased by $79 million, or 1.7%. The
favorable impact of the lower cost of funds and increased residential and
consumer loan volumes was partially offset by the downward repricing of assets
tied to a variable index rate, the negative impact of the significant increase
in loan and mortgage-backed securities prepayment activity due to declining
market interest rates, and higher liquidity levels resulting from the August
1993 acquisition from the Resolution Trust Corporation of $220.8 million of
insured deposits by TCF Bank Michigan fsb ("TCF Michigan"), a wholly owned
subsidiary of TCF. Interest expense decreased $58 million in 1993, of which
$42.4 million was due to a lower cost of funds. Interest income decreased by
$40.8 million, reflecting a decrease of $38.7 million due to lower yields on
interest-earning assets. TCF's net interest income was positively impacted by
$13.5 million due to net volume changes.
In 1992, the increase in net interest income, net interest margin and
interest rate spread was primarily due to a lower cost of funds, growth in lower
interest-cost deposits and higher-yielding consumer and residential real estate
loans, lower levels of non-earning assets, the retention of earnings and the
favorable impact of TCF's January 1992 public offering. Net interest income
increased by $24.3 million, or 17%, even though total average interest-earning
assets increased only $90 million, or 2%. The favorable impact of the lower
cost of funds and increased loan volumes was partially offset by the downward
repricing of assets tied to a variable index rate, and the negative impact of
volume reductions in TCF's mortgage-backed securities portfolio. Interest
expense decreased $62.2 million in 1992, of which $57.6 million was due to a
lower cost of funds. Interest income decreased by $37.9 million, reflecting a
decrease of $45.4 million due to lower yields on interest-earning assets. TCF's
net interest income was positively impacted by $12.1 million due to net volume
changes.
TCF Financial Corporation and Subsidiaries 23
--
<PAGE>
The following table sets forth the spread between TCF's interest-earning
assets and interest-bearing liabilities at December 31, 1994 and 1993. The net
interest rate spreads below represent the differences between the yield on
interest-earning assets and the cost of interest-bearing liabilities at those
dates:
<TABLE>
<CAPTION>
At December 31,
-----------------
1994 1993
---- ----
<S> <C> <C>
Weighted average yield:
Loans 9.24% 8.42%
Loans held for sale 7.49 6.42
Mortgage-backed securities held to maturity 7.17 6.85
Investments 6.27 3.97
Securities available for sale 5.95 4.66
---- ----
Total interest-earning assets 8.48 7.59
---- ----
Weighted average cost:
Deposits (1) 3.76 3.54
FHLB advances 5.88 6.43
Other borrowings 6.64 5.71
---- ----
Total interest-bearing liabilities 4.24 3.90
---- ----
Net interest rate spread 4.24% 3.69%
---- ----
---- ----
<FN>
______________________________________
(1) EXCLUDES NON-INTEREST BEARING DEPOSITS.
</TABLE>
The net interest rate spread increased 55 basis points to 4.24% at December
31, 1994 from 3.69% at December 31, 1993. The 82 basis point increase in the
loan portfolio yield to 9.24% at December 31, 1994 reflects the upward repricing
of adjustable-rate loans and loans tied to a variable index rate, growth in
higher-yielding consumer loans, originations of other residential and commercial
loans at higher rates and reductions in non-accrual loans. The commercial base
lending rate at TCF was 8.50% at December 31, 1994, compared with 6.00% at
December 31, 1993. The 107 basis point increase in the loans held for sale
portfolio yield to 7.49% at December 31, 1994 reflects the origination of
residential and education loans at higher rates. The 32 basis point increase in
the yield on mortgage-backed securities held to maturity to 7.17% at December
31, 1994 reflects the upward repricing of adjustable-rate mortgage-backed
securities held to maturity and the purchase of fixed-rate mortgage-backed
securities at higher rates. The 230 basis point increase in the investments
held to maturity portfolio yield to 6.27% and the 129 basis point increase in
the securities available for sale portfolio yield to 5.95% at December 31, 1994
reflect the general increase in short- and long-term market interest rates. The
weighted average cost of deposits, excluding non-interest bearing deposits,
increased 22 basis points to 3.76% at December 31, 1994 due to higher market
interest rates. The decrease in the weighted average cost of Federal Home Loan
Bank ("FHLB") advances to 5.88% at December 31, 1994 reflects the maturity of
$115 million of higher rate FHLB advances which were subsequently replaced at a
lower weighted average rate. The weighted average cost of other borrowings
increased 93 basis points to 6.64% at December 31, 1994. This increase reflects
the maturity of $129.8 million of lower rate short-term reverse repurchase
agreements and the addition of $170.1 million of higher rate reverse repurchase
agreements during 1994. TCF's net interest rate spread at December 31, 1994 may
not be indicative of net interest rate spreads in future periods.
24 TCF Financial Corporation and Subsidiaries
--
<PAGE>
The following table presents the components of the changes in net interest
income by volume and rate:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
VERSUS SAME PERIOD IN 1993 VERSUS SAME PERIOD IN 1992
--------------------------------- ----------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------- ----------------------------------
(IN THOUSANDS) VOLUME (1) RATE (1) TOTAL VOLUME (1) RATE (1) TOTAL
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR
SALE . . . . . . . . . . . . . . . . $ 2,490 $ (288) $ 2,202 $ (79) $ (856) $ (935)
---------------------------------------------------------------------
LOANS HELD FOR SALE. . . . . . . . . . (4,839) (661) (5,500) 4,952 (2,651) 2,301
---------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
HELD TO MATURITY . . . . . . . . . . (13,386) (649) (14,035) (1,243) (11,927) (13,170)
---------------------------------------------------------------------
LOANS:
Residential real estate . . . . . . 16,006 (3,920) 12,086 7,492 (12,443) (4,951)
Commercial real estate . . . . . . . (8,523) (1,626) (10,149) (9,740) (6,532) (16,272)
Commercial business. . . . . . . . . 326 765 1,091 (233) (577) (810)
Consumer . . . . . . . . . . . . . . 7,513 9,139 16,652 2,126 616 2,742
---------------------------------------------------------------------
Total loans . . . . . . . . . . . 15,322 4,358 19,680 (355) (18,936) (19,291)
---------------------------------------------------------------------
INVESTMENTS:
Interest-bearing deposits
with banks. . . . . . . . . . . . (116) 178 62 (493) (398) (891)
Federal funds sold . . . . . . . . . 661 560 1,221 (1,631) (596) (2,227)
U.S. Government and other
marketable securities
held to maturity . . . . . . . . (5,948) 1,952 (3,996) (3,494) (3,031) (6,525)
FHLB stock . . . . . . . . . . . . . 371 35 406 191 (283) (92)
---------------------------------------------------------------------
Total investments . . . . . . . . (5,032) 2,725 (2,307) (5,427) (4,308) (9,735)
---------------------------------------------------------------------
Total interest
income. . . . . . . . . . . . (5,445) 5,485 40 (2,152) (38,678) (40,830)
---------------------------------------------------------------------
DEPOSITS:
Checking . . . . . . . . . . . . . . 505 (235) 270 483 (5,314) (4,831)
Passbook and statement . . . . . . . 633 (2,608) (1,975) 1,738 (7,104) (5,366)
Money market . . . . . . . . . . . . (792) - (792) 875 (4,697) (3,822)
Certificates . . . . . . . . . . . . (6,406) (6,736) (13,142) (13,384) (21,883) (35,267)
---------------------------------------------------------------------
Total deposits. . . . . . . . . . (6,060) (9,579) (15,639) (10,288) (38,998) (49,286)
---------------------------------------------------------------------
BORROWINGS:
Securities sold under
repurchase agree-
ments . . . . . . . . . . . . . (46) 303 257 1,313 (2,892) (1,579)
FHLB advances. . . . . . . . . . . . (3,708) (596) (4,304) (3,732) 346 (3,386)
Subordinated capital notes . . . . . (507) (193) (700) (2,649) (403) (3,052)
Other borrowings . . . . . . . . . . (167) (112) (279) (284) (461) (745)
---------------------------------------------------------------------
Total borrowings. . . . . . . . . (4,428) (598) (5,026) (5,352) (3,410) (8,762)
---------------------------------------------------------------------
Total interest
expense . . . . . . . . . . . (10,488) (10,177) (20,665) (15,640) (42,408) (58,048)
---------------------------------------------------------------------
Net interest income. . . . . . . . . . $ 5,043 $ 15,662 $ 20,705 $ 13,488 $ 3,730 $ 17,218
---------------------------------------------------------------------
---------------------------------------------------------------------
<FN>
___________________________
(1) 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>
For 1994, interest income remained relatively unchanged at $357.6
million, while interest expense decreased $20.7 million to $152.5 million. For
1993, interest income decreased $40.8 million to $357.6 million, while interest
expense decreased $58 million to $173.2 million. As illustrated by the table
above, the increase in net interest income during 1994 reflects the significant
decrease in TCF's cost of funds and growth in higher-yielding consumer loans and
residential real estate loans, partially offset by the negative impact of volume
changes in the mortgage-backed securities and commercial real estate loan
portfolios. Net interest income increased in 1993 due to the decrease in TCF's
cost of funds and the positive impact of volume changes, partially offset by the
downward repricing of loans and investments tied to variable index rates.
Changes in net interest income are dependent upon the movement of interest
rates, the volume and the mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. TCF's exposure to changing
interest rates has been significantly reduced during recent years. See
"Financial Condition - Asset/Liability Management - Interest Rate Risk."
TCF Financial Corporation and Subsidiaries 25
--
<PAGE>
NON-INTEREST INCOME -- Non-interest income is a significant source of revenues
for TCF and an important factor in TCF's results of operations. Providing a
wide range of retail banking services is an integral component of TCF's business
philosophy and a major strategy for generating additional non-interest income.
During 1994, non-interest income decreased $2.3 million, or 1.9%, to $117.3
million, reflecting decreases in title insurance revenues and gains on sales of
loans held for sale due to the impact on demand of rising market interest rates.
These decreases were partially offset by increases in commissions on sales of
annuities, gains on sales of securities available for sale and gains on sales of
loan servicing. The following table presents the components of non-interest
income:
<TABLE>
<CAPTION>
Percentage
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
------------------------------ -------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992 1994/93 1993/92
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fee and service charge revenues. . . . . $ 75,449 $ 72,130 $ 66,582 4.6% 8.3%
Data processing revenue. . . . . . . . . 8,988 8,120 7,310 10.7 11.1
Commissions on sales of annuities . . . 10,818 9,446 9,327 14.5 1.3
Title insurance revenues . . . . . . . . 10,274 15,229 9,984 (32.5) 52.5
Gain on sale of loans held for
sale, net. . . . . . . . . . . . . . . 2,367 10,059 6,889 (76.5) 46.0
Gain on sale of securities
available for sale, net. . . . . . . . 2,035 649 3,362 213.6 (80.7)
Gain on sale of loan servicing, net. . . 2,353 137 - 1,617.5 100.0
Other. . . . . . . . . . . . . . . . . . 5,010 3,845 3,058 30.3 25.7
------------------------------
117,294 119,615 106,512 (1.9) 12.3
Gain on sale of mortgage-backed
securities, net. . . . . . . . . . . . - - 718 - (100.0)
Gain on sale of investments, net . . . . - - 114 - (100.0)
------------------------------
Total non-interest income. . . . . . . $117,294 $119,615 $107,344 (1.9) 11.4
------------------------------
------------------------------
</TABLE>
[Graph] -- Sources of Non-Interest Income for 1994
Fee and service charge revenues increased $3.3 million in 1994 and $5.5
million in 1993 primarily as a result of expanded retail and mortgage banking
activities. Included in fee and service charge revenues are fees of $13.2
million, $12.3 million and $10.6 million received for the servicing of loans
owned by others during 1994, 1993 and 1992, respectively. The increase in
servicing fees during this period reflects an increase in the size of TCF's
servicing portfolio resulting from loan originations and purchases of loan
servicing rights. At December 31, 1994, 1993 and 1992, TCF was servicing real
estate loans for others with aggregate unpaid principal balances of $3.9
billion, $3.6 billion and $3.3 billion, respectively.
Data processing revenue increased $868,000 in 1994 and $810,000 in 1993.
These increases reflect TCF's efforts to provide electronic banking transaction
services through its automated teller machine ("ATM") network consisting of 634
ATMs. These revenues are generated principally through the use of TCF's ATM
network by depositors of other financial institutions.
Commissions on sales of annuities increased $1.4 million to a record $10.8
million in 1994, following an increase of $119,000 to $9.4 million in 1993.
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.
26 TCF Financial Corporation and Subsidiaries
--
<PAGE>
Title insurance revenues decreased $5 million in 1994 to $10.3 million,
following an increase of $5.2 million in 1993 to $15.2 million. Title insurance
revenues for 1994 were negatively affected by decreases in loan originations and
refinancing activity associated with the rise in market interest rates during
the year. 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 decreased $7.7 million in 1994
following an increase of $3.2 million in 1993. Gains on sales of securities
available for sale totaled $2 million in 1994, an increase of $1.4 million from
the $649,000 recognized in 1993. Gains or losses 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. See "Financial Condition - Loans Held for Sale"
and "Financial Condition - Securities Available for Sale."
[Graph] -- Residential Mortgage Servicing Portfolio at period-end
Gains on sales of third-party loan servicing rights totaled $2.4 million in
1994, compared with $137,000 in 1993. These gains were recognized on the sale
of third-party servicing rights on approximately $169 million and $44 million of
loans, respectively. TCF periodically sells loan servicing rights depending on
market conditions.
Other non-interest income increased $1.2 million in 1994 to $5 million, and
$787,000 in 1993 to $3.8 million. The increases in 1994 and 1993 were primarily
due to increased commissions earned on sales of insurance and mutual fund
products. TCF commenced sales of mutual funds in the fourth quarter of 1993.
Gains on sales of mortgage-backed securities and investments totaled
$832,000 in 1992. There were no such gains in 1994 or 1993. TCF's results for
1992 included a pretax gain of $718,000 on the sale of $23 million of Federal
Home Loan Mortgage Corporation ("FHLMC") adjustable-rate mortgage-backed
securities. Management decided to sell these high-coupon adjustable-rate
mortgage-backed securities primarily due to growing concerns over expected
increased prepayments on such securities. In addition, prior to its merger with
TCF, RCG realized a gain of $118,000 on the sale of $4,200 of Federal National
Mortgage Association ("FNMA") stock.
NON-INTEREST EXPENSE -- Total non-interest expense decreased $1.6 million in
1994, following an increase of $12.3 million, or 6.1%, in 1993, as compared with
the respective prior years. The following table presents the components of non-
interest expense:
<TABLE>
<CAPTION>
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
------------------------------ -------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992 1994/93 1993/92
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Compensation and employee
benefits . . . . . . . . . . . . . . . $ 99,071 $ 90,045 $ 82,388 10.0% 9.3%
Occupancy and equipment, net . . . . . . 35,357 32,834 29,542 7.7 11.1
Advertising and promotions . . . . . . . 11,666 11,254 9,423 3.7 19.4
Federal deposit insurance premiums
and assessments. . . . . . . . . . . . 9,871 8,979 9,606 9.9 (6.5)
Amortization of goodwill and
other intangibles. . . . . . . . . . . 3,257 2,957 3,830 10.1 (22.8)
Provision for real estate losses . . . . 2,373 11,743 (1) 22,054 (79.8) (46.8)
Other. . . . . . . . . . . . . . . . . . 52,262 52,182 46,302 .2 12.7
-------- -------- --------
213,857 209,994 203,145 1.8 3.4
Merger-related expense . . . . . . . . . - 5,494 - (100.0) 100.0
Total non-interest expense . . . . . . $213,857 $215,488 $203,145 (.8) 6.1
-------- -------- --------
-------- -------- --------
<FN>
(1) INCLUDES $700 OF MERGER-RELATED PROVISIONS.
</TABLE>
Compensation and employee benefits, representing 46.3% of total non-
interest expense in 1994, increased $9 million, or 10%, in 1994, following an
increase of $7.7 million, or 9.3%, in 1993. The 1994 increase was largely due
to compensation and benefit costs associated with TCF's expanded consumer
finance activities, TCF Michigan, which TCF purchased in the third quarter of
1993, and normal salary increases. These increases were offset by compensation
and benefit cost savings associated with the reduction in residential mortgage
origination and title company operations. Residential mortgage origination at
TCF were $1.1 billion in 1994, down from $2.3 billion in 1993.
Occupancy and equipment expenses increased $2.5 million in 1994 and $3.3
million in 1993. The increase in 1994 was a result of expanded consumer finance
activities, which included the opening of 27 new consumer finance offices, and
costs associated with TCF Michigan. The 1993 increase was largely due to costs
associated with TCF Michigan, expanded mortgage banking and consumer finance
activities and the opening of seven new Cub Food branch offices.
TCF Financial Corporation and Subsidiaries 27
--
<PAGE>
Advertising and promotion expenses increased $412,000 in 1994 and $1.8
million in 1993. The increases in 1994 and 1993 reflect the increase in direct
mail and other marketing expenses relating to the promotion of TCF's consumer
finance and deposit products in TCF's new market locations.
Federal deposit insurance premiums and assessments totaled $9.9 million for
1994, an increase of $892,000 from 1993. The increase in 1994 reflects TCF's
recognition of its remaining $1.5 million Federal Savings and Loan Insurance
Corporation ("FSLIC") secondary reserve credit during the six-month assessment
period ended June 30, 1993. This credit represented the final recovery of the
1987 federally mandated write-off of TCF's investment in the FSLIC secondary
reserve.
In February 1995, the U.S. Department of the Treasury 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. The special assessment, estimated to be .80% of TCF's
total insured deposits or approximately $28 million, would be in addition to
TCF's annual deposit insurance premium of .23% of total insured deposits. It is
too early to predict whether the proposed special assessment will be approved,
or, if approved, when it will be charged.
Amortization of goodwill and other intangibles increased $300,000 to $3.3
million in 1994, following a decrease of $873,000 to $3 million in 1993. The
increase in amortization of goodwill and other intangibles in 1994 was primarily
due to the amortization of deposit base intangibles associated with TCF
Michigan. For acquisitions initiated or completed prior to September 30, 1982,
goodwill is being amortized over 25 years on a straight-line basis. For
acquisitions initiated or completed subsequent to September 30, 1982, goodwill
is being amortized by the level-yield method based upon the outstanding
balances, and over the estimated remaining lives, of the long-term assets
acquired. This amortization method, referred to as "lock-step," is required by
generally accepted accounting principles and results in a declining rate of
amortization. TCF periodically re-evaluates the periods of amortization to
determine whether current conditions warrant revised estimates of useful lives.
The provision for real estate losses decreased $9.4 million, or 79.8%, to
$2.4 million in 1994, following a decrease of $10.3 million, or 46.8%, to $11.7
million in 1993. Included in the provision for real estate losses in 1993 are
$700,000 in merger-related provisions related to TCF's acquisition of RCG. The
amounts provided for real estate losses in each of the three years were
considered prudent by management in light of all factors affecting reserve
adequacy. See "Financial Condition - Allowances for Loan and Real Estate Losses
and Industrial Revenue Bond Reserves" for further detail on the provision for
real estate losses.
Other non-interest expense increased $80,000 in 1994 and $5.9 million, or
12.7%, in 1993. Included in other non-interest expense in 1994 are costs
totaling approximately $1 million associated with TCF's February 1995 merger
with Great Lakes Bancorp. See "Subsequent Business Combination." The increase
in 1994 also reflects an increase of $1.5 million in outside processing expense
due to an expansion of TCF's ATM network. Other non-interest expense for 1993
reflects $3.6 million in write-offs of purchased mortgage servicing rights
("PMSRs"), an increase of $2.5 million over similar write-offs recorded in 1992.
No such write-offs occurred in 1994 as loan prepayments slowed significantly due
to the general increase in interest rates. Other non-interest expense in 1993
also reflects an increase of $1.6 million in loan expense resulting from
significantly increased loan origination activity.
During 1993, TCF recorded $5.5 million of merger-related expenses
associated with the RCG merger. These expenses consisted primarily of $2.7
million for severance expense, $830,000 associated with the write-off of
premises and equipment rendered redundant or obsolete as a result of the merger
and $2 million in other expenses.
In June 1994, the Financial Accounting Standards Board ("FASB") 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 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 a portion 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 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 income tax expense of $40.3 million in 1994,
compared with $28.6 million in 1993 and $13 million in 1992. Income tax expense
represented 41% of pretax income during 1994, compared with 43% and 22% for 1993
and 1992, respectively. TCF's 1992 tax rate reflected benefits obtained from
the reversal of a valuation allowance established against deferred tax assets in
years prior to 1992 under the provisions of SFAS No. 109, "Accounting for Income
28 TCF Financial Corporation and Subsidiaries
--
<PAGE>
Taxes." The reversal of the valuation allowance resulted in the recognition of
deferred tax assets. No tax valuation allowance was required as of December 31,
1994 or 1993 since TCF had paid taxes, which are available for carryback, in
excess of its deferred tax assets. As a result, TCF's income tax expense
returned to a more normal rate in 1994 and 1993.
The tax expense in 1992 also included the recognition of $2.8 million in
tax benefits from the utilization of net operating loss ("NOL") carryovers TCF
obtained as a result of its settlement of issues raised by the Internal Revenue
Service in their review of the consolidated tax returns for the years ended 1979
through 1982. As part of the settlement, TCF paid interest and minimum tax
relating to certain of the examined years, which had been fully accrued in prior
periods.
The Revenue Reconciliation Act of 1993 increased the federal income tax
rate from 34% to 35% effective January 1, 1993. TCF's 1993 tax expense was not
significantly impacted by the tax rate change since the resulting increase in
federal income taxes was partially offset by the recognition of additional
deferred tax assets.
At December 31, 1994, TCF had no remaining federal NOL or tax credit
carryovers.
Further detail on income taxes is provided in Note 14 of Notes to
Consolidated Financial Statements.
SUBSEQUENT 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 4.8 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 intends to redeem the 2.7 million shares of
preferred stock as soon as practicable after July 1, 1995, the date the
preferred stock first becomes redeemable at the option of the issuer. 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.
This acquisition was accounted for as a pooling-of-interests and, accordingly,
TCF's historical financial statements presented in future reports will be
restated to include the accounts and results of operations of Great Lakes. In
connection with the acquisition, it is expected that a pretax merger-related
charge of approximately $51.4 million will be incurred during the 1995 first
quarter, primarily to accrue for specific, identified costs related to the
merger.
As a result of the acquisition, Great Lakes merged into TCF's existing
Michigan-based wholly owned savings bank subsidiary, TCF Michigan. 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.
Further detail on the business combination is provided in Note 2 of Notes
to Consolidated Financial Statements.
FINANCIAL CONDITION
INVESTMENTS -- Total investments increased $8.5 million in 1994 to $243.7
million at December 31, 1994. Interest-bearing deposits with banks increased
$180.2 million during 1994 to $190.7 million at December 31, 1994. Federal
funds sold decreased $98.6 million in 1994, totaling $6.9 million at December
31, 1994. U.S. Government and other marketable securities held to maturity
decreased $77.7 million in 1994 to $3.5 million at December 31, 1994, reflecting
decreases of $66.9 million in U.S. Government and agency obligations, $7 million
in bankers' acceptances and $3 million in corporate bonds. TCF had no non-
investment grade debt securities (junk bonds) and there were no open trading
account or investment option positions as of December 31, 1994.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. SFAS No.
115 does not apply to unsecuritized loans. SFAS No. 115 requires investments in
equity and debt securities to be classified in one of three categories and
accounted for as follows:
1. Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held to maturity
securities and reported at amortized cost.
2. Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
3. Debt and equity securities not classified in the first two categories
are classified as available for sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and
reported in a separate component of stockholders' equity.
TCF Financial Corporation and Subsidiaries 29
--
<PAGE>
TCF adopted SFAS No. 115 effective January 1, 1994. In accordance with
SFAS No. 115, prior period financial statements have not been restated to
reflect the change in accounting method. As permitted by SFAS No. 115, TCF
reclassified $77.3 million of its debt securities from U.S. Government and other
marketable securities and $156.8 million of its mortgage-backed securities to
securities available for sale on January 1, 1994. Additional information on
TCF's adoption of SFAS No. 115 is provided in Note 1 of Notes to Consolidated
Financial Statements.
SECURITIES AVAILABLE FOR SALE -- Securities available for sale are carried at
fair value with the unrealized holding gains or losses, net of deferred income
taxes, reported as a separate component of stockholders' equity. Such
securities were carried at the lower of cost or market prior to 1994.
Securities available for sale increased $55.8 million during 1994 to $65.8
million at December 31, 1994. Securities available for sale totaled $10 million
at December 31, 1993, a decrease of $246.6 million from $256.6 million at
December 31, 1992.
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 decreased
$221.4 million during 1994, totaling $200.5 million at December 31, 1994. The
change in 1994 was due to a decrease of $252.6 million in residential real
estate loans held for sale partially offset by a $32.3 million increase in
education loans held for sale. The decrease in residential real estate loans
held for sale reflects a decrease in origination and refinancing demand due to
rising market interest rates. In addition, loan sales activity exceeded
production levels during 1994. The increase in education loans held for sale
reflects management's intention to hold a larger portfolio of these loans due to
the higher yields received on these loans as compared with alternative short-
term investments. Under a forward commitment agreement with the Student Loan
Marketing Association ("SLMA"), TCF can sell the education loans to SLMA once
they are fully disbursed, but must sell the loans to SLMA before they go into
repayment status. Loans held for sale totaled $421.9 million at December 31,
1993, an increase of $136.4 million from $285.5 million at December 31, 1992.
MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- Mortgage-backed securities held
to maturity totaled $1.1 billion at December 31, 1994, a decrease of $122.6
million from the December 31, 1993 balance of $1.2 billion. The decrease
reflects the previously mentioned reclassification of $156.8 million of
mortgage-backed securities to securities available for sale on January 1, 1994,
principal paydowns and prepayments, partially offset by purchases of $262.8
million of 15-year fixed-rate FNMA mortgage-backed securities and $25.2 million
of 30-year fixed-rate FNMA mortgage-backed securities. At December 31, 1994,
TCF's mortgage-backed securities held to maturity portfolio was comprised of
$130.1 million of adjustable-rate mortgage-backed securities and $980.8 million
of fixed-rate mortgage-backed securities, and had gross unrealized gains of $2.9
million and gross unrealized losses of $51.2 million. Mortgage-backed
securities held to maturity totaled $1.1 billion at December 31, 1992.
LOANS -- The following table sets forth information about loans held in TCF's
portfolio, excluding loans held for sale:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate. . . . . . . . $1,261,690 $1,063,158 $ 858,685 $ 707,590 $ 721,129
Consumer . . . . . . . . . . . . . . . 1,105,971 919,027 906,661 892,166 977,037
Commercial real estate . . . . . . . . 634,770 687,202 828,995 902,330 955,884
Commercial business. . . . . . . . . . 100,397 89,368 80,312 89,496 100,468
Deferred fees and
unearned discounts
and finance charges . . . . . . . . (21,020) (13,609) (17,727) (25,498) (48,090)
-----------------------------------------------------------
Total loans. . . . . . . . . . . . $3,081,808 $2,745,146 $2,656,926 $2,566,084 $2,706,428
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
Residential real estate loans totaled $1.3 billion at December 31, 1994, an
increase of $198.5 million from December 31, 1993. This increase reflects the
origination and retention of $378 million of residential loans, partially offset
by loan repayments. During 1994, TCF retained a greater proportion of
residential real estate loans originated than in recent years. At December 31,
1994, TCF's residential real estate loan portfolio was comprised of $728.6
million of fixed-rate loans and $533.1 million of adjustable-rate loans.
Consumer loans totaled $1.1 billion at December 31, 1994, an increase of
$186.9 million from December 31, 1993. This change was primarily due to a $116
million increase in TCF's home equity loan portfolio, a $40.6 million increase
in automobile and recreational vehicle loans and a $15.7 million increase in
credit card loans. The growth in home equity loans is primarily due to the
expanded operations of TCF's consumer finance subsidiaries and the slowdown of
refinancings. The growth in automobile and recreational vehicle loans also
reflects the expanded operations of TCF's consumer finance subsidiaries.
30 TCF Financial Corporation and Subsidiaries
--
<PAGE>
TCF is expanding its consumer lending and consumer finance operations and
anticipates opening more than 20 new consumer finance offices during 1995, most
of which will be in areas outside its traditional market areas. TCF opened 27
such offices in 1994 and now has 46 consumer finance offices in 11 states. As a
result of this expansion, TCF's consumer finance loan portfolio totaled $201
million at December 31, 1994, compared with $136.5 million at December 31, 1993.
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.
Consumer loan growth in recent years reflects TCF's emphasis on expanding
its portfolio of these higher-yielding, shorter-term loans, including home
equity lines of credit. At December 31, 1994, TCF's average home equity line of
credit was approximately $36,000 and the average loan balance outstanding was
approximately $21,000, or 58% of the available line. The average combined loan
to value ratio for TCF's home equity credit line portfolio, based on the
combined total of any first mortgage lien and the maximum amount of the credit
line available, was approximately 70%. At December 31, 1994, TCF's consumer
loan delinquency rate was .68% (defined as accruing loans, including education
loans held for sale, greater than 30 days past due).
Commercial real estate loans decreased $52.4 million in 1994 to $634.8
million at December 31, 1994. Commercial business loans increased $11 million
to $100.4 million at December 31, 1994. 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 is difficult to
quantify and is subject to fluctuations in real estate values. At December 31,
1994, approximately 84% 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 $562,000 at December 31, 1994.
Apartment loans comprised $265.6 million, or 42%, of total commercial real
estate loans outstanding at December 31, 1994.
Included in performing loans at December 31, 1994 are commercial real
estate loans aggregating $3 million with terms that have been modified in
troubled debt restructurings, compared with $7.4 million of such loans at
December 31, 1993. The results of hotel and motel operations have suffered in
recent years. Included in commercial real estate loans at December 31, 1994 are
$73.9 million of loans secured by hotel or motel properties. Of this amount,
one loan totaling $11.6 million is included in loans subject to management
concern. TCF continues to closely monitor the performance of these loans and
properties.
TCF does not make highly leveraged corporate loans or agricultural, energy-
related or foreign loans.
ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND
RESERVES -- Credit risk is the risk of loss from a customer default. TCF has in
place a process to identify and manage its credit risks. The process includes
initial credit review and approval, periodic monitoring to measure compliance
with credit agreements and internal credit policies, identification of problem
loans and special procedures for collection of problem loans.
On an ongoing basis, TCF's loan and real estate portfolios are carefully
reviewed and thoroughly analyzed as to credit risk, performance, collateral
value and quality. The allowances for loan and real estate losses are
maintained at levels considered by management to be necessary to provide for
estimated loan and real estate losses. Management's judgment as to the adequacy
of the allowances 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 level 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 for loss. The allowance for real estate losses is established to
reduce the carrying value of real estate to fair value less disposition costs.
Estimates of costs to complete or ready a project for sale, costs of disposal
and costs to carry real estate until estimated disposition are considered in
establishing the initial recorded investment in real estate.
Prior to being acquired by TCF, RCG had entered into agreements
guaranteeing certain industrial development and housing revenue bonds issued by
municipalities to finance commercial and multifamily 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 December 31, 1994 was $18.6 million. Management has
considered these guarantees in its review of the adequacy of the industrial
revenue bond reserves.
The adequacy of the allowances for loan and real estate losses and
industrial revenue bond reserves is highly dependent upon management's estimates
of variables affecting valuation, appraisals of collateral, and evaluations of
performance and status. Such estimates, appraisals and evaluations may be
subject to frequent adjustments due to changing economic conditions and the
economic prospects of borrowers or properties. Management believes the
allowances for loan and real estate losses and industrial revenue bond reserves
are adequate.
TCF Financial Corporation and Subsidiaries 31
--
<PAGE>
The provisions for credit and real estate losses included in the
consolidated statements of operations totaled $13.3 million in 1994, compared
with $33.7 million in 1993 and $35.2 million in 1992. Included in the provision
for credit losses and the provision for real estate losses in 1993 are $7
million and $700,000, respectively, in merger-related provisions related to
TCF's acquisition of RCG. The merger-related provisions were established to
conform RCG's accounting and credit loss reserve practices and methods to those
of TCF and to accelerate the disposition of RCG's problem assets.
While TCF's investments in commercial real estate loans, commercial
business loans and related properties acquired through foreclosure or by other
means have significantly decreased in recent years, such loans and investments
have larger individual balances and a substantially greater inherent risk of
loss. The risk of loss on such loans and properties is difficult to quantify
and is subject to fluctuations in real estate values. In addition, concerns
remain over the future course of the economy and particularly the related impact
on the real estate values associated with these loans and properties.
At December 31, 1994, the allowances for loan and real estate losses and
industrial revenue bond reserves totaled $35.1 million, compared with $30.7
million at December 31, 1993. Net loan, real estate and industrial revenue bond
charge-offs were $8.8 million in 1994 compared with $25.6 million in 1993. As
indicated by the significant reduction in loss provisions and net charge-offs
during 1994, TCF has experienced continued improvement in credit quality.
A summary of the allowance for loan losses and industrial revenue bond
reserves and selected statistics follows:
<TABLE>
<CAPTION>
INDUSTRIAL
ALLOWANCE REVENUE
FOR LOAN BOND
(IN THOUSANDS) LOSSES RESERVES TOTAL
---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1991 . . . . . $25,420 $2,881 $28,301
Provision for losses . . . . . . . 12,423 767 13,190
Charge-offs. . . . . . . . . . . . (21,519) (2,185) (23,704)
Recoveries . . . . . . . . . . . . 2,925 - 2,925
-----------------------------------
Net charge-offs. . . . . . . . . (18,594) (2,185) (20,779)
-----------------------------------
Balance, December 31, 1992 . . . . . 19,249 1,463 20,712
Adjustments for pooling-of-
interests. . . . . . . . . . . . (56) 225 169
Provision for losses . . . . . . . 20,207 1,726 21,933
Charge-offs. . . . . . . . . . . . (16,032) (725) (16,757)
Recoveries . . . . . . . . . . . . 2,687 - 2,687
-----------------------------------
Net charge-offs. . . . . . . . . (13,345) (725) (14,070)
-----------------------------------
Balance, December 31, 1993 . . . . . 26,055 2,689 28,744
Provision for losses . . . . . . . 10,901 - 10,901
Charge-offs. . . . . . . . . . . . (7,740) - (7,740)
Recoveries . . . . . . . . . . . . 2,432 70 2,502
-----------------------------------
Net charge-offs. . . . . . . . . (5,308) 70 (5,238)
-----------------------------------
BALANCE, DECEMBER 31, 1994 . . . . . $31,648 $2,759 $34,407
-----------------------------------
-----------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Ratio of net loan charge-offs to
average loans outstanding (1). . . .18% .50% .69%
Year-end allowance for loan losses
as a percentage of year-end gross
loan balances (1). . . . . . . . . 1.02 .94 .72
<FN>
___________________________________
(1) EXCLUDING LOANS HELD FOR SALE.
</TABLE>
A summary of the allowance for real estate losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
(IN THOUSANDS) 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year . . . . $1,968 $ 2,291 $ 7,603
Adjustments for pooling-of-
interests. . . . . . . . . . . . - (513) -
Provision for losses . . . . . . . 2,373 11,743 22,054
Charge-offs. . . . . . . . . . . . (3,611) (11,553) (27,366)
-----------------------------------
Balance at end of year . . . . . . . $ 730 $ 1,968 $ 2,291
-----------------------------------
-----------------------------------
</TABLE>
Real estate acquired through foreclosure is carried at the lower of cost or
fair value minus estimated costs to sell the properties. Fair value represents
the amount that would be received in a current sale between a willing buyer and
a willing seller - that is, in other than a forced or liquidation sale.
Real estate charge-offs in 1993 reflect $4.2 million in charge-offs of
TCF's investment in New York City cooperative apartment units, and sales of
commercial real estate properties at less than previously estimated fair values.
TCF's remaining investment in the cooperative units (excluding loans to
purchasers of cooperative units and loans to the cooperative apartment
corporations secured by underlying real estate) totaled $528,000 and $1.8
million at December 31, 1994 and 1993, respectively.
Real estate charge-offs in 1992 exceeded the allowance for real estate
losses at December 31, 1991 primarily due to a decline in the market value of
cooperative units and other commercial real estate properties and sales of
commercial real estate properties at less than previously estimated fair values.
The presence of various factors added a degree of uncertainty to management's
determination of the estimated fair values of certain foreclosed commercial real
estate properties at December 31, 1991. These factors included the existence of
a number of large out-of-territory properties which have a substantially greater
risk of loss, the inability to gain access and obtain appraisals for certain in-
substance foreclosed properties, the limited market for certain of the
properties, and environmental concerns for one property which was subsequently
sold. TCF disposed of a number of foreclosed commercial real estate properties
in 1992 at lower prices in order to reduce future legal and other expenses,
minimize future holding costs and reduce TCF's exposure to further declines in
market values.
32 TCF Financial Corporation and Subsidiaries
--
<PAGE>
The allowance for real estate losses is based on management's periodic
analysis of real estate holdings. In this analysis, management considers
factors including, but not limited to, general economic and market conditions,
geographic location, composition and appraisals of the real estate holdings and
property conditions. The carrying values of foreclosed real estate are based on
appraisals, prepared by certified appraisers, whenever possible. TCF reviews
each external commercial real estate appraisal it receives for accuracy,
completeness and reasonableness of assumptions used. A renewed weakness in
commercial real estate markets may result in further declines in values of the
properties or the sale of individual properties at less than previously
estimated values, resulting in additional charge-offs. TCF recognizes the
effect of such events in the periods in which they occur.
NON-PERFORMING ASSETS -- Non-performing assets (principally non-accrual loans
and real estate acquired through foreclosure) totaled $26.1 million at December
31, 1994, down $18.9 million, or 42%, from the December 31, 1993 total of $45
million. As indicated by the reduction in non-performing assets in 1994, TCF
has experienced continued improvement in credit quality. At December 31, 1994,
six commercial real estate loans or properties comprised $11.5 million, or 44%,
of total non-performing assets. These loans or properties had been written down
by $7.8 million as of year-end 1994. Properties acquired are being actively
marketed. Approximately 95% of non-performing assets consist of, or are secured
by, real estate. At December 31, 1994, TCF's real estate and other non-
performing assets of $16.6 million included commercial real estate of $10.5
million. The accrual of interest income is generally discontinued when loans
become 90 days past due with respect to either principal or interest unless such
loans are adequately secured and in the process of collection.
Non-performing assets are summarized in the following table:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans (1):
Residential real estate. . . $ 4,203 $ 5,956 $ 8,418 $ 9,663 $ 4,915
Commercial real estate . . . 2,624 8,368 3,663 7,261 18,190
Commercial business. . . . . 562 1,842 1,978 580 1,193
Consumer . . . . . . . . . . 2,127 1,258 1,997 3,149 3,512
------------------------------------------------
9,516 17,424 16,056 20,653 27,810
Real estate and other
assets. . . . . . . . . . . . 16,604 27,598 36,605 80,009 67,869
------------------------------------------------
Total non-performing
assets. . . . . . . . . . $26,120 $45,022 $52,661 $100,662 $95,679
------------------------------------------------
------------------------------------------------
Non-performing assets as a
percentage of net loans. . . .86% 1.66% 2.00% 3.96% 3.57%
Non-performing assets as a
percentage of total assets . .52 .90 1.05 2.02 1.87
<FN>
----------------------------
(1) INCLUDED IN TOTAL LOANS IN THE CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION.
</TABLE>
The following table sets forth information regarding TCF's delinquent loan
portfolio, excluding non-accrual loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1994 1993
-------------------------- --------------------------
(DOLLARS IN THOUSANDS) PRINCIPAL PERCENTAGE OF PRINCIPAL PERCENTAGE OF
BALANCES(1) GROSS LOANS(1) BALANCES(1) GROSS LOANS(1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans delinquent for:
30-59 days . . . . . . $ 6,925 .21% $ 6,481 .21%
60-89 days . . . . . . 4,847 .15 4,462 .14
90 days or more. . . . 2,017 .06 2,916 .09
----------------------------------------------------
Total . . . . . . . $13,789 .42% $13,859 .44%
----------------------------------------------------
----------------------------------------------------
<FN>
-----------------------
(1) INCLUDES LOANS HELD FOR SALE.
</TABLE>
TCF had accruing loans 90 days or more past due totaling $2 million at
December 31, 1994 compared with $2.9 million at December 31, 1993. These loans
are in the process of collection and management believes they are adequately
secured.
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 $23.8 million outstanding at December 31,
1994 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.
Although these loans
TCF Financial Corporation and Subsidiaries 33
--
<PAGE>
are secured by commercial real estate or other corporate assets, they may be
subject to future modifications of their terms or may become non-performing.
Management is monitoring the performance and classification of such loans and
the financial condition of these borrowers.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is applicable to all creditors and to all
loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases, and debt securities. SFAS No. 114 requires that impaired
loans be measured at the present value of expected future cash flows by
discounting those cash flows at the loan's 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. As defined by SFAS No. 114, 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. 114 applies to all loans that are restructured in a
troubled debt restructuring involving a modification of terms. In October 1994,
the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures." 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. SFAS No. 114 and SFAS
No. 118 apply to financial statements issued for fiscal years beginning after
December 15, 1994, with earlier application encouraged. Management has not yet
determined what effect, if any, these pronouncements will have on TCF's results
of operations.
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 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 regulations to maintain a monthly average minimum asset
liquidity ratio of 5%. These subsidiaries have maintained average monthly
liquidity ratios in excess of this requirement.
Deposits are the primary source of TCF's funds for use in lending and for
other general business purposes. In addition to deposits, TCF derives funds
primarily from loan repayments, advances from the FHLB and proceeds from reverse
repurchase borrowing agreements. Deposit inflows and outflows are significantly
influenced by general interest rates, money market conditions, competition for
funds, and other factors. Although TCF's levels of deposits have recently
stabilized, its deposit inflows and outflows have been affected by these factors
and may continue to be affected in future periods. Borrowings may be used to
compensate for reductions in normal sources of funds, such as deposit inflows at
less than projected levels, net deposit outflows, or to support expanded
activities. Historically, TCF has borrowed primarily from the FHLB, from
institutional sources under reverse repurchase agreements and, to a lesser
extent, from other sources.
Cash and due from banks increased $4.8 million during the year ended
December 31, 1994 to $170.7 million. Cash of $307.2 million was provided by
operating activities as proceeds from sales of loans held for sale of $1 billion
were partially offset by originations and purchases of loans held for sale of
$802.4 million. Cash of $282.2 million was used by investing activities
reflecting loan originations of $1.2 billion, and purchases of loans, mortgage-
backed securities and securities available for sale of $915.7 million. These
cash outflows were partially offset by principal collections on loans and
mortgage-backed securities of $1.1 billion and proceeds from the sales and
maturities of securities available for sale of $808.9 million. Cash of $20.3
million was used by financing activities primarily due to net cash outflows on
deposits and repurchases of common stock of $17.5 million, offset by net cash
inflows on FHLB advances.
Cash and due from banks increased $25.1 million during the year ended
December 31, 1993 to $165.9 million. Cash of $60.6 million was used by
operating activities, as originations and purchases of loans held for sale of
$1.9 billion were substantially offset by proceeds from sales of loans held for
sale of $1.8 billion. Cash of $357.1 million was provided by investing
activities, reflecting proceeds from maturities of U.S. Government and other
marketable securities of $1.2 billion and principal collections on loans and
mortgage-backed securities of $1.3 billion. Also included in total cash
provided by investing activities is $154.3 million of cash acquired as part of
deposit acquisitions. These cash flows were substantially offset by loan
originations of $1.1 billion, purchases of loans and mortgage-backed securities
of $378 million and purchases of U.S. Government and other marketable securities
of $1.2 billion. Cash of $285.1 million was used by financing activities
primarily due to net cash outflows on deposits, FHLB advances, and other
borrowings and the repayment of $28.8 million of subordinated capital notes.
[Chart] -- Non-performing Assets at period-end
34 TCF Financial Corporation and Subsidiaries
--
<PAGE>
Potential sources of liquidity for TCF Financial Corporation include cash
dividends from TCF Bank Minnesota fsb ("TCF Minnesota"), TCF's wholly owned
subsidiary, cash flows from other direct subsidiaries, issuance of equity
securities to employee benefit plans and interest income. TCF Minnesota's
ability to pay dividends or make other capital distributions to TCF Financial
Corporation is restricted by regulation and may require regulatory approval. At
December 31, 1994, in addition to TCF Minnesota, TCF Financial Corporation
directly owned four insurance agency subsidiaries engaging in the sale of single
premium tax-deferred annuities. Dividends from these and other non-bank
subsidiaries to TCF Financial Corporation were $4.6 million and $3.3 million for
the years ended December 31, 1994 and 1993, respectively. Future dividends from
these subsidiaries are dependent upon continued favorable tax treatment for
single premium annuities, and legislative proposals have sought to limit or
eliminate these tax benefits. Cash flows from the exercise of stock options
under the Stock Option and Incentive Plan of TCF Financial were $272,000 and
$1.1 million for the years ended December 31, 1994 and 1993, respectively.
[Graph] -- Number of Checking Accounts at period-end
DEPOSITS -- Deposits totaled $3.8 billion at December 31, 1994, down $282.9
million from December 31, 1993. Lower interest-cost checking and savings
deposits totaled $1.6 billion, down $91.5 million from year-end 1993, and
comprised 41% of total deposits at December 31, 1994. Checking and savings
deposits are an important source of lower cost funds and fee income for TCF.
TCF's weighted average rate for deposits, including non-interest bearing
deposits, increased to 3.34% at December 31, 1994 from 3.15% at December 31,
1993, reflecting higher market rates.
BORROWINGS -- Borrowings are used primarily to fund the purchases of investments
and mortgage-backed securities held to maturity. These borrowings totaled
$868.3 million as of December 31, 1994, compared with $575.4 million at year-end
1993. Securities sold under repurchase agreements totaled $170.1 million at
December 31, 1994, an increase of $40.3 million from December 31, 1993.
Advances from the FHLB increased $254.2 million from December 31, 1993 and
totaled $650.9 million at December 31, 1994. TCF's weighted average rate on
borrowings decreased to 6.07% at December 31, 1994, from 6.18% at December 31,
1993, and reflects the maturity of $115 million of higher rate FHLB advances
which were subsequently replaced at a lower weighted average rate.
STOCKHOLDERS' EQUITY -- Stockholders' equity at December 31, 1994 was $327.2
million, or 6.5% of total assets, up from $295.6 million, or 5.9% of total
assets, at December 31, 1993. The increase in stockholders' equity is primarily
due to net income of $57.4 million for the year ended December 31, 1994,
partially offset by purchases of 535,000 shares of treasury stock at a cost of
$17.5 million and the declaration of $12.3 million in common stock dividends.
On January 25, 1994, TCF's board of directors authorized the repurchase of
up to 5 percent of TCF common stock, or approximately 620,000 shares. The
repurchased shares will be used for employee benefit plans and other corporate
purposes. As previously mentioned, TCF purchased 535,000 shares of stock under
this plan during the year ended December 31, 1994. During this period, 212,120
shares were issued out of treasury stock for restricted stock grants and
employee benefit plans.
REGULATORY CAPITAL REQUIREMENTS -- The following table sets forth TCF
Minnesota's calculation of its tangible, core and risk-based capital and
applicable percentages of adjusted assets at December 31, 1994 and 1993,
together with the excess over the minimum capital requirements:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1994 1993
------------------- --------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tangible capital . . . . . . . . $292,825 5.81% $282,295 5.65%
Tangible capital requirement . . 75,634 1.50 75,000 1.50
-----------------------------------------
Excess . . . . . . . . . . . . $217,191 4.31% $207,295 4.15%
-----------------------------------------
-----------------------------------------
Core capital . . . . . . . . . . $320,673 6.34% $313,400 6.25%
Core capital requirement . . . . 151,704 3.00 150,496 3.00
-----------------------------------------
Excess . . . . . . . . . . . . $168,969 3.34% $162,904 3.25%
-----------------------------------------
-----------------------------------------
Risk-based capital . . . . . . . $350,096 12.01% $341,188 12.25%
Risk-based capital requirement . 233,292 8.00 222,906 8.00
-----------------------------------------
Excess . . . . . . . . . . . . $116,804 4.01% $118,282 4.25%
-----------------------------------------
-----------------------------------------
</TABLE>
TCF Financial Corporation and Subsidiaries 35
--
<PAGE>
At December 31, 1994, TCF Minnesota and its wholly owned savings bank
subsidiaries, TCF Bank Wisconsin fsb, TCF Bank Illinois fsb and TCF Michigan,
exceeded their fully phased-in capital requirements. TCF Minnesota and its
wholly owned savings bank subsidiaries believe that at December 31, 1994 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 will 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 revised
anticipated effective date of this amendment is expected to be March 31, 1995.
Management does not believe the interest rate risk component will have a
significant impact on the risk-based capital requirements of TCF's wholly owned
savings bank subsidiaries.
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.
TCF's one-year adjusted interest rate gap was a negative $212.9 million, or
(4)% of total assets, at December 31, 1994, compared with a positive $434.4
million, or 9% of total assets, at December 31, 1993. This reflects the decline
in loan prepayment activity during 1994 as a result of the general increase in
interest rates.
Certain of TCF's assets and liabilities have repricing characteristics that
are dependent on the direction of market interest rate changes, including
consumer loans with interest rate floors and certificates of deposit that allow
depositors to exercise a one-time option to reprice their certificates at the
then current interest rates. As a result, although TCF's one-year adjusted
interest rate gap was (4)% at December 31, 1994, TCF's interest rate gap
calculated under rising or falling interest rate scenarios would be based on
repricing assumptions different from those utilized to calculate the interest
rate gap 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.
36 TCF Financial Corporation and Subsidiaries
--
<PAGE>
The following table summarizes TCF's interest rate gap position at December
31, 1994:
<TABLE>
<CAPTION>
MATURITY/RATE SENSITIVITY
------------------------------------------------
WITHIN
(DOLLARS IN THOUSANDS) 1 YEAR 1-3 YEARS 3+ YEARS TOTAL
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans held for sale. . . . . . . . $ 200,509 $ - $ - $ 200,509
Securities available for sale. . . 64,771 1,014 - 65,785
Mortgage-backed securities held to
maturity (1). . . . . . . . . . 266,895 267,587 580,131 1,114,613
Real estate loans (1). . . . . . . 699,731 542,950 647,509 1,890,190
Other loans (1). . . . . . . . . . 1,133,765 38,087 19,766 1,191,618
Investments (2) . . . . . . . . . 243,651 - - 243,651
------------------------------------------------
2,609,322 849,638 1,247,406 4,706,366
------------------------------------------------
Interest-bearing liabilities:
Deposits (3) . . . . . . . . . . . 2,259,579 621,081 938,954 3,819,614
Federal Home Loan Bank advances. . 388,405 261,114 1,344 650,863
Other borrowings . . . . . . . . . 179,198 1,340 2,382 182,920
Subordinated capital notes . . . . - - 34,500 34,500
------------------------------------------------
2,827,182 883,535 977,180 4,687,897
------------------------------------------------
Interest-earning assets over (under)
interest-bearing liabilities . . . (217,860) (33,897) 270,226 18,469
Impact of interest rate exchange
agreement. . . . . . . . . . . . . 5,000 (5,000) - -
------------------------------------------------
Adjusted gap . . . . . . . . . . . . $ (212,860) $ (38,897) $ 270,226 $ 18,469
------------------------------------------------
------------------------------------------------
Adjusted cumulative gap. . . . . . . $ (212,860) $(251,757) $ 18,469 $ 18,469
------------------------------------------------
------------------------------------------------
Adjusted cumulative gap as a
percentage of total assets:
At December 31, 1994 . . . . . . (4)% (5)% - % - %
------------------------------------------------
------------------------------------------------
At December 31, 1993. . . . . . 9 % 3 % (1)% (1)%
------------------------------------------------
------------------------------------------------
<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 NON-INTEREST BEARING DEPOSITS. MONEY MARKET ACCOUNTS AND 11% OF
CHECKING ACCOUNTS ARE INCLUDED IN AMOUNTS REPRICING WITHIN ONE YEAR. IN
ADDITION, 51% AND 34% OF PASSBOOK AND STATEMENT ACCOUNTS ARE INCLUDED IN
THE "WITHIN 1 YEAR" AND "1-3 YEARS" CATEGORIES, RESPECTIVELY. ALL
REMAINING PASSBOOK AND STATEMENT AND CHECKING ACCOUNTS ARE ASSUMED TO
MATURE IN THE "3+ YEARS" CATEGORY. WHILE MANAGEMENT BELIEVES THESE
ASSUMPTIONS ARE WELL BASED, NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON
DEPOSIT IN CHECKING, PASSBOOK AND STATEMENT ACCOUNTS WILL NOT SIGNIFICANTLY
DECREASE OR BE REPRICED IN THE EVENT OF A GENERAL RISE IN INTEREST RATES.
AT DECEMBER 31, 1993, 10% OF CHECKING ACCOUNTS WERE INCLUDED IN AMOUNTS
REPRICING WITHIN ONE YEAR, AND 46% AND 35% OF PASSBOOK AND STATEMENT
ACCOUNTS WERE INCLUDED IN THE "WITHIN 1 YEAR" AND "1-3 YEARS" CATEGORIES,
RESPECTIVELY.
</TABLE>
TCF Financial Corporation and Subsidiaries 37
--
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1994 1993
-----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . $ 170,687 $ 165,905
Interest-bearing deposits with banks . . . . . . . 190,698 10,512
Federal funds sold . . . . . . . . . . . . . . . . 6,900 105,500
U.S. Government and other marketable securities
held to maturity (fair value of $3,526
and $81,344) . . . . . . . . . . . . . . . . . . 3,528 81,260
Federal Home Loan Bank stock, at cost. . . . . . . 42,525 37,849
Securities available for sale (amortized
cost of $65,935 in 1994 and fair value
of $10,236 in 1993). . . . . . . . . . . . . . . 65,785 10,003
Loans held for sale. . . . . . . . . . . . . . . . 200,509 421,893
Mortgage-backed securities held to maturity
(fair value of $1,066,390 and $1,270,743) . . . 1,114,613 1,237,202
Loans:
Residential real estate. . . . . . . . . . . . . 1,261,690 1,063,158
Commercial real estate . . . . . . . . . . . . . 634,770 687,202
Commercial business. . . . . . . . . . . . . . . 100,397 89,368
Consumer . . . . . . . . . . . . . . . . . . . . 1,105,971 919,027
Unearned discounts and deferred fees . . . . . . (21,020) (13,609)
-----------------------
Total loans . . . . . . . . . . . . . . . . . 3,081,808 2,745,146
Allowance for loan losses . . . . . . . . . . (31,648) (26,055)
-----------------------
Net loans . . . . . . . . . . . . . . . . . 3,050,160 2,719,091
Premises and equipment . . . . . . . . . . . . . . 85,083 79,654
Real estate:
Total real estate. . . . . . . . . . . . . . . . 16,286 27,521
Allowance for real estate losses . . . . . . . . (730) (1,968)
-----------------------
Net real estate . . . . . . . . . . . . . . . 15,556 25,553
Accrued interest receivable. . . . . . . . . . . . 33,076 29,418
Goodwill . . . . . . . . . . . . . . . . . . . . . 13,355 14,549
Deposit base intangibles . . . . . . . . . . . . . 14,493 16,556
Other assets . . . . . . . . . . . . . . . . . . . 61,301 70,585
-----------------------
$5,068,269 $5,025,530
-----------------------
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking . . . . . . . . . . . . . . . . . . . . $ 818,823 $ 800,123
Passbook and statement . . . . . . . . . . . . . 745,546 855,781
Money market . . . . . . . . . . . . . . . . . . 431,309 469,694
Certificates . . . . . . . . . . . . . . . . . . 1,823,936 1,976,960
-----------------------
Total deposits. . . . . . . . . . . . . . . . 3,819,614 4,102,558
-----------------------
Securities sold under repurchase agreements. . . . 170,143 129,812
Federal Home Loan Bank advances. . . . . . . . . . 650,863 396,692
Subordinated capital notes . . . . . . . . . . . . 34,500 34,500
Other borrowings . . . . . . . . . . . . . . . . . 12,777 14,428
-----------------------
Total borrowings . . . . . . . . . . . . . . 868,283 575,432
Accrued interest payable . . . . . . . . . . . . . 7,603 10,248
Accrued expenses and other liabilities . . . . . . 45,578 41,684
-----------------------
Total liabilities . . . . . . . . . . . . . . 4,741,078 4,729,922
-----------------------
Stockholders' equity:
Preferred stock, par value $.01 per share,
30,000,000 shares authorized; none issued
and outstanding . . . . . . . . . . . . . . . - -
Common stock, par value $.01 per share,
70,000,000 shares authorized; 12,412,071
and 12,361,569 shares issued . . . . . . . . 124 124
Additional paid-in capital . . . . . . . . . . . 153,740 150,602
Unamortized deferred compensation. . . . . . . . (6,986) (1,272)
Retained earnings, subject to certain
restrictions. . . . . . . . . . . . . . . . . 191,608 146,502
Loan to Executive Deferred Compensation Plan . . (195) (348)
Unrealized loss on securities available
for sale, net . . . . . . . . . . . . . . . . (88) -
Treasury stock, at cost, 322,880 shares in 1994. (11,012) -
-----------------------
Total stockholders' equity. . . . . . . . . . 327,191 295,608
-----------------------
$5,068,269 $5,025,530
-----------------------
-----------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38 TCF Financial Corporation and Subsidiaries
--
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans. . . . . . . . . . . . $250,286 $230,606 $249,897
Interest on loans held for sale. . . . . 16,486 21,986 19,685
Interest on mortgage-backed
securities held to maturity. . . . . . 79,219 93,254 106,424
Interest on investments. . . . . . . . . 7,977 10,284 20,019
Interest on securities available
for sale . . . . . . . . . . . . . . . 3,673 1,471 2,406
-------- -------- --------
Total interest income. . . . . . . . . 357,641 357,601 398,431
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits . . . . . . . . . . 120,614 136,253 185,539
Interest on borrowings . . . . . . . . . 31,898 36,924 45,686
-------- -------- --------
Total interest expense . . . . . . . . 152,512 173,177 231,225
-------- -------- --------
Net interest income . . . . . . . . 205,129 184,424 167,206
Provision for credit losses. . . . . . . 10,901 21,933 13,190
-------- -------- --------
Net interest income after provision
for credit losses . . . . . . . . . 194,228 162,491 154,016
-------- -------- --------
NON-INTEREST INCOME:
Fee and service charge revenues. . . . . 75,449 72,130 66,582
Data processing revenue. . . . . . . . . 8,988 8,120 7,310
Commissions on sales of annuities. . . . 10,818 9,446 9,327
Title insurance revenues . . . . . . . . 10,274 15,229 9,984
Gain on sale of mortgage-backed
securities, net. . . . . . . . . . . . - - 718
Gain on sale of investments, net . . . . - - 114
Gain on sale of loans held for
sale, net. . . . . . . . . . . . . . . 2,367 10,059 6,889
Gain on sale of securities available
for sale, net. . . . . . . . . . . . . 2,035 649 3,362
Gain on sale of loan servicing, net. . . 2,353 137 -
Other . . . . . . . . . . . . . . . . . 5,010 3,845 3,058
-------- -------- --------
Total non-interest income. . . . . . . 117,294 119,615 107,344
-------- -------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits . . . 99,071 90,045 82,388
Occupancy and equipment, net . . . . . . 35,357 32,834 29,542
Advertising and promotions . . . . . . . 11,666 11,254 9,423
Federal deposit insurance premiums
and assessments. . . . . . . . . . . . 9,871 8,979 9,606
Amortization of goodwill and
other intangibles. . . . . . . . . . . 3,257 2,957 3,830
Provision for real estate losses . . . . 2,373 11,743 22,054
Merger-related expense . . . . . . . . . - 5,494 -
Other . . . . . . . . . . . . . . . . . 52,262 52,182 46,302
-------- -------- --------
Total non-interest expense . . . . . . 213,857 215,488 203,145
-------- -------- --------
Income before income tax expense. . 97,665 66,618 58,215
Income tax expense . . . . . . . . . . . 40,302 28,647 12,956
-------- -------- --------
Net income . . . . . . . . . . . . $ 57,363 $ 37,971 $ 45,259
-------- -------- --------
-------- -------- --------
PER COMMON SHARE:
Net income . . . . . . . . . . . . . . . $ 4.63 $ 3.04 $ 3.74
-------- -------- --------
-------- -------- --------
Dividends declared . . . . . . . . . . . $ 1.00 $ .6875 $ .475
-------- -------- --------
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TCF Financial Corporation and Subsidiaries 39
--
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
(In Thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,363 $ 37,971 $ 45,259
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 9,299 7,304 7,559
Amortization of goodwill and other intangibles. . . . . . . . . . . . . . . 3,257 2,957 3,830
Amortization of fees, discounts and premiums. . . . . . . . . . . . . . . . (2,149) (7,672) (7,718)
Proceeds from sales of loans held for sale. . . . . . . . . . . . . . . . . 1,013,475 1,781,103 1,584,988
Principal collected on loans held for sale. . . . . . . . . . . . . . . . . 9,508 18,373 11,588
Originations and purchases of loans held for sale . . . . . . . . . . . . . (802,364) (1,932,202) (1,639,234)
Net (increase) decrease in other assets and
liabilities, and accrued interest . . . . . . . . . . . . . . . . . . . . 7,487 1,719 (21,237)
Provisions for credit and real estate losses. . . . . . . . . . . . . . . . 13,274 33,676 35,244
Gain on sale of securities available for sale, net. . . . . . . . . . . . . (2,035) (649) (3,362)
Gain on sale of mortgage-backed securities and investments, net . . . . . . - - (832)
Gain on sale of loan servicing, net . . . . . . . . . . . . . . . . . . . . (2,353) (137) -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,451 (3,055) 1,692
---------------------------------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,850 (98,583) (27,482)
---------------------------------------
Net cash provided (used) by operating activities . . . . . . . . . . . 307,213 (60,612) 17,777
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of mortgage-backed securities . . . . . . . . . . . . . - - 23,752
Principal collected on mortgage-backed securities . . . . . . . . . . . . . 252,129 404,569 322,549
Purchases of mortgage-backed securities . . . . . . . . . . . . . . . . . . (288,229) (376,615) (356,760)
Principal collected on loans . . . . . . . . . . . . . . . . . . . . . . . 821,035 887,846 727,160
Loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,174,244) (1,051,272) (857,135)
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . (426) (1,411) (12,123)
Net (increase) decrease in interest-bearing deposits with banks . . . . . . (180,186) 115,965 2,030
Proceeds from sales of securities available for sale. . . . . . . . . . . . 155,217 146,884 91,723
Proceeds from maturities of securities available for sale . . . . . . . . . 653,731 34,455 1,009
Purchases of securities available for sale. . . . . . . . . . . . . . . . . (627,059) - (37,828)
Proceeds from sales of U.S. Government and other marketable securities . . - - 4,048
Proceeds from maturities of U.S. Government and
other marketable securities . . . . . . . . . . . . . . . . . . . . . . . 667 1,195,348 611,236
Purchases of U.S. Government and other marketable securities . . . . . . . - (1,158,945) (554,110)
Proceeds from redemption of FHLB stock. . . . . . . . . . . . . . . . . . . - 1,121 2,953
Purchases of term federal funds sold. . . . . . . . . . . . . . . . . . . . (76,000) (80,800) (160,000)
Proceeds from maturities of term federal funds sold . . . . . . . . . . . . 91,000 115,800 180,000
Net decrease (increase) in short-term federal funds sold. . . . . . . . . . 83,600 (39,500) (20,000)
Proceeds from sales of real estate. . . . . . . . . . . . . . . . . . . . . 22,613 30,302 37,073
Payments for acquisition and improvement of real estate . . . . . . . . . . (2,291) (3,591) (7,039)
Proceeds from sale of loan servicing. . . . . . . . . . . . . . . . . . . . 2,807 137 -
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . (14,806) (17,341) (8,652)
Acquisitions of deposits, net of cash acquired. . . . . . . . . . . . . . . - 154,257 -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,723) (143) 4,605
---------------------------------------
Net cash provided (used) by investing activities. . . . . . . . . . . . . (282,165) 357,066 (5,509)
---------------------------------------
CONTINUED ON FOLLOWING PAGE.
40 TCF Financial Corporation and Subsidiaries
--
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS ( CONTINUED )
YEAR ENDED DECEMBER 31,
------------------------------------------
(IN THOUSANDS) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (282,944) $ (140,661) $ (52,282)
Proceeds from securities sold under repurchase agreements. . . . . . . . . . . . 2,241,212 1,158,036 414,702
Payments on securities sold under repurchase agreements. . . . . . . . . . . . . (2,200,881) (1,128,224) (414,702)
Proceeds from subordinated capital notes . . . . . . . . . . . . . . . . . . . . - - 34,500
Payments on subordinated capital notes . . . . . . . . . . . . . . . . . . . . . - (28,750) -
Proceeds from FHLB advances. . . . . . . . . . . . . . . . . . . . . . . . . . . 924,663 733,291 441,409
Payments on FHLB advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . (670,492) (862,930) (450,120)
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 148,350 5,000 -
Payments on other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (150,249) (9,612) (5,120)
Proceeds from issuance of common stock, net. . . . . . . . . . . . . . . . . . . - - 32,019
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . (17,524) - -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,401) (11,285) (1,330)
---------------------------------------
Net cash used by financing activities. . . . . . . . . . . . . . . . . . . . . (20,266) (285,135) (924)
---------------------------------------
Net increase in cash and due from banks. . . . . . . . . . . . . . . . . . . . . 4,782 11,319 11,344
RCG cash flows for six months ended December 31, 1992. . . . . . . . . . . . . . - 13,807 -
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . 165,905 140,779 129,435
---------------------------------------
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . $ 170,687 $ 165,905 $ 140,779
---------------------------------------
---------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings. . . . . . . . . . . . . . . . . . . . . . $ 154,859 $ 173,715 $ 235,677
---------------------------------------
---------------------------------------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,750 $ 23,126 $ 14,249
---------------------------------------
---------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Transfer of loans to real estate acquired through foreclosure and
other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,771 $ 36,102 $ 32,069
---------------------------------------
---------------------------------------
Loans to facilitate sale of real estate acquired through foreclosure . . . . . . $ 1,764 $ 9,680 $ 25,526
---------------------------------------
---------------------------------------
Transfer of loans to loans held for sale . . . . . . . . . . . . . . . . . . . . $ - $ 2,325 $ 48,917
---------------------------------------
---------------------------------------
Transfer of U.S. Government and other marketable securities to
securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . $ 77,297 $ 33,258 $ 73,858
---------------------------------------
---------------------------------------
Transfer of mortgage-backed securities to securities available for sale. . . . . $ 156,755 $ - $ 215,473
---------------------------------------
---------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TCF Financial Corporation and Subsidiaries 41
--
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
LOANS TO UNREALIZED
EXECUTIVE GAIN
COMMON STOCK DEFERRED (LOSS) ON
----------------- UNAMORTIZED COMPEN- SECURITIES
NUMBER ADDITIONAL DEFERRED SATION AVAILABLE
OF SHARES PAID-IN COMPEN- RETAINED PLAN FOR SALE, TREASURY
(DOLLARS IN THOUSANDS) ISSUED AMOUNT CAPITAL SATION EARNINGS AND ESOP NET STOCK TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991.......... 9,786,381 $ 98 $106,809 $(1,917) $ 76,952 $(1,307) $ - $ - $180,635
Net income.......................... - - - - 45,259 - - - 45,259
Dividends on common stock........... - - - - (5,642) - - - (5,642)
Issuance of shares of
common stock, net................. 1,840,000 18 32,001 - - - - - 32,019
Cancellation of shares of
restricted stock and
compensatory stock option
grants............................ (2,400) - (43) 21 - - - - (22)
Amortization of deferred
compensation...................... - - - 737 - - - - 737
Exercise of stock options........... 360,761 4 5,266 - - - - - 5,270
Issuance of stock to
employee benefit plans............ 121,873 1 2,857 - - - - - 2,858
Payments on Loan to Executive
Deferred Compensation Plan........ - - - - - 613 - - 613
Payments on Loan to Employee
Stock Ownership Plan.............. - - - - - 58 - - 58
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992.......... 12,106,615 121 146,890 (1,159) 116,569 (636) - - 261,785
RCG activity for six months
ended December 31, 1992:
Net income...................... - - - - 946 - - - 946
Dividends on common stock....... - - - - (525) - - - (525)
Exercise of stock options....... 43,076 - 223 - - - - - 223
Payments on Loan to Employee
Stock Ownership Plan.......... - - - - - 32 - - 32
Pooled operations for year ended
December 31, 1993:
Net income.......................... - - - - 37,971 - - - 37,971
Dividends on common stock........... - - - - (8,459) - - - (8,459)
Issuance of shares of
restricted stock.................. 21,000 - 689 (689) - - - - -
Issuance of shares under
Officers' Stock Performance
Investment Plan................... 29,961 1 971 (322) - - - - 650
Repurchase and cancellation of
shares............................ (464) - (15) - - - - - (15)
Grant of shares of restricted
stock to outside directors........ - - - (49) - - - - (49)
Cancellation of shares of
restricted stock ................. (500) - (9) (2) - - - - (11)
Amortization of deferred
compensation...................... - - - 949 - - - - 949
Exercise of stock options........... 161,881 2 1,853 - - - - - 1,855
Payments on Loan to Executive
Deferred Compensation Plan........ - - - - - 253 - - 253
Payments on Loan to Employee
Stock Ownership Plan.............. - - - - - 3 - - 3
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993.......... 12,361,569 124 150,602 (1,272) 146,502 (348) - - 295,608
Cumulative effect of change
in accounting for securities
available for sale at
January 1, 1994, net of tax....... - - - - - - 1,331 - 1,331
Net income.......................... - - - - 57,363 - - - 57,363
Dividends on common stock........... - - - - (12,257) - - - (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 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........... 22,957 - 361 - - - - - 361
Payments on Loan to Executive
Deferred Compensation Plan........ - - - - - 153 - - 153
Change in unrealized gain (loss)
on securities available for
sale, net......................... - - - - - - (1,419) - (1,419)
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994.......... 12,412,071 $124 $153,740 $(6,986) $191,608 $ (195) $ (88) $(11,012) $327,191
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42 TCF Financial Corporation and Subsidiaries
--
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of TCF Financial Corporation and its wholly owned subsidiaries. TCF
Financial Corporation ("TCF" or the "Company") is a holding company engaged
primarily in retail community banking through its wholly owned subsidiary, TCF
Bank Minnesota fsb ("TCF Minnesota" or the "Bank"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior years' financial statements to
conform to the current year presentation. For consolidated statements of cash
flows purposes, cash and cash equivalents include cash and due from banks.
CHANGE IN METHOD OF ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES -- In May 1993, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." TCF adopted SFAS No.
115 effective January 1, 1994. In accordance with SFAS No. 115, prior period
financial statements have not been restated to reflect the change in accounting
method. Under the provisions of SFAS No. 115, debt securities that TCF has both
the positive intent and ability to hold to maturity are classified as held to
maturity and carried at amortized cost. Debt securities that TCF does not have
the positive intent and ability to hold to maturity and all marketable equity
securities are classified as available for sale and carried at fair value.
Unrealized holding gains and losses on securities classified as available for
sale are reported as a separate component of TCF's stockholders' equity, net of
deferred income taxes. Prior to 1994, debt and equity securities were either
classified as U.S. Government and other marketable securities or mortgage-backed
securities and were carried at amortized cost, or as securities held for sale
and carried at the lower of cost or market.
As permitted by SFAS No. 115, TCF reclassified $77.3 million of its debt
securities from U.S. Government and other marketable securities and $156.8
million of its mortgage-backed securities to securities available for sale on
January 1, 1994. The cumulative effect of adopting SFAS No. 115 at January 1,
1994 increased TCF's beginning stockholders' equity by $1.3 million, net of
deferred income taxes of $925,000.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- Investments and
mortgage-backed securities classified as held to maturity are carried at cost,
adjusted for amortization of premiums or accretion of discounts using methods
which approximate a level yield.
SECURITIES AVAILABLE FOR SALE -- Investments and mortgage-backed securities
classified as available for sale are carried at fair value with the unrealized
holding gains or losses, net of deferred income taxes, reported as a separate
component of stockholders' equity. Cost of securities sold is determined on a
specific identification basis and gains or losses on sales of securities
available for sale are recognized at trade dates. Securities classified as
available for sale at December 31, 1993 were carried at the lower of cost or
market.
LOANS HELD FOR SALE -- Residential real estate and education loans held for sale
are carried at the lower of cost or market determined on an aggregate basis.
Cost of loans sold is determined on a specific identification basis and gains or
losses on sales of loans held for sale are recognized at settlement dates. Net
fees and costs associated with originating and acquiring loans held for sale are
deferred and are included in the basis for determining the gain or loss on sales
of loans held for sale.
LOANS -- Net fees and costs associated with originating and acquiring loans are
deferred and amortized over the lives of the loans. Net fees and costs
associated with loan commitments are deferred in other assets or other
liabilities until the loan is advanced. Discounts and premiums on loans
purchased, net deferred fees and unearned discounts and finance charges, which
are considered yield adjustments, are amortized using methods which approximate
a level yield over the estimated remaining lives of the loans.
The provision for credit losses is based on management's periodic analysis
of the loan portfolio and off-balance-sheet financial guarantees. In this
analysis, management considers factors including, but not limited to, general
economic conditions, loan portfolio composition, appraisals of collateral,
financial guarantee exposure and historical experience. Loans are charged off
to the extent they are deemed to be uncollectible. The provision for credit
losses is based on estimates and ultimate losses may vary from current
estimates. These estimates are reviewed periodically and, as adjustments become
necessary, are reported in earnings in the periods in which they become known.
Interest income is accrued on loan balances outstanding. Loans are
reviewed regularly by management and are placed on non-accrual status when the
collection of interest or principal is more than 90 days past due, unless the
loan is adequately secured and in the process of collection. When a loan is
placed on non-accrual status, unless collection of all principal and interest is
considered to be assured, uncollected interest accrued in prior years is charged
against the allowance for loan losses. Interest accrued in the current year is
reversed. Interest payments received on non-accrual loans are generally applied
to principal unless the remaining loan principal balance has been determined to
be fully collectible.
Cost of loans sold is determined on a specific identification basis and
gains or losses on sales of loans are recognized at trade dates.
TCF Financial Corporation and Subsidiaries 43
--
<PAGE>
PREMISES AND EQUIPMENT -- Premises and equipment are carried at cost and are
depreciated or amortized on a straight-line basis over their estimated useful
lives.
REAL ESTATE -- Real estate in judgment, real estate acquired through foreclosure
and in-substance foreclosures are recorded at the lower of cost or fair value
minus estimated costs to sell at the date of transfer to real estate. If the
fair value of an asset minus the estimated costs to sell should decline to less
than the carrying amount of the asset, the deficiency is recognized through the
allowance for real estate losses. In-substance foreclosures consist of loans
accounted for as foreclosed property even though actual foreclosure has not
occurred. Although the collateral underlying these loans has not been
repossessed, the borrower has little or no equity in the collateral at its
current estimated fair value, proceeds for repayment are expected to come only
from the operation or sale of the collateral, and either the borrower has
abandoned control of the property or it is doubtful that the borrower will
rebuild equity in the collateral or repay the loan by other means in the
foreseeable future.
The provision for real estate losses is based on management's periodic
analysis of real estate holdings. In this analysis, management considers
factors including, but not limited to, general economic and market conditions,
geographic location, the composition and appraisals of the real estate holdings
and property conditions.
PURCHASED MORTGAGE SERVICING RIGHTS -- The costs of purchased mortgage servicing
rights are capitalized and are amortized over the estimated remaining lives of
the underlying loans using methods which approximate a level yield. The
carrying value of purchased mortgage servicing rights is periodically evaluated
in relation to estimated future servicing net revenues.
INVESTMENT IN JOINT VENTURE -- TCF participates in a joint venture engaged in
the origination of residential real estate loans. The investment, which is 50%
owned by TCF, is accounted for using the equity method of accounting. TCF's
investment in the joint venture is included in other assets in the Consolidated
Statements of Financial Condition and totaled $335,000 and $288,000 at December
31, 1994 and 1993, respectively.
INTANGIBLE ASSETS -- Goodwill resulting from acquisitions initiated or completed
prior to September 30, 1982 is amortized over 25 years on a straight-line basis.
For acquisitions initiated or completed after September 30, 1982, goodwill is
amortized by the level-yield method based upon the outstanding balances, and
over the estimated remaining lives, of the long-term assets acquired. Deposit
base intangibles are amortized over 10 years on a straight-line basis. The
accumulated reduction, write-off and amortization of goodwill and deposit base
intangibles totaled $166.8 million and $163.6 million at December 31, 1994 and
1993, respectively.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS -- TCF enters into sales of
securities under repurchase agreements (reverse repurchase agreements). Such
agreements are treated as financings, and the obligations to repurchase
securities sold are reflected as liabilities in the Consolidated Statements of
Financial Condition. The securities underlying the agreements remain in the
asset accounts in the Consolidated Statements of Financial Condition.
ADVERTISING AND PROMOTIONS -- Expenditures for advertising costs are expensed in
the year incurred.
INCOME TAXES -- Income taxes are accounted for using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS PER SHARE -- The weighted average number of common and common
equivalent shares outstanding used to compute earnings per share were
12,382,677, 12,503,989 and 12,111,940 for the years ended December 31, 1994,
1993 and 1992, respectively.
2) BUSINESS COMBINATIONS AND ACQUISITIONS
GREAT LAKES BANCORP, A FEDERAL SAVINGS BANK -- 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 4.8 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
intends to redeem the 2.7 million shares of preferred stock as soon as
practicable after July 1, 1995, the date the preferred stock first becomes
redeemable at the option of the issuer. 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. This acquisition
was accounted for as a pooling-of-interests and, accordingly, TCF's historical
financial statements presented in future reports will be restated to include the
accounts and results of operations of Great Lakes. In connection with the
acquisition, it is expected that a pretax merger-related charge of approximately
$51.4 million will be incurred during the 1995 first quarter, primarily to
accrue for specific, identified costs related to the merger.
44 TCF Financial Corporation and Subsidiaries
--
<PAGE>
As a result of the acquisition, Great Lakes merged into TCF's existing
Michigan-based wholly owned savings bank subsidiary, TCF Bank Michigan fsb ("TCF
Michigan"). 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 following unaudited pro forma data summarizes the combined results of
operations and financial condition of TCF and Great Lakes as if the acquisition
had been consummated at the beginning of each period presented.
SELECTED OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1994 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income............................ $552,482 $558,645 $630,442
Interest expense........................... 273,330 297,449 383,170
-------------------------------
Net interest income...................... 279,152 261,196 247,272
Provision for credit losses................ 11,951 31,933 34,790
-------------------------------
Net interest income after provision
for credit losses...................... 267,201 229,263 212,482
Non-interest income........................ 125,219 139,005 125,524
Non-interest expense....................... 275,835 276,143 270,112
-------------------------------
Income before income tax expense and
extraordinary item..................... 116,585 92,125 67,894
Income tax expense......................... 46,402 36,797 15,906
-------------------------------
Income before extraordinary item......... 70,183 55,328 51,988
Extraordinary item, net.................... - (157) 339
-------------------------------
Net income............................... 70,183 55,171 52,327
Dividends on preferred stock............... 2,710 2,769 2,911
-------------------------------
Net income available to common
stockholders........................... $ 67,473 $ 52,402 $ 49,416
-------------------------------
-------------------------------
Earnings per common share.................. $ 3.91 $ 3.07 $ 3.03
-------------------------------
-------------------------------
SELECTED FINANCIAL CONDITION DATA:
<CAPTION>
AT DECEMBER 31,
---------------------
(IN THOUSANDS) 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C>
Total assets.......................................... $7,845,588 $7,630,654
---------------------
---------------------
Total loans........................................... $5,104,686 $4,628,858
---------------------
---------------------
Total mortgage-backed securities held to maturity..... $1,601,200 $1,751,916
---------------------
---------------------
Total deposits........................................ $5,399,718 $5,695,928
---------------------
---------------------
Total borrowings...................................... $1,884,995 $1,413,367
---------------------
---------------------
Total stockholders' equity............................ $ 475,469 $ 428,065
---------------------
---------------------
</TABLE>
The significant accounting and reporting policies of TCF and Great Lakes
differ in certain respects. As required in a pooling-of-interests business
combination, the unaudited pro forma data above reflects certain adjustments to
conform Great Lakes' accounting methods to those of TCF.
REPUBLIC CAPITAL GROUP, INC. -- On April 21, 1993, TCF issued approximately 2.2
million shares of its common stock for all of the outstanding common stock of
Republic Capital Group, Inc. ("RCG"), a Milwaukee-based thrift holding company
with approximately $1 billion in assets. As a result of the merger, TCF
acquired RCG's two wholly owned subsidiaries, Republic Capital Bank, F.S.B. (now
TCF Bank Wisconsin fsb), and Peerless Federal Savings Bank (now TCF Bank
Illinois fsb). Both TCF Bank Wisconsin fsb ("TCF Wisconsin") and TCF Bank
Illinois fsb ("TCF Illinois") are wholly owned subsidiaries of TCF Minnesota.
Subsequent to the merger, TCF Minnesota's Illinois Division was merged into TCF
Illinois. The consolidated financial statements of TCF give effect to the
merger, 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 RCG for all periods presented, except for dividends declared per
share. Prior to the merger, RCG's fiscal year ended June 30. RCG's results of
operations for the six months ended December 31, 1992 are not reflected in the
Consolidated Statements of Operations or the Consolidated Statements of Cash
Flows. An adjustment has been made to stockholders' equity as of January 1,
1993 to adjust for the effect of excluding RCG's results of operations for the
six months ended December 31, 1992.
ACQUISITIONS ACCOUNTED FOR AS PURCHASES -- On August 27, 1993, TCF Michigan, a
newly formed subsidiary of TCF Minnesota, acquired from the Resolution Trust
Corporation ("RTC") $220.8 million of insured deposits and 15 branch offices of
First Federal Savings and Loan Association, Pontiac, Michigan, for which TCF
Michigan received approximately $129.1 million in cash and $79.6 million in
short-term investments. TCF has accounted for this acquisition using the
purchase method of accounting. TCF Michigan paid the RTC a premium of
approximately $14.6 million which has been classified as deposit base
intangibles in the accompanying Consolidated Statements of Financial Condition.
The amortization and accretion of discounts, premiums, goodwill and deposit
base intangibles related to TCF's acquisition of certain associations and
deposits which were accounted for as purchases decreased TCF's income before
taxes by $2.1 million for 1994 and $1.1 million for both 1993 and 1992. The
unamortized discount related to acquired loans was $1.2 million and $2.3 million
at December 31, 1994 and 1993, respectively.
TCF Financial Corporation and Subsidiaries 45
--
<PAGE>
3) INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------------
1994 1993
----------------------------------------- --------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks.. $190,698 $- $ - $190,698 $ 10,512 $ - $ - $ 10,512
Federal funds sold.................... 6,900 - - 6,900 105,500 - - 105,500
U.S. Government and other marketable
securities held to maturity:
U.S. Government and agency
obligations..................... 50 - (2) 48 66,961 77 - 67,038
Corporate bonds................... - - - - 3,000 6 - 3,006
Bankers' acceptances.............. - - - - 6,997 2 - 6,999
Commercial paper.................. 3,478 - - 3,478 3,244 - - 3,244
Other............................. - - - - 1,058 - (1) 1,057
------------------------------------------------------------------------------------------
3,528 - (2) 3,526 81,260 85 (1) 81,344
Federal Home Loan Bank stock, at cost. 42,525 - - 42,525 37,849 - - 37,849
------------------------------------------------------------------------------------------
$243,651 $- $(2) $243,649 $235,121 $85 $(1) $235,205
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Weighted average yield................ 6.27% 3.97%
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
The carrying value and fair value of investments at December 31, 1994, by
contractual maturity, are shown below:
<TABLE>
<CAPTION>
CARRYING FAIR
(IN THOUSANDS) VALUE VALUE
---------------------------------------------------------------------
<S> <C> <C>
Due in one year or less............... $201,076 $201,076
Due after one year through five years. 50 48
No stated maturity.................... 42,525 42,525
-----------------------
$243,651 $243,649
-----------------------
-----------------------
</TABLE>
Interest income on investments consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
(IN THOUSANDS) 1994 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-bearing deposits with banks.......... $ 979 $ 917 $ 1,808
Federal funds sold............................ 3,670 2,449 4,676
U.S. Government and other marketable
securities held to maturity................. 271 4,267 10,792
Federal Home Loan Bank stock.................. 3,057 2,651 2,743
-----------------------------
$7,977 $10,284 $20,019
-----------------------------
-----------------------------
</TABLE>
Accrued interest receivable on investments totaled $51,000 and $268,000 at
December 31, 1994 and 1993, respectively.
There were no sales of U.S. Government and other marketable securities held
to maturity during 1994 or 1993. Proceeds from sales of U.S. Government and
other marketable securities held to maturity totaled $4 million during 1992.
Gross gains of $127,000 and gross losses of $13,000 were recognized during 1992.
46 TCF Financial Corporation and Subsidiaries
--
<PAGE>
4) SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------------------
1994 1993
--------------------------------------------- ---------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations........ $50,977 $ 6 $ (71) $50,912 $ - $ - $- $ -
Commercial paper............ 14,955 - (112) 14,843 - - - -
Other....................... 3 27 - 30 10,003 233 - 10,236
---------------------------------------------------------------------------------------------
$65,935 $33 $(183) $65,785 $10,003 $233 $- $10,236
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Weighted average yield...... 5.95% 4.66%
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
The fair value and amortized cost of securities available for sale at
December 31, 1994, by contractual maturity, is shown below:
<TABLE>
<CAPTION>
FAIR AMORTIZED
(IN THOUSANDS) VALUE COST
----------------------------------------------------------------
<S> <C> <C>
Due in one year or less................... $64,740 $64,923
Due after one year through five years..... 1,015 1,009
-------------------
65,755 65,932
Marketable equity securities.............. 30 3
-------------------
$65,785 $65,935
-------------------
-------------------
</TABLE>
Accrued interest receivable on securities available for sale was $33,000
and $40,000 at December 31, 1994 and 1993, respectively.
Proceeds from sales of securities available for sale totaled $155.2
million, $146.9 million and $91.7 million during 1994, 1993 and 1992,
respectively. Gross gains of $2 million were recognized during 1994. No gross
losses were recognized during 1994. Gross gains of $1.4 million and $3.4
million and gross losses of $747,000 and $69,000 were recognized during 1993 and
1992, respectively.
5) LOANS HELD FOR SALE
Loans held for sale consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
(IN THOUSANDS) 1994 1993
----------------------------------------------------------------
<S> <C> <C>
Residential real estate................... $ 44,742 $297,334
Education................................. 155,524 123,233
-------------------
200,266 420,567
Less:
Deferred loan fees (costs), net...... (489) 282
Unearned discounts (premiums), net... 246 (1,608)
-------------------
$200,509 $421,893
-------------------
-------------------
</TABLE>
Accrued interest receivable on loans held for sale was $5.7 million and
$4.4 million at December 31, 1994 and 1993, respectively.
6) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) VALUE VALUE VALUE VALUE
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC.............. $ 297,268 $ 285,451 $ 510,855 $ 525,212
FNMA............... 641,648 610,822 499,499 515,657
GNMA............... 154,513 152,928 198,520 208,623
Private issuers.... 17,441 17,189 21,028 21,251
--------------------------------------------------------
1,110,870 1,066,390 1,229,902 1,270,743
Net premiums....... 3,743 - 7,300 -
--------------------------------------------------------
$1,114,613 $1,066,390 $1,237,202 $1,270,743
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
Included in mortgage-backed securities held to maturity at December 31,
1994 are $68.1 million of first mortgage loans which TCF has pooled and formed
FNMA certificates. TCF has retained the credit risk on these certificates.
Accrued interest receivable on mortgage-backed securities held to maturity
totaled $7.6 million and $8.9 million at December 31, 1994 and 1993,
respectively.
At December 31, 1994 and 1993, TCF's mortgage-backed securities held to
maturity portfolio had gross unrealized gains of $2.9 million and $35 million
and gross unrealized losses of $51.2 million and $1.5 million, respectively.
There were no sales of mortgage-backed securities held to maturity during 1994
or 1993. Proceeds from sales of mortgage-backed securities held to maturity
totaled $23.8 million during 1992. Gross gains of $718,000 were recognized
during 1992. No gross losses were recognized during 1992.
TCF Financial Corporation and Subsidiaries 47
--
<PAGE>
7) LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
(IN THOUSANDS) 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Residential real estate.................... $1,261,690 $1,063,158
-------------------------
Commercial real estate:
Apartments............................... 265,557 329,575
Other permanent.......................... 355,666 353,819
Construction and development............. 13,547 3,808
-------------------------
634,770 687,202
-------------------------
Total real estate...................... 1,896,460 1,750,360
-------------------------
Commercial business........................ 100,397 89,368
-------------------------
Consumer:
Home equity.............................. 875,395 759,390
Automobile and recreational vehicle...... 95,375 54,762
Credit card.............................. 34,698 18,989
Loans secured by deposits................ 9,676 11,411
Other.................................... 90,827 74,475
-------------------------
1,105,971 919,027
-------------------------
3,102,828 2,758,755
Less:
Unearned discounts on loans purchased.... 1,280 2,262
Deferred loan fees, net.................. 2,606 2,419
Unearned discounts and finance
charges, net........................... 17,134 8,928
-------------------------
$3,081,808 $2,745,146
-------------------------
-------------------------
</TABLE>
Accrued interest receivable on loans was $19.7 million and $15.8 million at
December 31, 1994 and 1993, respectively.
At December 31, 1994, 1993 and 1992, loans on non-accrual status totaled
$9.5 million, $17.4 million and $16.1 million, respectively. Had the loans
performed in accordance with their original terms throughout 1994, TCF would
have recorded gross interest income of $1.3 million for these loans. Interest
income of $594,000 has been recorded on these loans for the year ended December
31, 1994.
Included in loans at December 31, 1994 and 1993, are commercial real estate
loans aggregating $3 million and $7.4 million, respectively, with terms that
have been modified in troubled debt restructurings. Had the loans performed in
accordance with their original terms throughout 1994, TCF would have recorded
gross interest income of $312,000 for these loans. Interest income of $280,000
has been recorded on these loans for the year ended December 31, 1994. There
were no material commitments to lend additional funds to customers whose loans
were classified as restructured or non-accrual at December 31, 1994.
Included in commercial real estate loans at December 31, 1994 and 1993, are
$52.2 million and $57.1 million, respectively, of loans to facilitate the sale
of real estate accounted for by the installment method. The installment method
of accounting was applied because the borrower's initial and continuing
investment was not adequate for full accrual profit recognition under SFAS No.
66, "Accounting for Sales of Real Estate."
At December 31, 1994, 1993 and 1992, TCF was servicing real estate loans
for others with aggregate unpaid principal balances of approximately $3.9
billion, $3.6 billion and $3.3 billion, respectively. During 1994 and 1993, TCF
sold servicing rights on $169 million and $44 million of loans serviced for
others at net gains of $2.4 million and $137,000, respectively. No sales of
servicing rights occurred in 1992.
8) ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND
RESERVES
Following is a summary of the allowances for loan and real estate losses and
industrial revenue bond reserves:
<TABLE>
<CAPTION>
INDUSTRIAL ALLOWANCE
ALLOWANCE REVENUE FOR REAL
FOR LOAN BOND ESTATE
(IN THOUSANDS) LOSSES RESERVES TOTAL LOSSES TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991................. $25,420 $2,881 $28,301 $ 7,603 $35,904
Provision for losses..................... 12,423 767 13,190 22,054 35,244
Charge-offs.............................. (21,519) (2,185) (23,704) (27,366) (51,070)
Recoveries............................... 2,925 - 2,925 - 2,925
---------------------------------------------------------------------
Balance, December 31, 1992................. 19,249 1,463 20,712 2,291 23,003
Adjustments for pooling-of-interests..... (56) 225 169 (513) (344)
Provision for losses..................... 20,207 1,726 21,933 11,743 33,676
Charge-offs.............................. (16,032) (725) (16,757) (11,553) (28,310)
Recoveries............................... 2,687 - 2,687 - 2,687
---------------------------------------------------------------------
Balance, December 31, 1993................. 26,055 2,689 28,744 1,968 30,712
Provision for losses..................... 10,901 - 10,901 2,373 13,274
Charge-offs.............................. (7,740) - (7,740) (3,611) (11,351)
Recoveries............................... 2,432 70 2,502 - 2,502
---------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994................. $31,648 $2,759 $34,407 $ 730 $35,137
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
48 TCF Financial Corporation and Subsidiaries
--
<PAGE>
Prior to being acquired by TCF, RCG 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 totaled $18.6 million and $20.8 million at December 31,
1994 and 1993, respectively. Management has considered these guarantees in its
review of the adequacy of the industrial revenue bond reserves, which are
included in other liabilities in the Consolidated Statements of Financial
Condition.
9) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
-----------------------------------------------------
<S> <C> <C>
Land............................. $ 15,962 $ 15,153
Office buildings................. 66,986 63,423
Leasehold improvements........... 13,449 12,366
Furniture and equipment.......... 64,319 56,165
------------------
160,716 147,107
Less accumulated depreciation
and amortization............... 75,633 67,453
------------------
$ 85,083 $ 79,654
------------------
------------------
</TABLE>
TCF leases certain premises and equipment under operating leases. Net
lease expense was $11.5 million, $11.2 million and $9.9 million in 1994, 1993
and 1992, respectively.
At December 31, 1994, the total annual minimum lease commitments for
operating leases were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------
<S> <C>
1995........................ $ 9,256
1996........................ 7,223
1997........................ 6,538
1998........................ 5,531
1999........................ 4,230
Thereafter.................. 9,237
-------
$42,015
-------
-------
</TABLE>
10) REAL ESTATE
Real estate is summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
(IN THOUSANDS) 1994 1993
------------------------------------------------------------------------
<S> <C> <C>
In-substance foreclosures........................... $ 8,560 $15,257
Real estate in judgment, subject to redemption...... 3,663 3,792
Real estate acquired through foreclosure............ 4,063 8,472
-----------------
$16,286 $27,521
-----------------
-----------------
</TABLE>
The net costs of operation of real estate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sales............................ $(1,140) $ (640) $ (382)
Provision for losses..................... 2,373 11,743 22,054
Net operations........................... 818 1,687 2,837
----------------------------
$ 2,051 $12,790 $24,509
----------------------------
----------------------------
</TABLE>
11) PURCHASED MORTGAGE SERVICING RIGHTS
Purchased mortgage servicing rights are included in other assets and are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
(IN THOUSANDS) 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year............. $12,381 $15,180 $17,762
Adjustments for pooling-of-interests... - (565) -
Purchased mortgage servicing rights
capitalized.......................... 3,516 5,026 2,015
Amortization........................... (3,394) (3,633) (3,464)
Sale of servicing...................... (256) - -
Valuation adjustments due to
accelerated prepayments.............. - (3,627) (1,133)
---------------------------
Balance at end of year................... $12,247 $12,381 $15,180
---------------------------
---------------------------
</TABLE>
TCF Financial Corporation and Subsidiaries 49
--
<PAGE>
12) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1994 1993
------------------------------- --------------------------------
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% $ 402,368 10.5% 0.00% $ 369,692 9.0%
Interest bearing..................... 1.28 416,455 10.9 1.21 430,431 10.5
----------------- -----------------
.65 818,823 21.4 .65 800,123 19.5
----------------- -----------------
Passbook and statement................. 2.09 745,546 19.5 1.77 855,781 20.9
Money market........................... 3.39 431,309 11.3 2.31 469,694 11.4
Certificates:
6 months and less.................... 3.90 139,604 3.7 3.07 217,788 5.3
over 6 to 18 months.................. 4.80 878,795 23.0 3.64 677,092 16.5
over 18 to 30 months................. 4.53 267,497 7.0 4.65 381,264 9.3
over 30 months....................... 6.10 467,859 12.3 7.19 654,942 16.0
Negotiable rate...................... 5.28 70,181 1.8 3.74 45,874 1.1
----------------- -----------------
5.04 1,823,936 47.8 4.95 1,976,960 48.2
----------------- -----------------
3.34 $3,819,614 100.0% 3.15 $4,102,558 100.0%
----------------- -----------------
----------------- -----------------
</TABLE>
Certificates had the following remaining maturities:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1994 1993
------------------------------------------ ---------------------------------------------
WEIGHTED WEIGHTED
NEGOTIABLE AVERAGE NEGOTIABLE AVERAGE
MATURITY RATE OTHER TOTAL RATE RATE OTHER TOTAL RATE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0-3 months...... $48.7 $ 331.8 $ 380.5 4.59% $26.8 $ 401.9 $ 428.7 4.14%
4-6 months...... 10.0 408.9 418.9 4.87 3.3 420.7 424.0 4.86
7-12 months..... 8.6 506.3 514.9 5.03 5.4 498.2 503.6 5.12
13-24 months.... 1.1 305.6 306.7 5.48 7.7 420.3 428.0 5.30
25-36 months.... 1.0 106.3 107.3 5.40 1.0 88.9 89.9 5.66
37-48 months.... .8 65.5 66.3 5.82 1.0 51.0 52.0 5.69
49-60 months.... - 12.8 12.8 5.47 .7 33.0 33.7 5.62
Over 60 months.. - 16.5 16.5 5.94 - 17.1 17.1 6.16
------------------------------ ----------------------------------------
$70.2 $1,753.7 $1,823.9 5.04 $45.9 $1,931.1 $1,977.0 4.95
------------------------------ ----------------------------------------
------------------------------ ----------------------------------------
</TABLE>
50 TCF Financial Corporation and Subsidiaries
--
<PAGE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Checking.............................. $ 5,259 $ 4,989 $ 9,820
Passbook and statement................ 14,384 16,359 21,725
Money market.......................... 11,644 12,436 16,258
Certificates.......................... 89,799 102,979 138,341
----------------------------
121,086 136,763 186,144
Less early withdrawal penalties....... 472 510 605
----------------------------
$120,614 $136,253 $185,539
----------------------------
----------------------------
</TABLE>
Accrued interest on deposits totaled $4.7 million and $8.9 million at
December 31, 1994 and 1993, respectively.
Mortgage-backed securities aggregating $52.7 million were pledged as
collateral to secure certain deposits at December 31, 1994.
At December 31, 1994, TCF was required by Federal Reserve regulations to
maintain reserve balances of approximately $67.3 million in cash on hand or at
the Federal Reserve Bank.
13) BORROWINGS
Borrowings consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1994 1993
----------------------- ------------------------
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................ 1994-1995 $170,143 5.94% $129,812 4.53%
-------- --------
Federal Home Loan Bank advances........ 1994 - - 115,000 7.61
1995 388,405 5.83 20,000 5.18
1996 251,100 5.94 251,100 5.94
1997 10,014 6.24 10,014 6.24
2000 74 7.10 74 7.10
2006 - - 144 8.42
2008 345 6.27 360 6.27
2009 925 6.86 - -
-------- --------
650,863 5.88 396,692 6.40
-------- --------
Subordinated capital notes of TCF
Financial Corporation, callable
beginning January 1, 1995............ 2002 34,500 10.00 34,500 10.00
-------- --------
Other borrowings:
Collateralized mortgage obligations.. 2006 488 6.50 2,880 6.50
2008 3,000 6.50 3,000 6.50
2010 1,443 5.90 1,361 5.90
-------- --------
4,931 6.32 7,241 6.39
Less unamortized discount.......... 306 - 522 -
-------- --------
4,625 6.74 6,719 6.88
-------- --------
Industrial development
revenue bonds...................... 2015 3,125 4.65 3,175 3.05
-------- --------
Bank loan, maturing
serially through 1998.............. 1998 3,500 9.50 4,500 7.00
-------- --------
Other................................ 1995 1,500 6.13 - -
1998 27 7.60 34 7.60
-------- --------
1,527 6.16 34 7.60
-------- --------
12,777 6.92 14,428 6.08
-------- --------
$868,283 6.07 $575,432 6.18
-------- --------
-------- --------
</TABLE>
TCF Financial Corporation and Subsidiaries 51
--
<PAGE>
At December 31, 1994, 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..... $170,143 5.94%
Federal Home Loan Bank advances................. 388,405 5.83
Bank loan....................................... 1,000 9.50
Other........................................... 1,500 6.13
--------
$561,048 5.87
--------
--------
</TABLE>
Accrued interest on borrowings totaled $2.9 million and $1.4 million at
December 31, 1994 and 1993, respectively.
At December 31, 1994, securities sold under repurchase agreements were
collateralized by mortgage-backed securities and had the following maturities:
<TABLE>
<CAPTION>
REPURCHASE BORROWING COLLATERAL SECURITIES
-------------------- ---------------------
INTEREST CARRYING MARKET
(DOLLARS IN THOUSANDS) AMOUNT RATE AMOUNT (1) VALUE (1)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity:
January 1995............... $170,143 5.94% $188,947 $178,270
-------- ---------------------
-------- ---------------------
<FN>
_____________________________
(1) INCLUDES ACCRUED INTEREST.
</TABLE>
The securities underlying the repurchase agreements are book entry
securities. During the period, book entry securities were delivered by
appropriate entry into the counterparties' accounts through the Federal Reserve
System. The dealers may sell, loan or otherwise dispose of such securities to
other parties in the normal course of their operations, but have agreed to
resell to TCF identical or substantially the same securities upon the maturities
of the agreements. At December 31, 1994, all of the securities sold under
repurchase agreements provided for the repurchase of identical securities.
Securities sold under repurchase agreements averaged $122.2 million and $123.1
million during 1994 and 1993, respectively, and the maximum amount outstanding
at any month-end during 1994 and 1993 was $403.5 million and $218.5 million,
respectively.
At December 31, 1994, mortgage-backed securities collateralizing the
collateralized mortgage obligations had a carrying amount of $4.7 million and a
market value of $4.4 million.
The bank loan is unsecured and contains certain covenants common to such
agreements with which TCF is in compliance. In December 1994, TCF negotiated a
$7.5 million unsecured bank line of credit which bears interest at the prime
rate and matures on April 30, 1996. There were no borrowings under this line of
credit in 1994.
TCF has recorded its obligations to pay the amount in default on Industrial
Development Revenue Bond issues for which RCG had entered into financial
guarantee agreements. As permitted under the agreements, TCF has commenced
foreclosure proceedings relative to the underlying real estate and has also
recorded the fair value of such real estate as in-substance foreclosures at
December 31, 1994.
FHLB advances are collateralized by FHLB stock, interest-bearing deposits
with banks, residential real estate loans and mortgage-backed securities with an
aggregate carrying value of approximately $803.3 million at December 31, 1994.
Interest expense on borrowings is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
FHLB advances........................ $20,781 $25,085 $28,471
Securities sold under repurchase
agreements...................... 6,441 6,184 7,763
Subordinated capital notes........... 3,718 4,418 7,470
Other borrowings..................... 958 1,237 1,982
---------------------------
$31,898 $36,924 $45,686
---------------------------
---------------------------
</TABLE>
14) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) CURRENT DEFERRED TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
FEDERAL....................... $32,562 $(1,489) $31,073
STATE......................... 9,670 (441) 9,229
---------------------------
$42,232 $(1,930) $40,302
---------------------------
---------------------------
Year ended December 31, 1993:
Federal....................... $22,201 $ (15) $22,186
State......................... 6,466 (5) 6,461
---------------------------
$28,667 $ (20) $28,647
---------------------------
---------------------------
Year ended December 31, 1992:
Federal....................... $12,912 $(2,349) $10,563
State......................... 2,684 (291) 2,393
---------------------------
$15,596 $(2,640) $12,956
---------------------------
---------------------------
</TABLE>
52 TCF Financial Corporation and Subsidiaries
--
<PAGE>
The significant components of deferred income tax expense (benefit) are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit)
(exclusive of the effects of
other components listed below)........ $(1,930) $(20) $ 5,708
Charge in lieu of taxes resulting
from the recognition of acquired
tax benefits that are allocated
to reduce goodwill related to the
acquired entity....................... - - 1,884
Decrease in the valuation allowance
for deferred tax assets............... - - (10,232)
----------------------------
$(1,930) $(20) $(2,640)
----------------------------
----------------------------
</TABLE>
Total income tax expense of $40.3 million, $28.6 million and $13
million for the years ended December 31, 1994, 1993 and 1992, respectively, did
not include tax benefits specifically allocated to goodwill and stockholders'
equity. The amounts allocated to goodwill for the initial recognition of
acquired tax benefits that were previously included in the tax valuation
allowance totaled $1.9 million for the year ended December 31, 1992. No
suchamounts were allocated during 1994 or 1993. No tax valuation allowance was
required as of December 31, 1994 or 1993 since TCF paid taxes, which are
available for carryback, in excess of its deferred tax assets. The tax benefit
allocated to additional paid-in capital for compensation expense for tax
purposes in excess of amounts recognized for financial reporting purposes
totaled $90,000, $728,000 and $1.5 million for the years ended December 31,
1994, 1993 and 1992, respectively.
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% for both 1994 and 1993 and 34% for 1992 to income
before income tax expense as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense............ $34,183 $23,316 $19,793
Increase (reduction) in income tax
expense resulting from:
Change in the valuation allowance
for federal income tax deferred
assets allocated to income
tax expense......................... - - (6,011)
Change in the valuation allowance
for state income tax deferred
assets allocated to income
tax expense, net of federal
income tax impact................... - - (2,337)
Benefit of net operating loss
carryovers.......................... - - (2,800)
Amortization of goodwill.............. 418 664 1,109
Tax exempt income..................... (115) (134) (207)
State income tax, exclusive of
valuation allowance change, net
of federal income tax benefit....... 5,999 4,200 3,703
Other, net............................ (183) 601 (294)
----------------------------
$40,302 $28,647 $12,956
----------------------------
----------------------------
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan and real estate losses....... $17,910 $14,739
Discounts on loans arising from acquisitions.... 513 1,006
Other........................................... 3,643 3,677
------------------
Total deferred tax assets.................... 22,066 19,422
------------------
Deferred tax liabilities:
FHLB stock...................................... 3,757 4,135
Pension and other compensation plans............ 2,378 3,214
Loan basis differences.......................... 5,002 5,535
Loan fees and discounts......................... 2,660 260
------------------
Total deferred tax liabilities............... 13,797 13,144
------------------
Net deferred tax assets.................... $ 8,269 $ 6,278
------------------
------------------
</TABLE>
At December 31, 1994, TCF had no remaining federal net operating loss
("NOL") or tax credit carryovers.
The consolidated tax returns for the years ended 1979 through 1982 have
been reviewed by the Internal Revenue Service ("IRS"). The IRS had proposed
certain adjustments. In October 1992, the Joint Committee of Congress approved
a settlement agreement between TCF and the IRS. The settlement allowed a loss
deduction on the sale of mortgage loans which the IRS had contended should be
disallowed. The settlement also allowed, based on a tax court ruling, certain
tax bad debt losses that were not previously deducted in TCF's tax returns. The
allowance of the bad debt deductions created a $2.8 million NOL benefit during
1992.
TCF Financial Corporation and Subsidiaries 53
--
<PAGE>
15) STOCKHOLDERS' EQUITY
RESTRICTED RETAINED EARNINGS -- TCF Minnesota may not declare or pay a dividend
to TCF in excess of 100% of its annual net income plus the amount that would
reduce by one-half TCF Minnesota's surplus capital ratio at the beginning of the
calendar year without prior Office of Thrift Supervision ("OTS") approval.
Additional limitations on dividends declared or paid on, or repurchases of, TCF
Minnesota's capital stock are tied to TCF Minnesota's level of compliance with
its regulatory capital requirements.
Retained earnings at December 31, 1994 includes approximately $76.6 million
for which no provision for federal income tax has been made. This amount
represents earnings appropriated to bad debt reserves and deducted for federal
income tax purposes and is not available for payment of cash dividends or other
distributions to shareholders. Payments or distributions of these appropriated
earnings could invoke a tax liability for the Bank based on the amount of
earnings removed and current tax rates.
At December 31, 1994, TCF's savings bank subsidiaries, TCF Minnesota, TCF
Illinois, TCF Wisconsin and TCF Michigan, exceeded their fully phased-in capital
requirements.
SHAREHOLDER RIGHTS PLAN -- On May 23, 1989, TCF's Board of Directors (the
"Board") declared a dividend of one preferred share purchase right for each
share of common stock, payable on June 9, 1989, to holders of record on that
date. The rights will become exercisable only if a person or group acquires or
announces an offer to acquire 15% or more of TCF's common stock. This
triggering percentage may be reduced to no less than 10% by the Board under
certain circumstances. When exercisable, each right will entitle the holder to
buy one one-hundredth of a share of a new series of junior participating
preferred stock at a price of $60 per share. In addition, upon the occurrence
of certain events, holders of the rights will be entitled to purchase either
TCF's common stock or shares in an "acquiring entity" at half of the market
value. The Board is generally entitled to redeem the rights at 1 cent per right
at any time before they become exercisable. The rights will expire on June 9,
1999, if not previously redeemed or exercised.
TREASURY STOCK -- On January 25, 1994, the Board authorized the repurchase of up
to 5% of TCF common stock, or approximately 620,000 shares. The repurchased
shares will be used for employee benefit plans and other general corporate
purposes. TCF purchased 535,000 shares of stock under this plan during the year
ended December 31, 1994. During this period, 212,120 shares were issued out of
treasury stock for restricted stock grants and employee benefit plans.
16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
TCF is a party to financial instruments with off-balance-sheet risk in the
normal course of business, primarily to meet the financing needs of its
customers. These financial instruments, which are issued or held by TCF for
purposes other than trading, include commitments to extend credit, standby
letters of credit, financial guarantees written, forward mortgage loan sales
commitments, an interest rate swap agreement and financial guarantees on certain
loans sold with recourse and on other contingent obligations. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the Consolidated Statements of Financial Condition.
The contract or notional amounts of those instruments reflect the extent of
involvement TCF has in particular classes of financial instruments.
TCF's exposure to credit loss in the event of non-performance by the
counterparty to the financial instrument for commitments to extend credit,
standby letters of credit, financial guarantees written and financial guarantees
on certain loans sold with recourse is represented by the contractual amount of
the commitments. TCF uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. For
Veterans Administration ("VA") loans serviced with partial recourse, forward
mortgage loan sales commitments and interest rate swap agreements, the contract
or notional amount exceeds TCF's exposure to credit loss. TCF controls the
credit risk of forward mortgage loan sales commitments through credit approvals,
credit limits and monitoring procedures.
Unless noted otherwise, TCF does not require collateral or other security
to support financial instruments with credit risk. The contract or notional
amounts of these financial instruments are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
--------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit............... $783,921 $782,584
Standby letters of credit.................. 18,098 18,033
Financial guarantees written............... 18,595 20,756
Loans sold with recourse................... 36,368 48,979
Financial instruments whose credit risk is
less than the notional or contract amount:
VA loans serviced with partial recourse.... 398,261 365,517
Forward mortgage loan sales commitments.... 51,030 444,789
Interest rate swap agreement............... 5,000 5,000
</TABLE>
As part of its normal business operations, and in order to meet the ongoing
credit needs of its customers, TCF has outstanding at any time a significant
number of commitments to extend credit. Commitments to extend credit are
agreements to lend to a customer provided there is no violation of any condition
established in the contract. These commitments take the form of mortgage loan
54 TCF Financial Corporation and Subsidiaries
--
<PAGE>
applications, approved loans, consumer credit line products and credit card
limits. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since certain of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. TCF evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by TCF upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral predominantly consists of
residential and commercial real estate and personal property. Included in the
total commitments to extend credit at December 31, 1994 were mortgage loan
commitments and loans in process aggregating $504.7 million, including
commercial and residential construction and development commitments totaling
$34.3 million. Of the total mortgage loan commitments and loans in process at
December 31, 1994, $106.4 million were for fixed-rate loans. Also included in
the total commitments to extend credit were various consumer credit line
products aggregating $457.7 million, of which $163.5 million were unsecured.
Standby letters of credit are conditional commitments issued by TCF
guaranteeing the performance of a customer to a third party. The standby
letters of credit are primarily issued to support public and private borrowing
arrangements including bond financing, and expire in various years through the
year 1999. The credit risk involved in issuing standby letters of credit is
essentially the same as that involved in making commercial loans to customers.
The amount of collateral TCF obtains to support standby letters of credit is
based on management's credit evaluation of the borrower. Collateral held
primarily consists of commercial real estate mortgages. Since the conditions
under which TCF is required to fund standby letters of credit may not
materialize, the cash requirements are expected to be less than the total
outstanding commitments. TCF's commitments to the beneficiaries under its
outstanding standby letters of credit at December 31, 1994 were collateralized
by $24.5 million of TCF's mortgage-backed securities.
Financial guarantees written represent agreements whereby, for a fee,
certain of TCF's investment and mortgage-backed securities are pledged as
collateral for Housing Revenue Bonds and Industrial Development Revenue Bonds
which were issued by municipalities to finance commercial and multi-family real
estate owned by third parties. In the event the third party borrowers default
on principal or interest payments on the bonds, TCF is required to either pay
the amount in default or acquire the then outstanding bonds. TCF may foreclose
on the underlying real estate to recover amounts in default. At December 31,
1994, mortgage-backed securities aggregating approximately $43 million were held
by the trustees as collateral for these financial guarantees. Further, in order
to protect TCF's ability to recover losses in the event of default by the third
party borrowers, TCF may also be required to pay real estate taxes and other
liabilities of the underlying collateral. The collateral agreements expire in
1995 through 2005.
During the normal course of business, TCF may sell certain loans with
limited recourse provisions. In addition, TCF services VA loans on which it
must cover any principal loss in excess of the VA's guarantee if the VA elects
its "no-bid" option upon the foreclosure of a loan. A significant portion of
the loans is partially supported by government-sponsored insurance, private
mortgage insurance or the VA partial guarantee, and all of the loans are
collateralized by residential real estate.
As part of its residential mortgage banking operation, TCF enters into
forward mortgage loan sales commitments in order to manage the market exposure
on its residential loans held for sale and its commitments to extend credit for
residential loans. Because gains or losses to be realized on the sale of
residential loans held for sale are dependent on interest rates, forward
mortgage loan sales commitments are used to reduce the impact of changes in
interest rates on TCF's mortgage banking operation. Forward mortgage loan sales
commitments are contracts for the delivery of mortgage loans or pools of loans
in which TCF agrees to make delivery at a specified future date of a specified
instrument, at a specified price or yield. Risks arise from the possible
inability of the counterparties to meet the terms of their contracts and from
movements in mortgage loan values and interest rates. Included in the total at
December 31, 1994 and 1993 were $1 million and $49 million, respectively, of
standby forward mortgage loan sales commitments for which TCF has the option to
deliver the mortgage loans. Also included in the total at December 31, 1994 and
1993 were $2 million and $28.5 million, respectively, of standby forward
mortgage loan sales commitments for which the third parties have the option to
purchase the mortgage loans. Premiums paid for standby forward mortgage loan
sales commitments are amortized to gain on sale of loans held for sale over the
terms of the agreements. The fair value of the forward mortgage loan sales
commitments is not recognized in the financial statements.
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payments without the exchange of the underlying notional
amount on which the interest payments are calculated. Prior to being acquired
by TCF, RCG entered into an interest rate swap agreement to manage the impact of
fluctuating interest rates. The credit risk associated with interest rate swap
agreements revolves around the ability of the counterparty to perform its
TCF Financial Corporation and Subsidiaries 55
--
<PAGE>
obligation under the agreement. Under the terms of the agreement with the FHLB,
which expires in March 1997, TCF makes periodic interest payments based on a
fixed interest rate of 8.55% and receives periodic interest payments based on
the six-month London Interbank Offered Rate ("LIBOR"). The net amount payable
or receivable from the interest rate swap agreement is accrued and recognized as
an adjustment to interest income on loans. The related amount payable to or
receivable from the counterparty is included in accrued interest payable or
receivable. The fair value of the interest rate swap agreement is not
recognized in the financial statements.
17) FAIR VALUES OF FINANCIAL INSTRUMENTS
TCF is required to disclose the estimated fair value of financial instruments,
both assets and liabilities on and off the balance sheet, for which it is
practicable to estimate fair value. Fair value estimates are made at a specific
point in time, based on relevant market information and information about the
financial instruments. These estimates do not reflect any premium or discount
that could result from offering for sale at one time TCF's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of TCF's financial instruments, fair value estimates are subjective in
nature, involving uncertainties and matters of significant judgment, and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, TCF has established customer relationships
that contribute significant fee income annually. These customer relationships
are not considered financial instruments, and their values have not been
incorporated into the fair value estimates. Certain financial instruments and
all nonfinancial instruments are excluded from fair value of financial
instrument disclosure requirements. In addition, the tax effects of unrealized
gains and losses have not been considered in the estimates, nor have costs
necessary to execute a sale been considered. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of TCF, or the
value TCF would realize in a negotiated sale of these instruments.
Fair value estimates, methods and assumptions are set forth below for TCF's
financial instruments. These financial instruments are issued or held by TCF
for purposes other than trading. The carrying amounts disclosed below are
included in the Consolidated Statements of Financial Condition under the
indicated captions, except where noted otherwise. The carrying amount of
accrued interest approximates its fair value.
CASH AND DUE FROM BANKS -- The carrying amount of cash and due from banks
approximates its fair value and totaled $170.7 million and $165.9 million at
December 31, 1994 and 1993, respectively.
INVESTMENTS -- The carrying amounts of short-term investments approximate their
fair values since they mature in 90 days or less and do not present
unanticipated credit concerns. The fair values of longer-term interest-bearing
deposits with banks and federal funds sold are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
estimated based on discounted cash flow analyses using interest rates currently
being offered for investments with similar terms. The fair values of U.S.
Government and other marketable securities held to maturity are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. The
carrying amount of FHLB stock approximates its fair value. The carrying amounts
and fair values of TCF's investment portfolio are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
1994 1993
------------------- ------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-bearing deposits
with banks.......................... $190,698 $190,698 $ 10,512 $ 10,512
Federal Funds sold.................... 6,900 6,900 105,500 105,500
U.S. Government and other
marketable securities held
to maturity:
U.S. Government and agency
obligations.................... 50 48 66,961 67,038
Corporate bonds.................. - - 3,000 3,006
Bankers' acceptances............. - - 6,997 6,999
Commercial paper................. 3,478 3,478 3,244 3,244
Other............................ - - 1,058 1,057
---------------------------------------
3,528 3,526 81,260 81,344
Federal Home Loan Bank stock,
at cost............................. 42,525 42,525 37,849 37,849
---------------------------------------
$243,651 $243,649 $235,121 $235,205
---------------------------------------
---------------------------------------
</TABLE>
56 TCF Financial Corporation and Subsidiaries
--
<PAGE>
SECURITIES AVAILABLE FOR SALE -- The fair values of U.S. Government and other
marketable securities available for sale are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments. The amortized cost and
fair values of TCF's securities available for sale portfolio are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1994 1993
------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
(IN THOUSANDS) COST VALUE COST VALUE
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency
obligations..................... $50,977 $50,912 $ - $ -
Commercial paper.................. 14,955 14,843 - -
Other............................. 3 30 10,003 10,236
-------------------------------------------
$65,935 $65,785 $10,003 $10,236
-------------------------------------------
-------------------------------------------
</TABLE>
LOANS HELD FOR SALE -- Financial instruments associated with TCF's residential
mortgage banking operation include residential loans held for sale, commitments
to extend credit and forward mortgage loan sales commitments. The estimated
fair values of these financial instruments are based on quoted market prices.
The carrying amounts for commitments to extend credit and forward mortgage loan
sales commitments are included in other assets in the Consolidated Statements of
Financial Condition. The contract amounts, carrying amounts and fair values of
the financial instruments associated with TCF's residential loans held for sale
are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------
1994 1993
--------------------------------------- ---------------------------------------
ESTIMATED ESTIMATED
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
(IN THOUSANDS) AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Residential loans held for sale (1)....... $ 44,461 $44,461 $45,233 $298,660 $298,660 $297,968
Commitments to extend credit.............. 166,942 155 54 329,385 - (275)
Forward mortgage loan sales commitments... 51,030 12 114 444,789 126 2,923
------------------------ ------------------------
$44,628 $45,401 $298,786 $300,616
------------------------ ------------------------
------------------------ ------------------------
<FN>
---------------------------------------
(1) NET OF UNEARNED DISCOUNTS, PREMIUMS AND DEFERRED FEES.
</TABLE>
The fair value estimates above do not include the value of residential
mortgage loan servicing rights on TCF's residential loan servicing portfolio
which totaled $5.4 billion and $5.2 billion at December 31, 1994 and 1993,
respectively. The gross fair value of these rights is estimated to be $90.9
million and $56.7 million at December 31, 1994 and 1993, respectively.
Purchased mortgage servicing rights totaling $12.2 million and $12.4 million
related to TCF's residential loan servicing portfolio are included as other
assets in TCF's Consolidated Statements of Financial Condition at December 31,
1994 and 1993, respectively.
The fair value of education loans held for sale is estimated based on an
existing forward sale agreement TCF has with the Student Loan Marketing
Association, or on sales of comparable loans. The estimated fair value of
education loans held for sale of $159.5 million and $126.5 million compares with
carrying amounts of $156 million and $123.2 million at December 31, 1994 and
1993, respectively.
TCF Financial Corporation and Subsidiaries 57
--
<PAGE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- The fair values of mortgage-
backed securities held to maturity are based on quoted market prices. The
carrying amounts and fair values of TCF's mortgage-backed securities held to
maturity portfolio are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1994 1993
-------------------------- ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC.................. $ 297,268 $ 285,451 $ 510,855 $ 525,212
FNMA................... 641,648 610,822 499,499 515,657
GNMA................... 154,513 152,928 198,520 208,623
Private Issuers........ 17,441 17,189 21,028 21,251
------------------------------------------------------
1,110,870 1,066,390 1,229,902 1,270,743
Net premiums........... 3,743 - 7,300 -
------------------------------------------------------
$1,114,613 $1,066,390 $1,237,202 $1,270,743
------------------------------------------------------
------------------------------------------------------
</TABLE>
LOANS -- The fair values of loans are estimated for portfolios of loans with
similar characteristics. Loans are segregated by type, and include residential,
commercial real estate, commercial business and consumer, and by sub-type within
these categories. Each of these categories is further segmented into fixed- and
adjustable-rate interest terms, and by performing and non-performing status.
For certain variable-rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values are based on
carrying values. For certain homogeneous categories of loans, such as certain
residential and consumer loans, fair values are estimated using quoted market
prices. The fair values of other performing loans are estimated by discounting
contractual cash flows adjusted for prepayment estimates, using interest rates
currently being offered for loans with similar terms to borrowers with similar
credit risk characteristics. The fair values of significant non-performing
loans are based on recent internal or external appraisals, or estimated cash
flows discounted using rates commensurate with the risks associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows and
discount rates are judgmentally determined using available market information
and specific borrower information.
The carrying amounts and fair values of TCF's loan portfolio are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1994 1993
-------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT(1) FAIR VALUE AMOUNT(1) FAIR VALUE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential real
estate............... $1,257,263 $1,191,918 $1,057,474 $1,072,766
Commercial real
estate............... 632,927 620,423 685,460 659,259
Commercial business.... 100,560 99,745 89,432 89,494
Consumer (2)........... 1,087,298 1,129,170 911,614 943,585
------------------------------------------------------
3,078,048 3,041,256 2,743,980 2,765,104
Less: Allowance for
loan losses.......... 31,648 - 26,055 -
------------------------------------------------------
$3,046,400 $3,041,256 $2,717,925 $2,765,104
------------------------------------------------------
------------------------------------------------------
<FN>
_______________________________
(1) NET OF UNEARNED DISCOUNTS AND DEFERRED FEES.
(2) EXCLUDES LEASE RECEIVABLES NOT SUBJECT TO FAIR VALUE DISCLOSURE OF $3.8
MILLION AND $1.2 MILLION AT DECEMBER 31, 1994 AND 1993, RESPECTIVELY.
</TABLE>
DEPOSITS -- The fair value of deposits with no stated maturity, such as
checking, passbook and statement, and money market accounts, is deemed equal to
the amount payable on demand. The fair value of certificates is estimated based
on discounted cash flow analyses using interest rates offered by TCF at
December 31, 1994 and 1993 for certificates of similar remaining maturities.
58 TCF Financial Corporation and Subsidiaries
--
<PAGE>
The carrying amounts and fair values of TCF's deposit liabilities are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Checking............... $ 818,823 $ 818,823 $ 800,123 $ 800,123
Passbook and statement. 745,546 745,546 855,781 855,781
Money market........... 431,309 431,309 469,694 469,694
Certificates........... 1,823,936 1,830,176 1,976,960 2,010,984
-------------------------------------------------------
$3,819,614 $3,825,854 $4,102,558 $4,136,582
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The fair value estimates above do not include the benefit that results from
the lower-cost funding provided by deposits compared with the cost of wholesale
borrowings. That benefit is commonly referred to as a deposit base intangible.
BORROWINGS -- The carrying amounts of short-term borrowings approximate their
fair values. The fair values of TCF's long-term borrowings (other than
subordinated capital notes) are estimated based on discounted cash flow analyses
using interest rates offered at December 31, 1994 and 1993 for borrowings of
similar remaining maturities. The fair values of subordinated capital notes are
based on quoted market prices. The carrying amounts and fair values of TCF's
borrowings are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1994 1993
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities sold under repurchase
agreements...................... $170,143 $170,143 $129,812 $130,829
Federal Home Loan Bank advances... 650,863 641,356 396,692 404,722
Subordinated capital notes........ 34,500 34,414 34,500 35,363
Other borrowings.................. 12,777 12,879 14,428 15,216
----------------------------------------
$868,283 $858,792 $575,432 $586,130
----------------------------------------
----------------------------------------
</TABLE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- The fair values of
residential commitments to extend credit and forward mortgage loan sales
commitments are included in the estimated fair value disclosures of TCF's
residential loans held for sale portfolio. The fair values of TCF's remaining
commitments to extend credit, standby letters of credit and financial guarantees
written are estimated using fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments
and standby letters of credit issued in conjunction with fixed-rate loan
agreements, fair value also considers the difference between current levels of
interest rates and the committed rates. For financial guarantees written, fair
value also considers reserves established relating to TCF's potential obligation
on the outstanding guarantees. The fair value of the interest rate swap
agreement is based on the estimated cost to terminate the agreement at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparty. The carrying amounts for commitments to
extend credit are included in other assets in the Consolidated Statements of
Financial Condition. The carrying amounts for standby letters of credit and
financial guarantees written are included in accrued expenses and other
liabilities in the Consolidated Statements of Financial Condition. The contract
amounts, carrying amounts and estimated fair values of TCF's financial
instruments with off-balance-sheet risk are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------
1994 1993
--------------------------------------- ---------------------------------------
CONTRACT CARRYING ESTIMATED CONTRACT CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT AMOUNT(1) FAIR VALUE(1) AMOUNT AMOUNT(1) FAIR VALUE(1)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitments to extend credit(2)....... $616,979 $1,823 $ (540) $453,199 $2,024 $ (537)
Standby letters of credit............. 18,098 - (8) 18,033 (34) (44)
Financial guarantees written.......... 18,595 (3,064) (3,064) 20,756 (2,689) (2,689)
Interest rate swap agreement.......... 5,000 - (55) 5,000 - (600)
<FN>
________________________
(1) POSITIVE AMOUNTS REPRESENT ASSETS, NEGATIVE AMOUNTS REPRESENT LIABILITIES.
(2) EXCLUDES COMMITMENTS TO EXTEND CREDIT FOR RESIDENTIAL REAL ESTATE LOANS HELD
FOR SALE.
</TABLE>
TCF Financial Corporation and Subsidiaries 59
--
<PAGE>
In addition to the financial instruments with off-balance-sheet risk noted
above, TCF had $36.4 million and $49 million of loans sold with recourse and
serviced $398.3 million and $365.5 million of VA loans with partial recourse at
December 31, 1994 and 1993, respectively. TCF has not incurred, and does not
anticipate, significant losses as a result of the recourse provisions associated
with these financial instruments. As a result, the carrying amounts and related
estimated fair values of these financial instruments were not material at
December 31, 1994 and 1993.
18) STOCK OPTION AND INCENTIVE PLAN
The Stock Option and Incentive Plan of TCF Financial was adopted to enable TCF
to attract and retain key personnel. Options generally become exercisable over
a period of three to five years from the date of the grant and expire after 10
years. Restricted stock granted in 1991 under the Stock Option and Incentive
Plan of TCF Financial vested over four years in accordance with a vesting
formula based on TCF's return on tangible equity. Restricted stock granted in
1994 under the Stock Option and Incentive Plan of TCF Financial generally vests
within five years, but may vest more rapidly or be subject to forfeiture in
accordance with a vesting schedule based on TCF's return on average equity.
Other restricted stock grants generally vest over periods from three to eight
years. Compensation expense for restricted stock is recorded over the vesting
periods, and totaled $2.7 million, $707,000 and $718,000 in 1994, 1993 and 1992,
respectively.
The following table summarizes TCF's restricted stock and stock option
transactions since December 31, 1991:
<TABLE>
<CAPTION>
OPTIONS RESTRICTED STOCK
------------------------ ----------------------
SHARES PRICE RANGE SHARES PRICE RANGE
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1991............ 873,240 $ 7.75-15.50 362,340 $ 8.19-16.81
Granted................. 57,123 16.64-21.31 - -
Exercised............... (360,761) 7.75-15.50 - -
Cancelled............... (32,885) 8.19-16.64 (2,400) 8.19-12.56
-------- --------
December 31, 1992............ 536,717 7.75-21.31 359,940 8.19-16.81
Adjustments for
pooling-of-
interests............. (61,791) 11.34-14.49 - -
Granted................. 35,000 30.94-37.13 50,961 31.50-35.00
Exercised............... (161,881) 7.75-21.31 - -
Cancelled............... (52,062) 10.27-17.46 - -
-------- --------
December 31, 1993............ 295,983 7.75-37.13 410,901 8.19-35.00
Granted................. - - 212,245 30.63-38.56
Exercised............... (22,957) 8.88-21.31 - -
-------- --------
DECEMBER 31, 1994............ 273,026 7.75-37.13 623,146 8.19-38.56
-------- --------
-------- --------
EXERCISABLE AT
DECEMBER 31, 1994.......... 208,066 $7.75-37.13
--------
--------
VESTED AT DECEMBER 31, 1994.. 330,859 $8.19-38.56
--------
--------
</TABLE>
At December 31, 1994, there were 461,002 shares reserved for issuance under
the Stock Option and Incentive Plan of TCF Financial, including 273,026 shares
for which options had been granted but had not yet been exercised.
19) EMPLOYEE BENEFIT PLANS
PENSION PLAN -- The TCF Cash Balance Pension Plan (the "Plan") is a defined
benefit qualified plan covering all "regular stated salary" employees who are at
least 21 years old and have completed a year of service with TCF. TCF makes a
monthly allocation to the participant's account based on a percentage of the
participant's compensation. The percentage is based on the sum of the
participant's age and years of employment with TCF. Participants are fully
vested after five years of vesting service. The projected unit credit method is
the actuarial cost method used to compute the pension credit.
Net pension credits included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
(IN THOUSANDS) 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year.. $ 1,750 $1,527 $1,268
Interest cost on projected benefit obligation... 529 378 209
Gain on plan assets............................. (23) (3,130) (2,429)
Net amortization and deferral................... (2,418) 836 310
--------------------------
Net pension credit......................... $ (162) $ (389) $ (642)
--------------------------
--------------------------
</TABLE>
60 TCF Financial Corporation and Subsidiaries
--
<PAGE>
The following tables set forth the Plan's funded status at the dates
indicated:
<TABLE>
<CAPTION>
AT OCTOBER 1,
------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested benefits............................ $ 6,163 $ 4,805
Non-vested benefits........................ 859 382
------------------
Total accumulated benefits............ $ 7,022 $ 5,187
------------------
------------------
<CAPTION>
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation for service
rendered to date................................... $ 8,008 $ 5,699
Plan assets at fair value............................ 23,211 23,477
------------------
Plan assets in excess of projected benefit
obligation......................................... 15,203 17,778
Unrecognized prior service cost...................... (600) (843)
Unrecognized net gain................................ (549) (3,043)
------------------
Prepaid pension cost included in other assets... $14,054 $13,892
------------------
------------------
</TABLE>
The Plan's assets consist primarily of listed stocks and government bonds.
At December 31, 1994 and 1993, the Plan's assets included TCF common stock with
a market value of $3.7 million and $3.4 million, respectively.
The weighted average discount rate and rate of increase in future
compensation used to measure the projected benefit obligation and the expected
long-term rate of return on plan assets were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate..................... 8.00% 7.50% 7.75%
Rate of increase in future compensation............ 5.00 5.00 5.50
Expected long-term rate of return on plan assets... 9.00 9.00 9.75
</TABLE>
POSTRETIREMENT PLANS -- In addition to providing retirement income benefits, TCF
currently provides health care benefits for eligible retired employees, and in
some cases life insurance benefits which were offered under prior plans.
Substantially all full-time employees may become eligible for health care
benefits if they reach retirement age and have completed 10 years of service
with the Company. These and similar benefits for active employees are provided
through insurance companies or through self-funded programs.
In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Although it applies to all forms
of postretirement benefits, SFAS No. 106 focuses principally on postretirement
health care benefits. TCF adopted SFAS No. 106 on a prospective basis effective
January 1, 1993. SFAS No. 106 significantly changed TCF's method of accounting
for postretirement benefits by requiring accrual, during the years that the
employee renders the necessary service, of the expected cost of providing those
benefits to an employee and the employee's beneficiaries and covered dependents.
TCF's transition obligation of $5.5 million at January 1, 1993 is being
amortized over 20 years as permitted by SFAS No. 106.
TCF's postretirement benefit plan is currently unfunded. The following
table reconciles the status of the plan with the amounts recognized in TCF's
Consolidated Statements of Financial Condition at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
(IN THOUSANDS) 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and beneficiaries............................... $(5,640) $(4,800)
Fully eligible active plan participants.................. (849) (702)
Other active plan participants........................... (780) (944)
------ ------
Total accumulated postretirement benefit obligation.... (7,269) (6,446)
Unrecognized net loss...................................... 1,399 760
Unrecognized transition obligation......................... 4,954 5,229
------ ------
Accrued postretirement benefit cost included in
other liabilities...................................... $ (916) $ (457)
------ ------
------ ------
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
(IN THOUSANDS) 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned during the year............ $160 $124
Interest cost on accumulated postretirement benefit
obligation.............................................. 466 423
Amortization of unrecognized transition obligation........ 275 275
Other..................................................... 16 -
---------------
Net periodic postretirement benefit cost............. $917 $822
---------------
---------------
</TABLE>
Prior to 1993, the cost of providing these benefits was recognized by
expensing the insurance company assessments, or as claims were paid in the case
of the self-funded programs, and totaled $344,000 in 1992.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% and 7.5% at December 31, 1994 and
1993, respectively. For active participants, a 9.6% annual rate of increase in
the per capita cost of covered health care benefits was assumed for 1995. This
rate is assumed to decrease gradually to 6% for the year 2004 and remain at that
level thereafter. For retired participants, the annual rate of increase is
assumed to be
TCF Financial Corporation and Subsidiaries 61
--
<PAGE>
4% for all future years, which represents the plan's annual limit on increases
in TCF's contributions for retirees. The health care cost trend rate assumption
has a significant effect on the amounts reported. Increasing the assumed health
care cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1994 by
$104,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1994 by $29,000.
EMPLOYEE STOCK OWNERSHIP PLAN -- TCF's Employee Stock Ownership Plan generally
allows participants to make contributions by salary deduction of up to 12% of
their salary on a tax-deferred basis pursuant to section 401(k) of the Internal
Revenue Code. Through December 31, 1994, TCF matched the contributions for tax-
favored deposits of employees who are non-highly compensated (as defined in the
Internal Revenue Code) at the rate of 75 cents per dollar, with a maximum
employer contribution of 4.5% of the employee's salary. TCF matched the
contributions of remaining employees at the rate of 50 cents per dollar with a
maximum employer contribution of 3% of the employee's salary. Beginning January
1, 1995, TCF will match the contributions of all employees at the rate of 50
cents per dollar with a maximum employer contribution of 3% of the employee's
salary. TCF, at its discretion, may make additional contributions. Employee
contributions vest immediately while the Company's matching contributions are
subject to a graduated vesting schedule based on an employee's years of vesting
service. The Company's matching contributions are expensed when made. TCF's
contribution to the plan was $1.8 million, $1.6 million and $1.3 million in
1994, 1993 and 1992, respectively.
EMPLOYEES' SAVINGS PLAN -- Prior to being acquired by TCF, RCG established an
Employees' Savings Plan that covered substantially all employees over 21 years
of age who had met certain minimum service requirements. This plan was
terminated on October 1, 1993. Participants were generally allowed to make
contributions by salary deduction of up to 12% of their salary on a tax-deferred
basis. RCG made profit-sharing contributions to the plan based on a percentage
of participants' compensation as determined each plan year by the board of
directors. In addition, participant contributions of up to 2% of compensation
could be matched by RCG at its discretion. RCG's matching contributions and
participant contributions to the plan vested immediately. RCG's profit-sharing
contributions vested over seven years. Expenses recognized for the plan totaled
$423,000 and $470,000 for the years ended December 31, 1993 and 1992,
respectively.
20) PARENT COMPANY FINANCIAL INFORMATION
TCF Financial Corporation's (parent company only) condensed statements of
financial condition as of December 31, 1994 and 1993, and the condensed
statements of operations and cash flows for the years ended December 31, 1994,
1993 and 1992 are as follows:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31,
----------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 65 $ 5
Interest-bearing deposits with banks . . . . . . . . 36,178 15,361
Investment in subsidiaries:
Savings bank subsidiary. . . . . . . . . . . . . . 324,175 316,225
Other subsidiaries . . . . . . . . . . . . . . . . 697 471
Premises and equipment . . . . . . . . . . . . . . . 2,169 -
Loan to unconsolidated subsidiary . . . . . . . . . 1,346 1,397
Other assets . . . . . . . . . . . . . . . . . . . . 6,003 2,958
----------------------
$370,633 $336,417
----------------------
----------------------
Liabilities and Stockholders' Equity:
Subordinated capital notes . . . . . . . . . . . . . $ 34,500 $ 34,500
Note payable to commercial bank . . . . . . . . . . 3,500 4,500
Notes payable to non-savings bank subsidiaries . . . 509 464
Other liabilities . . . . . . . . . . . . . . . . . 4,933 1,345
----------------------
Total liabilities . . . . . . . . . . . . . . . . 43,442 40,809
----------------------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . 124 124
Additional paid-in capital . . . . . . . . . . . . 153,740 150,602
Unamortized deferred compensation . . . . . . . . (6,986) (1,272)
Retained earnings, subject to certain
restrictions . . . . . . . . . . . . . . . . . . 191,608 146,502
Loan to Executive Deferred Compensation Plan . . . (195) (348)
Unrealized loss on securities available for
sale, net . . . . . . . . . . . . . . . . . . . (88) -
Treasury stock, at cost . . . . . . . . . . . . . (11,012) -
----------------------
Total stockholders' equity . . . . . . . . . . . 327,191 295,608
----------------------
$370,633 $336,417
----------------------
----------------------
</TABLE>
62 TCF Financial Corporation and Subsidiaries
--
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------
(IN THOUSANDS) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income ............................ $ 620 $ 394 $ 474
Interest expense ........................... 4,090 4,013 4,377
-------------------------------
Net interest expense...................... (3,470) (3,619) (3,903)
Dividends received from subsidiaries:
Dividends received from savings bank
subsidiary ............................. 56,380 15,947 11,304
Dividends received from other
subsidiaries ........................... 4,562 3,327 3,806
-------------------------------
Total dividends received from
subsidiaries........................ 60,942 19,274 15,110
-------------------------------
Other non-interest income:
Affiliate service fee revenues............ 25,942 15 16
Other..................................... 4 326 1
-------------------------------
Total other non-interest income ...... 25,946 341 17
-------------------------------
Non-interest expense:
Compensation and employee benefits........ 22,630 2,607 4,627
Occupancy and equipment, net.............. 7,515 152 3
Other..................................... 12,254 1,832 1,155
-------------------------------
Total non-interest expense ........... 42,399 4,591 5,785
-------------------------------
Income before income tax benefit and
equity in undistributed earnings of
subsidiaries .......................... 41,019 11,405 5,439
Income tax benefit ...................... 8,169 2,857 3,727
-------------------------------
Income before equity in undistributed
earnings of subsidiaries............... 49,188 14,262 9,166
Equity in undistributed earnings of
subsidiaries ............................ 8,175 23,709 36,093
-------------------------------
Net income ................................ $57,363 $37,971 $45,259
-------------------------------
-------------------------------
</TABLE>
All dividends were received from consolidated subsidiaries during the
three-year period ended December 31, 1994. Effective January 1, 1994, TCF
Minnesota completed the transfer of certain support service functions and
certain related assets and liabilities to TCF Financial Corporation. Also
effective January 1, 1994, TCF Financial Corporation commenced allocating a
portion of the operating costs of these service functions to its subsidiaries.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $57,363 $37,971 $45,259
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries............................. (8,175) (23,709) (36,093)
(Increase) decrease in other assets
and liabilities, net..................... 179 (435) (3,840)
Other, net................................. 4,871 949 737
----------------------------
Total adjustments........................ (3,125) (23,195) (39,196)
----------------------------
Net cash provided by operating activities... 54,238 14,776 6,063
----------------------------
Cash flows from investing activities:
Net increase in interest-bearing deposits
with banks.................................. (20,817) (6,720) (2,416)
Investments in and advances to
subsidiaries, net........................... - (1) (70,022)
Loan to Executive Deferred Compensation Plan.. 153 253 613
Loan to Employee Stock Ownership Plan......... - 3 58
Loan originations, net........................ 51 (1,397) -
Purchases of premises and equipment, net...... (3,135) - -
----------------------------
Net cash used by investing activities....... (23,748) (7,862) (71,767)
----------------------------
Cash flows from financing activities:
Dividends paid on common stock................ (12,257) (8,724) (5,642)
Proceeds from issuance of common stock, net... - - 32,019
Repurchases of common stock................... (17,524) - -
Proceeds from subordinated capital notes...... - - 34,500
Proceeds from commercial bank note............ - 5,000 -
Repayment of commercial bank notes............ (1,000) (5,503) (1,058)
Issuance of stock to employee benefit plans... 18 - 2,858
Net increase (decrease) in notes payable to
subsidiaries ............................... 45 (137) (19)
Other, net.................................... 288 1,052 3,722
----------------------------
Net cash provided (used) by financing
activities................................. (30,430) (8,312) 66,380
----------------------------
Net increase (decrease) in cash................. 60 (1,398) 676
RCG cash flows for six months ended
December 31, 1992............................. - 196 -
Cash at beginning of year....................... 5 1,207 531
----------------------------
Cash at end of year............................. $ 65 $ 5 $ 1,207
----------------------------
----------------------------
</TABLE>
TCF Financial Corporation and Subsidiaries 63
--
<PAGE>
21) BUSINESS SEGMENTS
The following summarizes financial data for TCF's business segments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Financial institution...................... $418,168 $407,874 $449,434
Mortgage banking operations................ 35,163 49,984 47,470
Insurance operations....................... 26,316 28,366 22,027
Real estate development.................... - 5,205 6,212
Eliminations............................... (4,712) (9,036) (13,156)
-----------------------------
$474,935 $482,393 $511,987
-----------------------------
-----------------------------
Earnings (loss) from continuing
operations before income tax
expense:
Financial institution...................... $77,940 $45,319 $42,981
Mortgage banking operations................ 5,725 13,560 12,245
Insurance operations....................... 13,175 14,476 11,453
Real estate development.................... - (5,163) (6,936)
Eliminations............................... 825 (1,574) (1,528)
-----------------------------
$97,665 $66,618 $58,215
-----------------------------
-----------------------------
<CAPTION>
AT DECEMBER 31,
--------------------------
(IN THOUSANDS) 1994 1993
----------------------------------------------------------------------------
<S> <C> <C>
Identifiable assets:
Financial institution...................... $5,045,127 $4,994,378
Mortgage banking operations................ 70,838 331,041
Insurance operations....................... 11,401 9,224
Real estate development.................... - 212
Eliminations............................... (59,097) (309,325)
--------------------------
$5,068,269 $5,025,530
--------------------------
--------------------------
</TABLE>
Real estate development revenues in the Consolidated Statements of
Operations are presented net of costs of operations of real estate and are
included in other non-interest expense.
22) LITIGATION AND CONTINGENT LIABILITIES
TCF is involved in certain lawsuits in the course of its general lending
business and other operations. Management, after review with its legal counsel,
is of the opinion that the ultimate disposition of its litigation will not have
a material adverse effect on TCF's financial condition or results of operations.
64 TCF Financial Corporation and Subsidiaries
--
<PAGE>
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP
To the Board of Directors and Stockholders
of TCF Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of TCF Financial Corporation and Subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TCF
Financial Corporation and Subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, TCF
Financial Corporation changed its method of accounting for certain investments
in debt and equity securities as of January 1, 1994 to adopt the provisions of
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 12, 1995
except for note 2, which is as of February 8, 1995
TCF Financial Corporation and Subsidiaries 65
--
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER-SHARE DATA) AT DECEMBER 31, 1994 AT SEPTEMBER 30, 1994
------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets . . . . . . . . . . . . . . . . . $5,068,269 $5,041,018
Investments (1) . . . . . . . . . . . . . . . 243,651 326,597
Securities available for sale. . . . . . . . . 65,785 63,806
Mortgage-backed securities held to maturity. . 1,114,613 1,152,918
Loans . . . . . . . . . . . . . . . . . . . . 3,081,808 2,949,690
Deposits . . . . . . . . . . . . . . . . . . . 3,819,614 3,869,993
Federal Home Loan Bank advances. . . . . . . . 650,863 357,877
Subordinated capital notes . . . . . . . . . . 34,500 34,500
Other borrowings . . . . . . . . . . . . . . . 182,920 415,657
Stockholders' equity . . . . . . . . . . . . . 327,191 316,700
------------------------------------------
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
DECEMBER 31, 1994 SEPTEMBER 30, 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED OPERATIONS DATA:
Interest income. . . . . . . . . . . . . . . . $94,294 $91,481
Interest expense . . . . . . . . . . . . . . . 38,977 36,947
------------------------------------------
Net interest income. . . . . . . . . . . . . 55,317 54,534
Provision for credit losses. . . . . . . . . . 3,986 2,891
------------------------------------------
Net interest income after
provision for credit losses . . . . . . . 51,331 51,643
------------------------------------------
Non-interest income:
Gain on sale of loan servicing, net. . . . . 581 518
Gain on sale of securities
available for sale, net . . . . . . . . . 8 -
Other non-interest income. . . . . . . . . . 28,476 29,119
------------------------------------------
Total non-interest income . . . . . . . . 29,065 29,637
------------------------------------------
Non-interest expense:
Provision for real estate losses . . . . . . 283 853
Amortization of goodwill and
other intangibles . . . . . . . . . . . . 807 817
Merger-related expense . . . . . . . . . . . - -
Other non-interest expense . . . . . . . . . 52,773 53,184
------------------------------------------
Total non-interest expense. . . . . . . . 53,863 54,854
------------------------------------------
Income before income tax expense . . . . . 26,533 26,426
Income tax expense . . . . . . . . . . . . . . 10,780 10,967
------------------------------------------
Net income . . . . . . . . . . . . . . . . . $15,753 $15,459
------------------------------------------
------------------------------------------
Per common share:
Net income . . . . . . . . . . . . . . . . . $ 1.28 $ 1.25
------------------------------------------
------------------------------------------
Dividends declared . . . . . . . . . . . . . $ .25 $ .25
------------------------------------------
------------------------------------------
FINANCIAL RATIOS:
Return on average assets (2) . . . . . . . . . 1.32% 1.29%
Return on average equity (2) . . . . . . . . . 19.63 19.96
Average equity to average assets . . . . . . . 6.73 6.48
Net interest margin (2)(3) . . . . . . . . . . 4.98 4.90
<FN>
---------------------------
(1) INCLUDES INTEREST-BEARING DEPOSITS WITH BANKS, FEDERAL FUNDS SOLD, U.S.
GOVERNMENT AND OTHER MARKETABLE SECURITIES HELD TO MATURITY AND FHLB STOCK.
(2) ANNUALIZED.
(3) NET INTEREST INCOME DIVIDED BY AVERAGE INTEREST-EARNING ASSETS.
</TABLE>
66 TCF Financial Corporation and Subsidiaries
--
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
AT AT AT AT AT AT
(DOLLARS IN THOUSANDS, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
EXCEPT PER-SHARE DATA) 1994 1994 1993 1993 1993 1993
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets . . . . . . . . . . . . . . . $4,986,127 $5,044,620 $5,025,530 $5,009,367 $4,874,598 $4,840,649
Investments (1) . . . . . . . . . . . . . 362,000 275,897 235,121 242,971 169,973 203,434
Securities available for sale. . . . . . . 27,441 260,961 10,003 10,003 10,127 12,241
Mortgage-backed securities
held to maturity . . . . . . . . . . . . 1,202,277 1,134,373 1,237,202 1,360,944 1,354,113 1,407,306
Loans . . . . . . . . . . . . . . . . . . 2,834,177 2,760,647 2,745,146 2,715,036 2,629,784 2,626,344
Deposits . . . . . . . . . . . . . . . . . 3,900,028 4,024,575 4,102,558 4,068,007 3,905,569 3,961,360
Federal Home Loan Bank advances. . . . . . 527,618 562,339 396,692 396,332 461,332 448,343
Subordinated capital notes . . . . . . . . 34,500 34,500 34,500 34,500 34,500 34,500
Other borrowings . . . . . . . . . . . . . 173,460 63,748 144,240 164,426 152,087 65,031
Stockholders' equity . . . . . . . . . . . 305,108 298,825 295,608 285,510 274,446 272,164
--------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1994 1994 1993 1993 1993 1993
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Interest income. . . . . . . . . . . . . . $87,177 $84,689 $88,310 $89,198 $89,854 $90,239
Interest expense . . . . . . . . . . . . . 37,628 38,960 41,976 42,539 42,753 45,909
--------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . . 49,549 45,729 46,334 46,659 47,101 44,330
Provision for credit losses. . . . . . . . 1,880 2,144 2,140 4,282 9,810 5,701
--------------------------------------------------------------------------------------
Net interest income after
provision for credit losses . . . . . 47,669 43,585 44,194 42,377 37,291 38,629
--------------------------------------------------------------------------------------
Non-interest income:
Gain on sale of loan
servicing, net. . . . . . . . . . . . 693 561 - 137 - -
Gain on sale of securities
available for sale, net . . . . . . . - 2,027 - - 40 609
Other non-interest income. . . . . . . . 28,013 27,298 31,818 31,642 29,611 25,758
--------------------------------------------------------------------------------------
Total non-interest income . . . . . . 28,706 29,886 31,818 31,779 29,651 26,367
--------------------------------------------------------------------------------------
Non-interest expense:
Provision for real estate
losses. . . . . . . . . . . . . . . . 942 295 1,100 1,849 5,638 3,156
Amortization of goodwill and
other intangibles . . . . . . . . . . 816 817 988 737 616 616
Merger-related expense . . . . . . . . . - - - - 5,386 108
Other non-interest expense . . . . . . . 50,786 51,484 52,633 50,413 48,123 44,125
--------------------------------------------------------------------------------------
Total non-interest expense. . . . . . 52,544 52,596 54,721 52,999 59,763 48,005
--------------------------------------------------------------------------------------
Income before income tax
expense . . . . . . . . . . . . . . 23,831 20,875 21,291 21,157 7,179 16,991
Income tax expense . . . . . . . . . . . . 9,892 8,663 9,156 9,098 3,195 7,198
--------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . $13,939 $12,212 $12,135 $12,059 $ 3,984 $ 9,793
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Per common share:
Net income . . . . . . . . . . . . . . . $ 1.12 $ .98 $ .97 $ .96 $ .32 $ .78
--------------------------------------------------------------------------------------
Dividends declared . . . . . . . . . . . $ .25 $ .25 $ .1875 $ .1875 $ .1875 $ .125
--------------------------------------------------------------------------------------
FINANCIAL RATIOS:
Return on average assets (2) . . . . . . . 1.16% 1.00% .97% .98% .33% .81%
Return on average equity (2) . . . . . . . 18.49 16.43 16.76 17.29 5.88 14.66
Average equity to average assets . . . . . 6.25 6.10 5.81 5.69 5.60 5.49
Net interest margin (2)(3) . . . . . . . . 4.42 4.05 4.00 4.09 4.18 3.91
</TABLE>
67 TCF Financial Corporation and Subsidiaries
--
<PAGE>
OTHER FINANCIAL DATA
SUMMARY OF INVESTMENT YIELDS BY SCHEDULED MATURITIES
<TABLE>
<CAPTION>
U.S. GOVERNMENT
AND AGENCY SECURITIES
OBLIGATIONS ALL OTHER TOTAL AVAILABLE
HELD TO MATURITY INVESTMENTS INVESTMENTS FOR SALE
---------------- ------------------- --------------- --------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1994:
Due in one year or less..... $ - -% $201,076 5.91% $201,076 5.91% $64,740 5.91%
Due after one year
through five years........ 50 4.30 - - 50 4.30 1,015 8.06
No stated maturity.......... - - 42,525(1) 7.97 42,525 7.97 30(2) -
------- -------- -------- --------
Total....................... $ 50 4.30 $243,601 6.27 $243,651 6.27 $65,785 5.95
------- -------- -------- --------
------- -------- -------- --------
Weighted average life
(in years)............... .1 .1 .1 .1
AT DECEMBER 31, 1993:
Due in one year or less.... $65,895 3.25% $126,921 3.20% $192,816 3.22% $10,000 4.66%
Due after one year
through five years....... 1,066 7.88 3,000 3.57 4,066 4.70 - -
Due after 10 years......... - - 390 8.90 390 8.90 - -
No stated maturity......... - - 37,849(1) 7.67 37,849 7.67 3(2) -
------- -------- -------- --------
Total...................... $66,961 3.32 $168,160 4.23 $235,121 3.97 $10,003 4.66
------- -------- -------- --------
------- -------- -------- --------
Weighted average life
(in years)............... .1 .1 .1 .1
<FN>
____________________
(1) BALANCE REPRESENTS FHLB STOCK, A REQUIRED REGULATORY INVESTMENT AT
ADJUSTABLE RATES HAVING NO STATED MATURITY. FHLB STOCK HAS BEEN EXCLUDED
FROM THE WEIGHTED AVERAGE LIFE CALCULATION.
(2) BALANCE REPRESENTS MARKETABLE EQUITY SECURITIES WHICH HAVE BEEN EXCLUDED
FROM THE WEIGHTED AVERAGE LIFE CALCULATION.
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM AND AVERAGE BORROWING LEVELS
YEAR ENDED DECEMBER 31,
-----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM BALANCES (1):
FHLB advances................................... $650,863 $525,343 $585,334
Securities sold under repurchase agreements..... 403,521 218,452 100,000
Subordinated capital notes...................... 34,500 63,250 63,250
Other borrowings................................ 15,513 17,884 27,019
<FN>
_____________________________
(1) MAXIMUM MONTH-END BALANCES.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992
----------------- ----------------- ----------------
(DOLLARS IN THOUSANDS) BALANCE RATE BALANCE RATE BALANCE RATE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES AND RATES:
FHLB advances.................................. $369,780 5.62% $435,693 5.76% $500,495 5.69%
Securities sold under repurchase agreements.... 122,216 5.27 123,119 5.02 103,285 7.52
Subordinated capital notes..................... 34,500 10.78 39,147 11.29 62,401 11.97
Other borrowings............................... 13,059 7.34 15,239 8.12 18,120 10.94
</TABLE>
68 TCF Financial Corporation and Subsidiaries
--
<PAGE>
LOAN AND MORTGAGE-BACKED SECURITIES ACTIVITY
<TABLE>
<CAPTION>
(IN THOUSANDS) YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
ORIGINATIONS:
Residential (1)........................ $ 452,601 $1,221,773 $1,047,080
Commercial real estate................. 75,452 33,624 38,349
Commercial business.................... 54,607 27,235 19,168
Consumer (1)........................... 787,550 605,846 540,201
---------------------------------------
Total originations................... 1,370,210 1,888,478 1,644,798
---------------------------------------
PURCHASES:
Mortgage-backed securities............. 288,030 376,615 356,760
Residential (1)........................ 608,588 1,113,619 879,336
Consumer............................... - 680 1,409
---------------------------------------
Total purchases...................... 896,618 1,490,914 1,237,505
---------------------------------------
Total additions.................... 2,266,828 3,379,392 2,882,303
---------------------------------------
SALES:
Mortgage-backed securities............. - - 23,034
Residential (1)........................ 933,137 1,700,275 1,561,222
Commercial real estate (1)............. - 2,066 -
Consumer (1)........................... 80,338 65,310 36,626
---------------------------------------
Total sales.......................... 1,013,475 1,767,651 1,620,882
Principal payments and other
reductions........................... 1,099,180 1,358,477 1,084,521
---------------------------------------
Total reductions..................... 2,112,655 3,126,128 2,705,403
---------------------------------------
Decrease in other items, net........... (10,322) (12,132) (3,828)
Transfer of mortgage-backed
securities to securities available
for sale............................. (156,755) - (215,473)
Adjustments for pooling-of-interests... - 74,270 -
---------------------------------------
Net increase (decrease).............. $ (12,904) $ 315,402 $ (42,401)
---------------------------------------
---------------------------------------
<FN>
---------------------------------
(1) INCLUDES LOANS HELD FOR SALE.
</TABLE>
COMMERCIAL REAL ESTATE LOANS BY PROPERTY TYPE
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1994 1993
------------------- ------------------
NUMBER NUMBER
(DOLLARS IN THOUSANDS) BALANCE OF LOANS BALANCE OF LOANS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments........................... $265,557 565 $329,575 709
Office buildings..................... 109,242 161 94,364 177
Retail services...................... 89,050 152 90,693 169
Hospitality facilities............... 73,903 30 75,521 26
Warehouse/industrial buildings....... 52,409 92 55,828 95
Health care facilities............... 20,321 17 24,468 19
Other................................ 24,288 113 16,753 109
----------------------------------------
$634,770 1,130 $687,202 1,304
----------------------------------------
----------------------------------------
Average balance...................... $562 $527
----------------------------------------
</TABLE>
TCF Financial Corporation and Subsidiaries 69
--
<PAGE>
TCF FINANCIAL CORPORATION
Exhibit 21
Subsidiaries of Registrant
(As of March 23, 1995)
<TABLE>
<CAPTION>
NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS
<S> <C> <C>
TCF Financial Insurance Illinois TCF Financial Insurance Agency
Agency Illinois, Inc. Illinois, Inc.
TCF Insurance
TCF Financial Insurance Minnesota TCF Financial Insurance Agency
Agency Wisconsin, Inc. Wisconsin, Inc.
TCF Insurance
TCF Financial Insurance Agency Minnesota TCF Financial Insurance Agency
Michigan, Inc. Michigan, Inc.
TCF Insurance
GLB Agency
TCF Financial Insurance Agency, Inc. Minnesota TCF Financial Insurance
Agency, Inc.
TCF Insurance
TCF Securities, Inc. Minnesota TCF Securities, Inc.
TCF Foundation Minnesota TCF Foundation
TCF Minnesota Financial Services, Inc. Minnesota TCF Minnesota Financial Services, Inc.
Twin City/Burnet, Inc. Minnesota Twin City/Burnet, Inc.
Asset Quality Consultants, Inc. Minnesota Asset Quality Consultants, Inc.
TCF Bank Minnesota fsb United States TCF Bank Minnesota fsb
TCF Consumer Financial Services, Inc. Minnesota TCF Consumer Financial Services, Inc.
TCF Mortgage Corporation Minnesota TCF Mortgage Corporation
TCFMC Holding Co. Minnesota TCFMC Holding Co.
TCF Financial Services, Inc. Minnesota TCF Financial Services, Inc.
TCF Management Corporation Minnesota TCF Management Corporation
MKP, Inc. Minnesota MKP, Inc.
TCF Finance, Inc. Texas TCF Finance, Inc.
NUM, Inc. Minnesota NUM, Inc.
North Star Title, Inc. Minnesota North Star Title, Inc.
North Star Real Estate Services, Inc. Minnesota North Star Real Estate Services, Inc.
TCF Agency Minnesota, Inc. Minnesota TCF Agency Minnesota, Inc.
TCF Agency Minnesota
<PAGE>
NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS
TCF National Properties, Inc. Minnesota TCF National Properties, Inc.
TCF New York Investment, Inc. Minnesota TCF New York Investments, Inc.
TCF Florida Investments, Inc. Minnesota TCF Florida Investments, Inc.
TCF Qwik, Inc. Minnesota TCF Qwik, Inc.
TCF Wisk, Inc. Minnesota TCF Wisk, Inc.
TCF Bolt, Inc. Minnesota TCF Bolt, Inc.
TCF Jump, Inc. Minnesota TCF Jump, Inc.
TCF Sped, Inc. Minnesota TCF Sped, Inc.
Vangaard Financial Services, Inc. Minnesota Vangaard Financial Services, Inc.
TCF Bank Wisconsin fsb United States TCF Bank Wisconsin fsb
Republic Capital Funding Corp. I Wisconsin Republic Capital Funding Corp. I
TCF Agency Wisconsin, Inc. Wisconsin TCF Agency Wisconsin, Inc.
TCF Bank Illinois fsb United States TCF Bank Illinois fsb
TCF Agency Illinois, Inc. Illinois TCF Agency Illinois, Inc.
Great Lakes Bancorp, A Federal United States Great Lakes Bancorp
Savings Bank
GLB Service Corporation II Michigan GLB Service Corporation II
401 Service Corporation Michigan 401 Service Corporation
GLB Properties, Inc. Michigan GLB Properties, Inc.
Great Lakes Mortgage Company Michigan Great Lakes Mortgage Company
GLB Management Company Michigan GLB Management Company
</TABLE>
<PAGE>
EXHIBIT 24
[KPMG PEAT MARWICK LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
TCF Financial Corporation:
We consent to incorporation by reference of our report dated January 12, 1995,
except for note 2, which is as of February 8, 1995, relating to the consolidated
statements of financial condition of TCF Financial Corporation and Subsidiaries
as of December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three year period ended December 31, 1994, which report appears in the December
31, 1994, Form 10-K of TCF Financial Corporation, and in the following
Registration Statements of TCF Financial Corporation: Nos. 33-43030, 33-57633,
33-14203, 33-22375, 33-40403 and 33-53986 on Form S-8 and No. 33-56137 on Form
S-4.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 29, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1994
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 170,687
<INT-BEARING-DEPOSITS> 190,698
<FED-FUNDS-SOLD> 6,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65,785
<INVESTMENTS-CARRYING> 1,118,141
<INVESTMENTS-MARKET> 1,069,916
<LOANS> 3,081,808
<ALLOWANCE> 31,648
<TOTAL-ASSETS> 5,068,269
<DEPOSITS> 3,819,614
<SHORT-TERM> 561,048
<LIABILITIES-OTHER> 53,181
<LONG-TERM> 307,235
<COMMON> 124
0
0
<OTHER-SE> 327,067
<TOTAL-LIABILITIES-AND-EQUITY> 5,068,269
<INTEREST-LOAN> 250,286
<INTEREST-INVEST> 90,869
<INTEREST-OTHER> 16,486
<INTEREST-TOTAL> 357,641
<INTEREST-DEPOSIT> 120,614
<INTEREST-EXPENSE> 152,512
<INTEREST-INCOME-NET> 205,129
<LOAN-LOSSES> 10,901
<SECURITIES-GAINS> 2,035
<EXPENSE-OTHER> 213,857
<INCOME-PRETAX> 97,665
<INCOME-PRE-EXTRAORDINARY> 57,363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,363
<EPS-PRIMARY> 4.63
<EPS-DILUTED> 4.63
<YIELD-ACTUAL> 4.59
<LOANS-NON> 9,516
<LOANS-PAST> 2,017
<LOANS-TROUBLED> 3,005
<LOANS-PROBLEM> 23,813
<ALLOWANCE-OPEN> 26,055
<CHARGE-OFFS> 7,740
<RECOVERIES> 2,432
<ALLOWANCE-CLOSE> 31,648
<ALLOWANCE-DOMESTIC> 22,177
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,471
</TABLE>
