<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended
September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________
Commission File
No. 0-16431
__________________
TCF FINANCIAL CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 41-1591444
- --------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 MARQUETTE AVENUE, SUITE 302, MINNEAPOLIS, MINNESOTA 55402
---------------------------------------------------------------
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (612) 661-6500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OCTOBER 31, 1996
- ----------------------------- ---------------------
Common Stock, $.01 par value 34,770,453 shares
1
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TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information PAGES
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1996 and December 31, 1995 ................ 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1996 and 1995..... 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995.............. 5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1995 and for the
Nine Months Ended September 30, 1996....................... 6
Notes to Consolidated Financial Statements .................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Nine Months Ended September 30, 1996 and 1995.. 8-24
Supplementary Information....................................25-26
Part II. Other Information
Items 1-6 ....................................................... 27-28
Signatures............................................................ 29
Index to Exhibits..................................................... 30
2
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 205,741 $ 233,619
Interest-bearing deposits with banks 333,132 533
Federal funds sold 5,000 -
U.S. Government and other marketable securities
held to maturity (fair value of $3,856 and $3,716) 3,856 3,716
Federal Home Loan Bank stock, at cost 58,811 60,096
Securities available for sale (amortized cost of
$1,005,515 and $1,182,240) 997,964 1,201,490
Loans held for sale 223,327 242,413
Loans:
Residential real estate 2,312,977 2,618,725
Commercial real estate 901,838 970,763
Commercial business 154,195 167,663
Consumer 1,768,275 1,593,439
Unearned discounts and deferred fees (87,777) (73,489)
---------- ----------
Total loans 5,049,508 5,277,101
Allowance for loan losses (71,581) (65,695)
---------- ----------
Net loans 4,977,927 5,211,406
Premises and equipment 126,424 120,763
Real estate:
Total real estate 15,985 24,466
Allowance for real estate losses (1,157) (1,526)
---------- ----------
Net real estate 14,828 22,940
Accrued interest receivable 42,931 49,120
Goodwill 10,675 11,503
Deposit base intangibles 11,362 12,918
Mortgage servicing rights 17,239 16,286
Other assets 85,249 53,108
---------- ----------
$7,114,466 $7,239,911
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $1,184,047 $1,103,272
Passbook and statement 806,209 841,115
Money market 628,932 616,667
Certificates 2,399,484 2,630,498
---------- ----------
Total deposits 5,018,672 5,191,552
---------- ----------
Securities sold under repurchase agreements 481,533 438,426
Federal Home Loan Bank advances 919,542 893,587
Subordinated debt 13,397 13,520
Collateralized obligations 40,727 41,391
Other borrowings 13,515 54,520
---------- ----------
Total borrowings 1,468,714 1,441,444
Accrued interest payable 18,446 14,905
Accrued expenses and other liabilities 86,119 64,335
---------- ----------
Total liabilities 6,591,951 6,712,236
---------- ----------
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; 35,939,713
and 35,604,531 shares issued 359 356
Additional paid-in capital 249,349 243,122
Unamortized deferred compensation (8,642) (11,195)
Retained earnings, subject to certain restrictions 323,293 283,821
Loan to Executive Deferred Compensation Plan (85) (131)
Unrealized gain (loss) on securities available for
sale, net (4,993) 11,702
Treasury stock, at cost, 1,069,518 shares in 1996 (36,766) -
---------- ----------
Total stockholders' equity 522,515 527,675
---------- ----------
$7,114,466 $7,239,911
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
3
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $121,760 $125,066 $366,245 $362,324
Interest on loans held for sale 4,351 5,252 13,461 13,825
Interest on securities available for sale 18,228 595 57,750 3,497
Interest on investments 1,041 1,334 3,211 4,606
Interest on mortgage-backed securities held to maturity - 21,789 - 70,216
-------- -------- -------- --------
Total interest income 145,380 154,036 440,667 454,468
-------- -------- -------- --------
Interest expense:
Interest on deposits 42,090 48,060 129,760 145,446
Interest on borrowings 17,496 24,489 54,783 72,595
-------- -------- -------- --------
Total interest expense 59,586 72,549 184,543 218,041
-------- -------- -------- --------
Net interest income 85,794 81,487 256,124 236,427
Provision for credit losses 6,564 2,951 16,189 12,563
-------- -------- -------- --------
Net interest income after provision for credit losses 79,230 78,536 239,935 223,864
-------- -------- -------- --------
Non-interest income:
Fee and service charge revenues 26,130 22,680 73,741 65,975
ATM network revenues 2,799 2,875 7,945 7,939
Title insurance revenues 3,294 3,417 10,485 8,557
Commissions on sales of annuities 2,454 1,846 6,989 6,774
Gain on sale of loans held for sale 1,345 1,646 3,422 2,018
Gain (loss) on sale of securities available for sale - - 85 (190)
Gain on sale of loans 4,633 - 4,633 -
Loss on sale of mortgage-backed securities - - - (21,037)
Gain on sale of loan servicing - 3 - 1,532
Gain on sale of branches - - 1,725 1,103
Other 2,028 1,700 7,119 4,482
-------- -------- -------- --------
Total non-interest income 42,683 34,167 116,144 77,153
-------- -------- -------- --------
Non-interest expense:
Compensation and employee benefits 38,893 34,662 111,319 104,548
Occupancy and equipment 12,589 12,544 37,902 37,556
Advertising and promotions 3,976 3,916 13,329 12,643
Federal deposit insurance premiums and assessments 3,172 3,449 9,535 10,372
Amortization of goodwill and other intangibles 795 791 2,384 2,372
Provision for real estate losses 121 195 418 736
FDIC special assessment 34,803 - 34,803 -
Merger-related expenses - - - 21,733
Cancellation cost on early termination of interest-rate
exchange contracts - - - 4,423
Other 19,390 16,983 53,168 46,951
-------- -------- -------- --------
Total non-interest expense 113,739 72,540 262,858 241,334
-------- -------- -------- --------
Income before income tax expense and
extraordinary item 8,174 40,163 93,221 59,683
Income tax expense 2,878 15,750 34,987 23,515
-------- -------- -------- --------
Income before extraordinary item 5,296 24,413 58,234 36,168
Extraordinary item:
Penalties on early repayment of FHLB advances, net of
tax benefit of $578 - - - (963)
-------- -------- -------- --------
Net income 5,296 24,413 58,234 35,205
Dividends on preferred stock - - - 678
-------- -------- -------- --------
Net income available to common shareholders $ 5,296 $ 24,413 $ 58,234 $ 34,527
-------- -------- -------- --------
-------- -------- -------- --------
Per common share:
Income before extraordinary item $ .15 $ .68 $ 1.64 $ 1.00
Extraordinary item - - - (.03)
-------- -------- -------- --------
Net income $ .15 $ .68 $ 1.64 $ .97
-------- -------- -------- --------
-------- -------- -------- --------
Dividends declared $ .1875 $ .15625 $ .53125 $ .4375
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
4
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 58,234 $ 35,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,352 13,484
Amortization of goodwill and other intangibles 2,384 2,372
Amortization of fees, discounts and premiums (349) (1,543)
Proceeds from sales of loans held for sale 670,133 438,381
Principal collected on loans held for sale 8,377 9,778
Originations and purchases of loans held for sale (633,776) (488,660)
Net decrease in other assets and liabilities,
and accrued interest 13,128 5,903
Provisions for credit and real estate losses 16,607 13,299
(Gain) loss on sale of securities available for sale (85) 190
Gain on sale of loans (4,633) -
Loss on sale of mortgage-backed securities - 21,037
Gain on sale of branches (1,725) (1,103)
Gain on sale of loan servicing - (1,532)
Penalties on early repayment of FHLB advances - 1,541
Cancellation cost on early termination of
interest-rate exchange contracts - 4,423
Write-off of equipment - 13,435
Other, net (1,496) 568
----------- -----------
Total adjustments 82,917 31,573
----------- -----------
Net cash provided by operating activities 141,151 66,778
----------- -----------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities - 211,117
Principal collected on mortgage-backed securities - 130,311
Principal collected on loans 1,408,207 973,800
Loan originations (1,274,304) (1,203,579)
Proceeds from sales of loans 46,411 -
Net (increase) decrease in interest-bearing deposits
with banks (332,599) 183,130
Proceeds from sales of securities available for sale 16,630 90,218
Proceeds from maturities of and principal collected on
securities available for sale 159,068 127,114
Purchases of securities available for sale - (45,805)
Proceeds from redemption of FHLB stock 11,054 24,049
Net (increase) decrease in short-term federal funds sold (5,000) 6,900
Proceeds from sales of real estate 22,707 11,616
Payments for acquisition and improvement of real estate (1,863) (2,585)
Proceeds from sales of loan servicing - 1,736
Purchases of premises and equipment (17,560) (14,477)
Sales of deposits, net of cash paid (31,679) (57,007)
Other, net (2,847) 1,154
----------- -----------
Net cash provided (used) by investing activities (1,775) 437,692
----------- -----------
Cash flows from financing activities:
Net decrease in deposits (139,935) (158,724)
Proceeds from securities sold under repurchase agreements
and federal funds purchased 9,535,723 7,758,962
Payments on securities sold under repurchase agreements
and federal funds purchased (9,507,116) (7,535,617)
Proceeds from FHLB advances 1,139,667 1,390,623
Payments on FHLB advances (1,113,712) (1,937,057)
Payments for termination of interest-rate exchange contracts - (4,581)
Proceeds from other borrowings 267,964 -
Payments on collateralized obligations and other borrowings (295,268) (5,464)
Proceeds from exercise of stock warrants and stock options 1,593 16,796
Payments for redemption of preferred stock - (27,100)
Repurchases of common stock (36,904) (824)
Other, net (19,266) (7,265)
----------- -----------
Net cash used by financing activities (167,254) (510,251)
----------- -----------
Net decrease in cash and due from banks (27,878) (5,781)
Cash and due from banks at beginning of period 233,619 224,266
----------- -----------
Cash and due from banks at end of period $ 205,741 $ 218,485
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 180,646 $ 220,963
----------- -----------
----------- -----------
Income taxes $ 68,014 $ 7,825
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
LOAN TO UNREALIZED
EXECUTIVE GAIN
NUMBER UNAMOR- DEFERRED (LOSS) ON
OF TIZED COMPEN- SECURITIES
COMMON PRE- ADDITIONAL DEFERRED SATION AVAILABLE
SHARES FERRED COMMON PAID-IN COMPEN- RETAINED PLAN AND FOR SALE, TREASURY
ISSUED STOCK STOCK CAPITAL SATION EARNINGS ESOP DEBT NET STOCK TOTAL
---------- ------ ------ ---------- -------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 34,172,346 $ 27 $342 $251,174 $ (6,986) $244,779 $(1,695) $ (1,160) $(11,012) $475,469
Net income - - - - - 60,688 - - - 60,688
Dividends on preferred stock - - - - - (678) - - - (678)
Dividends on common stock - - - - - (20,968) - - - (20,968)
Purchase of 32,400 shares to
be held in treasury - - - - - - - - (824) (824)
Issuance of 308,400 shares
of restricted stock, of
which 304,400 shares were
from treasury 4,000 - - 5,166 (10,628) - - - 5,462 -
Grant of 45,000 shares of
restricted stock to
outside directors - - - 369 (1,431) - - - - (1,062)
Issuance of 373,760 shares
from treasury to effect
merger with Great Lakes (373,760) - (4) (6,370) - - - - 6,374 -
Issuance of shares to
Dividend Reinvestment Plan 600 - - 11 - - - - - 11
Redemption of preferred stock - (27) - (27,073) - - - - - (27,100)
Repurchase and cancellation
of shares (2,676) - - (52) - - - - - (52)
Cancellation of shares of
restricted stock (9,089) - - (175) 175 - - - - -
Amortization of deferred
compensation - - - - 7,675 - - - - 7,675
Exercise of stock options 392,012 - 4 4,700 - - - - - 4,704
Exercise of stock warrants 1,265,280 - 12 12,718 - - - - - 12,730
Issuance of common stock on
conversion of convertible
debentures 155,818 - 2 2,654 - - - - - 2,656
Payments on Loan to Executive
Deferred Compensation Plan - - - - - - 64 - - 64
Payments on Employee Stock
Ownership Plan debt - - - - - - 1,500 - - 1,500
Change in unrealized gain
(loss) on securities
available for sale, net - - - - - - - 12,862 - 12,862
---------- ------ ------ ---------- -------- --------- --------- ---------- -------- --------
Balance, December 31, 1995 35,604,531 - 356 243,122 (11,195) 283,821 (131) 11,702 - 527,675
Net income - - - - - 58,234 - - - 58,234
Dividends on common stock - - - - - (18,762) - - - (18,762)
Purchase of 1,073,568 shares to
be held in treasury - - - - - - - - (36,904) (36,904)
Issuance of 36,400 shares of
restricted stock, of
which 3,000 shares were
from treasury 33,400 - - 2,709 (2,798) - - - 102 13
Grant of 1,050 shares of
restricted stock to
outside directors
from treasury - - - 133 (169) - - - 36 -
Cancellation of shares of
restricted stock (21,200) - - (549) 530 - - - - (19)
Amortization of deferred
compensation - - - - 4,990 - - - - 4,990
Exercise of stock options 315,766 - 3 3,811 - - - - - 3,814
Issuance of common stock on
conversion of convertible
debentures 7,216 - - 123 - - - - - 123
Payments on Loan to Executive
Deferred Compensation Plan - - - - - - 46 - - 46
Change in unrealized gain
(loss) on securities
available for sale, net - - - - - - - (16,695) - (16,695)
---------- ------ ------ ---------- -------- --------- --------- ---------- -------- --------
Balance, September 30, 1996 35,939,713 $ - $359 $249,349 $ (8,642) $323,293 $ (85) $(4,993) $(36,766) $522,515
---------- ------ ------ ---------- -------- --------- --------- ---------- -------- --------
---------- ------ ------ ---------- -------- --------- --------- ---------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
6
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. The
results of operations for interim periods are not necessarily indicative of
the results to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and notes necessary for complete financial
statements in conformity with generally accepted accounting principles.
The material under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is written with the
presumption that the users of the interim financial statements have read or
have access to the most recent Annual Report on Form 10-K of TCF Financial
Corporation ("TCF" or the "Company"), which contains the latest audited
financial statements and notes thereto, together with Management's
Discussion and Analysis of Financial Condition and Results of Operations as
of December 31, 1995 and for the year then ended. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior period
financial statements to conform to the current period presentation. For
consolidated statements of cash flows purposes, cash and cash equivalents
include cash and due from banks.
(2) EARNINGS PER COMMON SHARE
The weighted average number of common and common equivalent shares
outstanding used to compute earnings per common share were 35,055,673 and
35,893,828 for the three months ended September 30, 1996 and 1995,
respectively, and 35,496,492 and 35,584,002 for the nine months ended
September 30, 1996 and 1995, respectively.
7
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
TCF reported net income of $5.3 million, or 15 cents per common share, for
the third quarter of 1996, compared with $24.4 million, or 68 cents per
common share, for the same 1995 period. For the first nine months of 1996,
TCF reported net income of $58.2 million, or $1.64 per common share,
compared with $35.2 million, or 97 cents per common share, for the same 1995
period.
TCF's 1996 third quarter results include a one-time special assessment of
$34.8 million from the Federal Deposit Insurance Corporation ("FDIC") to
recapitalize the Savings Association Insurance Fund ("SAIF") under federal
legislation enacted on September 30, 1996. On an after-tax basis, the FDIC
special assessment totaled $21.7 million, or 62 cents per common share. Net
income for the third quarter and first nine months of 1996 excluding the FDIC
special assessment was $27 million, or 77 cents per common share, and $80
million, or $2.25 per common share, respectively. See " - Non-Interest
Expense" and "Financial Condition - Recent Legislative and Regulatory
Developments."
TCF's 1995 first quarter results included certain merger-related charges
incurred in connection with TCF's February 8, 1995 acquisition of Great Lakes
Bancorp, A Federal Savings Bank ("Great Lakes"). On an after-tax basis,
these merger-related charges totaled $32.8 million, or 92 cents per common
share for the first nine months of 1995. Net income for the first nine
months of 1995 was $68 million, or $1.89 per common share, excluding the
$32.8 million in after-tax merger-related charges.
Return on average assets before the FDIC special assessment was 1.58% and
1.53% for the third quarter and first nine months of 1996, respectively,
compared with 1.32% and 1.22% before merger-related charges for the same 1995
periods. On the same basis, return on average realized common equity was
20.29% and 20.14% for the third quarter and first nine months of 1996,
respectively, compared with 20.38% and 19.46% for the same 1995 periods.
There are uncertainties that may make TCF's historical performance an
unreliable indicator of its future performance. Forward-looking information,
including projections of future performance, is subject to numerous possible
adverse developments. These include, but are not limited to, the possibility
of adverse economic developments which may increase default and delinquency
risks in TCF's loan portfolios, and in particular its growing consumer
finance portfolios; shifts in interest rates which may result in shrinking
interest rate margins; deposit outflows; interest rates on competing
investments; demand for financial services and loan products; changes in
accounting policies or guidelines, monetary and fiscal policies of the
Federal government; changes in the quality or composition of TCF's loan and
investment portfolios; or other significant uncertainties. In addition,
federal legislation has been recently signed into law that will significantly
affect the banking industry. See "Financial Condition - Recent Legislative
and Regulatory Developments."
NET INTEREST INCOME
Net interest income for the third quarter of 1996 was $85.8 million, up 5.3%
from $81.5 million for the third quarter of 1995. The net interest margin
for the third quarter of 1996 was a record 5.36%, up from 4.71% for the same
1995 period. Net interest income for the first nine months of 1996 totaled
$256.1 million, up 8.3% from
8
<PAGE>
$236.4 million for the same 1995 period. The net interest margin for the
first nine months of 1996 was 5.23%, up from 4.53% for the same period in
1995. TCF's net interest income and net interest margin increased primarily
due to increased yields and growth of consumer loans, the November 30, 1995
redemption of $34.5 million of 10% subordinated capital notes, the favorable
impact of the 1995 Great Lakes merger-related restructuring activities, lower
average levels of non-performing assets, and increased capital. 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. See "Asset/Liability
Management - Interest-Rate Risk."
The following rate/volume analysis details the increases (decreases) in net
interest income resulting from interest rate and volume changes during the
third quarter and first nine months of 1996 as compared to the same periods
last year. Changes attributable to the combined impact of volume and rate
have been allocated proportionately to the change due to volume and the
change due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
VERSUS SAME PERIOD IN 1995 VERSUS SAME PERIOD IN 1995
---------------------------- ----------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------- ----------------------------
(In thousands) VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale $ 17,566 $ 67 $ 17,633 $ 54,282 $ (29) $ 54,253
-------- ------- -------- -------- ------- --------
Loans held for sale (722) (179) (901) 616 (980) (364)
-------- ------- -------- -------- ------- --------
Mortgage-backed securities
held to maturity (21,789) - (21,789) (70,216) - (70,216)
-------- ------- -------- -------- ------- --------
Loans:
Residential real estate (6,184) (134) (6,318) (14,201) 2,387 (11,814)
Commercial real estate (1,513) (49) (1,562) (3,401) 368 (3,033)
Commercial business (816) (52) (868) (1,940) (831) (2,771)
Consumer 5,808 (366) 5,442 19,529 2,010 21,539
-------- ------- -------- -------- ------- --------
Total loans (2,705) (601) (3,306) (13) 3,934 3,921
-------- ------- -------- -------- ------- --------
Investments:
Interest-bearing deposits
with banks (32) (3) (35) (263) (33) (296)
Federal funds sold (96) - (96) (335) (14) (349)
U.S. Government and other
marketable securities
held to maturity 3 (2) 1 10 (12) (2)
FHLB stock (157) (6) (163) (723) (25) (748)
-------- ------- -------- -------- ------- --------
Total investments (282) (11) (293) (1,311) (84) (1,395)
-------- ------- -------- -------- ------- --------
Total interest income (7,932) (724) (8,656) (16,642) 2,841 (13,801)
-------- ------- -------- -------- ------- --------
Deposits:
Checking (47) (116) (163) (199) (728) (927)
Passbook and statement (259) (677) (936) (976) (2,277) (3,253)
Money market 83 (215) (132) (729) (1,763) (2,492)
Certificates (2,842) (1,897) (4,739) (7,616) (1,398) (9,014)
-------- ------- -------- -------- ------- --------
Total deposits (3,065) (2,905) (5,970) (9,520) (6,166) (15,686)
-------- ------- -------- -------- ------- --------
Borrowings:
Securities sold under
repurchase agreements (2,694) (445) (3,139) (2,454) (2,000) (4,454)
FHLB advances (2,370) (723) (3,093) (8,161) (2,982) (11,143)
Subordinated debt (1,157) 354 (803) (3,562) 997 (2,565)
Collateralized obligations (14) (48) (62) (36) (219) (255)
Other borrowings 133 (29) 104 658 (53) 605
-------- ------- -------- -------- ------- --------
Total borrowings (6,102) (891) (6,993) (13,555) (4,257) (17,812)
-------- ------- -------- -------- ------- --------
Total interest expense (9,167) (3,796) (12,963) (23,075) (10,423) (33,498)
-------- ------- -------- -------- ------- --------
Net interest income $ 1,235 $ 3,072 $ 4,307 $ 6,433 $13,264 $ 19,697
-------- ------- -------- -------- ------- --------
-------- ------- -------- -------- ------- --------
</TABLE>
9
<PAGE>
PROVISIONS FOR CREDIT LOSSES
TCF provided $6.6 million for credit losses in the third quarter of 1996,
compared with $3 million for the same prior-year period. In the first nine
months of 1996, TCF provided $16.2 million for credit losses, compared with
$12.6 million for the first nine months of 1995. The provision for credit
losses in the first quarter of 1995 included $5 million in merger-related
provisions, which were established to conform Great Lakes' credit loss
reserve practices and methods to those of TCF and to allow for the
accelerated disposition of Great Lakes' remaining problem assets.
At September 30, 1996, the allowances for loan and real estate losses and
industrial revenue bond reserves totaled $74.4 million, compared with $69.2
million at year-end 1995. The increase in TCF's allowance for loan losses
reflects the growth in the balances of higher-risk categories of loans, which
carry greater guideline reserve requirements. See "Financial Condition
- -Allowances for Loan and Real Estate Losses and Industrial Revenue Bond
Reserves."
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.
Excluding the gain on sale of loans, non-interest income increased $3.9
million, or 11.4%, to $38.1 million for the third quarter of 1996, compared
with $34.2 million for the same period in 1995. The increase was primarily
due to increases in fee and service charge revenues, commissions on sales of
annuities, and mutual fund revenues, partially offset by a decrease in gains
on sales of loans held for sale. For the first nine months of 1996,
non-interest income, excluding gains on sales of branches and loans and the
1995 losses from merger-related asset sales at Great Lakes, totaled $109.8
million, up $12.4 million, or 12.7%, from $97.4 million for the same period
in 1995.
Fee and service charge revenues totaled $26.1 million and $73.7 million for
the third quarter and first nine months of 1996, respectively, representing
increases of 15.2% and 11.8% from $22.7 million and $66 million for the same
1995 periods. These increases are primarily due to expanded retail banking
activities.
Title insurance revenues totaled $3.3 million and $10.5 million during the
third quarter and first nine months of 1996, respectively, compared with $3.4
million and $8.6 million for the same 1995 periods. Title insurance revenues
are cyclical in nature and are largely dependent on the level of residential
real estate loan originations and refinancings.
Gains on sales of loans held for sale totaled $1.3 million during the third
quarter of 1996, compared with $1.6 million during the same period in 1995.
For the nine months ended September 30, 1996, TCF recognized gains on sales
of loans held for sale of $3.4 million, compared with $2 million during the
same 1995 period. Gains or losses on sales of loans held 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.
During the third quarter of 1996, TCF recognized a $4.6 million gain on the
sale of $37.8 million of credit card loans. The Company now provides credit
card products on behalf of a third party through a marketing agreement.
Results for the first nine months of 1996 include gains of $1.7 million on
the sales of two Michigan branches and one Wisconsin branch, compared with
gains of $1.1 million
10
<PAGE>
on the sales of three Minnesota branches during the same 1995 period. The
branches sold were located outside TCF's primary retail markets.
Other non-interest income totaled $2 million and $7.1 million for the third
quarter and first nine months of 1996, respectively, compared with $1.7
million and $4.5 million for the same 1995 periods. The increases reflect
increased commissions earned on sales of mutual fund and insurance products
and the 1996 second quarter gain on the sale of TCF's investment in a leasing
company joint venture.
During the first quarter of 1995, Great Lakes sold $232.2 million of
collateralized mortgage obligations from its held-to-maturity portfolio at a
pretax loss of $21 million. Also in the 1995 first quarter, Great Lakes sold
$17.3 million of securities available for sale at a pretax loss of $310,000.
These merger-related asset sales were completed as part of TCF's strategy to
reduce Great Lakes' interest-rate and credit risk to levels consistent with
TCF's existing interest-rate risk position and credit risk policy.
NON-INTEREST EXPENSE
Non-interest expense (excluding the FDIC special assessment and the provision
for real estate losses) totaled $78.8 million for the third quarter of 1996,
up 8.9% from $72.3 million for the same 1995 period. For the first nine
months of 1996, non-interest expense, excluding the items noted above and
1995 merger-related charges, totaled $227.6 million, up 6.2% from $214.4
million for the same 1995 period. Compensation and employee benefits expense
totaled $38.9 million and $111.3 million for the 1996 third quarter and first
nine months, respectively, compared with $34.7 million and $104.5 million for
the same periods in 1995. The increased expenses in 1996 were primarily due
to costs associated with expanded consumer lending and consumer finance
operations, back-office relocation and consolidation, and other retail
banking activities.
Federal deposit insurance premiums and assessments totaled $3.2 million and
$9.5 million for the third quarter and first nine months of 1996,
respectively, compared with $3.4 million and $10.4 million for the same
periods in 1995. The decreases were primarily due to lower deposit levels
and a decrease in the deposit insurance premium rate of Great Lakes
subsequent to its acquisition by TCF.
TCF's 1996 third quarter results include a one-time special assessment of
$34.8 million from the FDIC to recapitalize the SAIF under federal
legislation enacted on September 30, 1996. As a result, the rate charged to
TCF by the FDIC for federal deposit insurance premiums is expected to decline
from 23 basis points to 6.44 basis points beginning in January 1997. See
"Financial Condition-Recent Legislative and Regulatory Developments."
Other expense totaled $19.4 million and $53.2 million for the third quarter
and first nine months of 1996, compared with $17 million and $47 million for
the same 1995 periods. Other expenses for the third quarter of 1996 included
$2.4 million of costs associated with the relocation and consolidation of
holding company and bank back-office operations. The increase for the first
nine months of 1996 was primarily due to costs associated with the relocation
and consolidation of certain back-office operations, the expansion of TCF's
consumer lending and consumer finance operations, and other retail banking
activities. In addition, the increase reflects an increase in Michigan state
business taxes due to improved profitability.
Merger-related expenses for the first quarter of 1995 included $13.9 million
of equipment charges associated with the integration of Great Lakes' data
processing system into TCF's, $4.7 million of employment contract, severance
and employee benefit costs reflecting the consolidation of certain Great
Lakes functions, and $2.2 million
11
<PAGE>
of professional fees and $864,000 of other expenses which were incurred by
Great Lakes as a direct result of the merger.
During the first quarter of 1995, Great Lakes prepaid $112.3 million of
Federal Home Loan Bank ("FHLB") advances at a pretax loss of $1.5 million.
This amount, net of a $578,000 income tax benefit, was recorded as an
extraordinary item. Interest-rate exchange contracts with notional principal
amounts totaling $544.5 million were terminated by Great Lakes at a pretax
loss of $4.4 million. These actions were taken in order to reduce Great
Lakes' level of higher-cost wholesale borrowings and to reduce interest-rate
risk.
INCOME TAXES
TCF recorded income tax expense of $2.9 million and $35 million for the third
quarter and first nine months of 1996, or 35.2% and 37.5% of income before
income tax expense and extraordinary item, respectively, compared with $15.8
million and $23.5 million, or 39.2% and 39.4%, for the comparable 1995
periods. The lower rates in 1996 reflect the impact of relatively lower
non-deductible expenses, including merger-related expenses.
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 methods used to measure
interest-rate risk, 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 positive interest-rate gap for a given period, the
amount of its interest-earning assets maturing or otherwise repricing within
such period exceeds the amount of interest-bearing liabilities repricing
within the same period. In a rising interest rate environment, institutions
with positive interest-rate gaps will generally experience more immediate
increases in the yield on their assets than in the cost of their liabilities.
Conversely, the cost of funds for institutions with positive interest-rate
gaps will generally decrease more slowly than the yield on their assets in a
falling interest rate environment.
TCF's Asset/Liability Management Committee manages TCF's interest-rate risk
based on interest rate expectations and other factors. Management's
estimates and assumptions 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. TCF's one-year adjusted interest-rate gap was a positive $30
million, or .4% of total assets, at September 30, 1996, compared with a
negative $189.5 million, or (3)% of total assets, at December 31, 1995.
12
<PAGE>
FINANCIAL CONDITION
INVESTMENTS
Total investments increased $336.5 million from year-end 1995 to $400.8
million at September 30, 1996, reflecting an increase in interest-bearing
deposits with banks.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are carried at fair value with the unrealized
gains or losses, net of deferred income taxes, reported as a separate
component of stockholders' equity. Securities available for sale decreased
$203.5 million from year-end 1995 to $998 million at September 30, 1996,
primarily due to repayment and prepayment activity. At September 30, 1996,
TCF's securities available-for-sale portfolio included $888.1 million and
$109.9 million of fixed-rate and adjustable-rate mortgage-backed securities,
respectively. The following table summarizes securities available for sale:
AT SEPTEMBER 30, 1996 AT DECEMBER 31, 1995
AMORTIZED FAIR AMORTIZED FAIR
(In thousands) COST VALUE COST VALUE
---------- -------- ---------- ----------
U.S. Government and other
marketable securities $ - $ - $ 1,004 $ 1,062
---------- -------- ---------- ----------
Mortgage-backed securities:
FHLMC 301,191 297,552 356,021 360,631
FNMA 561,250 556,145 643,572 655,568
GNMA 117,190 119,314 134,550 138,723
Private issuer 24,391 23,586 28,148 26,903
Collateralized mortgage
obligations 1,493 1,367 18,945 18,603
---------- -------- ---------- ----------
1,005,515 997,964 1,181,236 1,200,428
---------- -------- ---------- ----------
$1,005,515 $997,964 $1,182,240 $1,201,490
---------- -------- ---------- ----------
---------- -------- ---------- ----------
LOANS HELD FOR SALE
Education and residential real estate loans held for sale are carried at the
lower of cost or market. Education and residential real estate loans held
for sale decreased $15 million and $4.1 million, respectively, from year-end
1995 and totaled $148.7 million and $74.6 million, respectively, at September
30, 1996. TCF's third-party residential loan servicing portfolio totaled $4.5
billion at September 30, 1996, unchanged from December 31, 1995.
13
<PAGE>
LOANS
The following table sets forth information about loans held in TCF's
portfolio, excluding loans held for sale:
AT AT
SEPTEMBER 30, DECEMBER 31,
(In thousands) 1996 1995
------------- ------------
Residential real estate $2,312,977 $2,618,725
---------- ----------
Commercial real estate:
Apartments 351,096 394,263
Other permanent 482,769 504,861
Construction and development 67,973 71,639
---------- ----------
901,838 970,763
---------- ----------
Total real estate 3,214,815 3,589,488
---------- ----------
Commercial business 154,195 167,663
---------- ----------
Consumer:
Home equity 1,251,944 1,112,996
Automobile and marine 418,211 323,074
Credit card 3,366 45,123
Loans secured by deposits 8,877 10,034
Other secured 18,751 18,364
Unsecured 67,126 83,848
---------- ----------
1,768,275 1,593,439
---------- ----------
5,137,285 5,350,590
Less:
Unearned discounts on loans purchased 2,720 3,126
Deferred loan fees, net 6,548 8,390
Unearned discounts and finance charges, net 78,509 61,973
---------- ----------
$5,049,508 $5,277,101
---------- ----------
---------- ----------
Loans decreased $227.6 million from year-end 1995 to $5 billion at September
30, 1996. Residential real estate loans totaled $2.3 billion at September
30, 1996, a decrease of $305.7 million from December 31, 1995. This decrease
largely reflects an increase in loan repayment activity.
Consumer loans totaled $1.8 billion at September 30, 1996, an increase of
$174.8 million from December 31, 1995. This change was primarily due to a
$138.9 million increase in home equity loans and a $95.1 million increase in
automobile and marine loans, partially offset by a $41.8 million decrease in
credit card loans primarily due to the previously mentioned sale of $37.8
million in outstanding balances during the 1996 third quarter. The growth in
automobile and marine loans and home equity loans reflects TCF's expanded
consumer lending and consumer finance operations. 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 September 30, 1996, TCF's average home equity line of credit was $36,000
and the average loan balance outstanding was $20,000, or 55% of the available
line.
TCF continues to expand its consumer finance lending through its consumer
finance subsidiaries. TCF has significantly expanded its consumer finance
operations in recent periods and opened four consumer finance offices during
the first nine months of 1996. As of September 30, 1996, TCF had 74 consumer
finance offices in 16 states. As a result of this expansion, TCF's consumer
finance loan portfolio totaled $486.3 million at September 30, 1996, compared
with $374.4 million at December 31, 1995. The Company intends to concentrate
on increasing the outstanding loan balances of these
14
<PAGE>
existing offices and improving the profitability of its consumer finance
subsidiaries in 1996.
TCF's consumer finance subsidiaries primarily originate automobile and home
equity loans and purchase automobile loans, and also engage in the
origination of loans through loan brokers. Automobile and marine loans
comprise $295.6 million, or 60.8% of total consumer finance loans outstanding
at September 30, 1996. Home equity loans comprise $179.6 million, or 36.9%
of total consumer finance loans outstanding at September 30, 1996. The
average individual balance of consumer finance automobile and marine loans,
and home equity loans were $9,000 and $30,000, respectively, at September 30,
1996. TCF's consumer finance subsidiaries are seeking to increase the
percentage of home equity loans to total consumer finance loans over time.
Home equity loans originated by the Company's consumer finance subsidiaries
are generally closed end.
Through their purchases of automobile loans, TCF's consumer finance
subsidiaries provide indirect financing. The Company's consumer finance
subsidiaries serve as an alternative source of financing to customers who
might otherwise not be able to obtain financing from more traditional
sources. Included in the consumer finance loans at September 30, 1996 are
$248.4 million of sub-prime automobile and marine loans which carry a higher
level of credit risk and higher interest rates. The term sub-prime refers to
the Company's assessment of credit risk and bears no relationship to the
prime rate of interest or persons who are able to borrow at that rate. There
can be no assurances that the Company's sub-prime lending criteria are the
same as those utilized by other lenders. Loans classified as sub-prime are
to borrowers that because of significant past credit problems or limited
credit histories are unable to obtain credit from traditional sources.
Although competition in the sub-prime lending market has increased, the
Company believes that sub-prime borrowers represent a substantial market and
their demand for financing has not been adequately served by traditional
lending sources. The underwriting criteria for loans originated by TCF's
consumer finance subsidiaries generally have been less stringent than those
historically adhered to by TCF's savings bank subsidiaries and, as a result,
carry a higher level of credit risk and higher interest rates. The rapid
expansion of the higher-risk lending engaged in by the Company's consumer
finance subsidiaries is expected, as these portfolios mature, to result in
increases in consumer loan loss and delinquency ratios. These portfolios
also represent an increased risk of loss in the event of adverse economic
developments. Although TCF believes that experienced finance company
management and appropriate underwriting criteria enable the Company's
consumer finance subsidiaries to effectively evaluate the creditworthiness of
sub-prime borrowers and the adequacy of the collateral, sub-prime lending is
inherently more risky than traditional lending and there can be no assurance
that all appropriate underwriting criteria have been identified or weighted
properly in the assessment of credit risk, or will afford adequate protection
against the higher risks inherent in lending to sub-prime borrowers.
Applicable underwriting criteria include standards for term; amount of
downpayment; amount of loan in relation to the value of the collateral;
credit history and debt serviceability; and other factors. These criteria
are subject to change from time to time as circumstances may warrant.
15
<PAGE>
The following table sets forth the geographical locations (based on the
location of the office originating or purchasing the loan) of TCF's consumer
finance loan portfolio (dollars in thousands):
AT SEPTEMBER 30, 1996 AT DECEMBER 31, 1995
--------------------- --------------------
Loan Loan
Balance Percent Balance Percent
-------- ------- -------- -------
Illinois $132,919 27.3% $116,866 31.2%
Minnesota 101,010 20.8 96,533 25.7
Wisconsin 34,734 7.1 27,911 7.4
Georgia 30,864 6.4 23,044 6.2
Florida 30,616 6.3 19,925 5.3
Missouri 25,478 5.2 19,295 5.2
North Carolina 22,162 4.6 8,053 2.2
Michigan 18,385 3.8 2,837 .7
Kentucky 17,787 3.7 13,017 3.5
Tennessee 16,968 3.5 11,474 3.1
Ohio 15,797 3.2 11,459 3.1
Other 39,531 8.1 23,980 6.4
-------- ----- -------- -----
Total consumer finance loans $486,251 100.0% $374,394 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
Since many of the consumer finance offices are new and are outside TCF's
traditional market areas, the geographical location of consumer finance loans
may change significantly in future periods. TCF believes that the most
important requirements to succeed in the sub-prime financing market are the
ability to control borrower and dealer misrepresentations at the point of
origination; the evaluation of the creditworthiness of sub-prime borrowers;
and the maintenance of an active program to monitor performance and collect
payments.
TCF's savings bank and consumer finance subsidiaries have also initiated the
origination of home equity loans with loan-to-value ratios in excess of 80%
that carry no private mortgage insurance. These loans carry a higher level
of credit risk and higher interest rates.
Commercial real estate loans decreased $68.9 million from year-end 1995 to
$901.8 million at September 30, 1996. Commercial business loans decreased
$13.5 million in the first nine months of 1996 to $154.2 million at September
30, 1996. TCF is seeking to expand its commercial real estate and commercial
business lending activity to borrowers located in its primary midwestern
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. These loans generally have larger individual
balances and a greater inherent risk of loss. The risk of loss is difficult
to quantify and is subject to fluctuations in real estate values. At
September 30, 1996, approximately 92% of TCF's commercial real estate loans
outstanding were secured by properties located in its primary markets. At
September 30, 1996, the average individual balance of commercial real estate
loans and commercial business loans was $549,000 and $172,000, respectively.
Included in performing loans at September 30, 1996 are commercial real estate
loans aggregating $3 million with terms that have been modified in troubled
debt restructurings, compared with $1.6 million at December 31, 1995.
The results of hotel and motel operations are susceptible to changes in
prevailing economic conditions. Included in commercial real estate loans at
September 30, 1996 are $76.1 million of loans secured by hotel and motel
properties. Seven loans comprise $42.1 million, or 55.3%, of the total hotel
and motel portfolio. Of the total hotel and motel portfolio balance, two
loans totaling $12.7 million are included
16
<PAGE>
in loans subject to management concern and one loan totaling $287,000 is
included in non-accrual loans. TCF continues to closely monitor the
performance of these loans and properties.
At September 30, 1996, the recorded investment in loans that are considered
to be impaired was $16.9 million for which the related allowance for credit
losses was $3.8 million. The balance of impaired loans on non-accrual
status was $15.3 million at September 30, 1996. The average recorded
investment in impaired loans during the three and nine months ended
September 30, 1996 was $21.3 million and $24.9 million, respectively.
For the three and nine months ended September 30, 1996, TCF recognized
interest income on impaired loans of $402,000 and $799,000, respectively,
of which $382,000 and $779,000 was recognized using the cash basis method of
income recognition.
ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND RESERVES
A summary of the activity of the allowances for loan and real estate losses
and industrial revenue bond reserves, and selected statistics follows
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
-------------------------------- -----------------------------------
INDUSTRIAL INDUSTRIAL
REVENUE REVENUE
Allowance for Loan Losses and ALLOWANCE FOR BOND ALLOWANCE FOR BOND
Industrial Revenue Bond Reserves: LOAN LOSSES RESERVES TOTAL LOAN LOSSES RESERVES TOTAL
------------- ---------- ------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $69,243 $1,660 $70,903 $ 65,695 $1,960 $ 67,655
Provision for credit losses 6,564 - 6,564 16,389 (200) 16,189
Charge-offs (6,384) - (6,384) (16,846) (100) (16,946)
Recoveries 2,158 - 2,158 6,343 - 6,343
------- ------ ------- -------- ------ --------
Net charge-offs (4,226) - (4,226) (10,503) (100) (10,603)
------- ------ ------- -------- ------ --------
Balance at end of period $71,581 $1,660 $73,241 $ 71,581 $1,660 $ 73,241
------- ------ ------- -------- ------ --------
------- ------ ------- -------- ------ --------
Allowance for loan losses as a
percentage of gross loan balances,
excluding loans held for sale 1.39% 1.39%
Ratio of annualized net loan
charge-offs to average loans
outstanding, excluding loans held
for sale .33 .27
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
-------------------------------- -----------------------------------
INDUSTRIAL INDUSTRIAL
REVENUE REVENUE
Allowance for Loan Losses and ALLOWANCE FOR BOND ALLOWANCE FOR BOND
Industrial Revenue Bond Reserves: LOAN LOSSES RESERVES TOTAL LOAN LOSSES RESERVES TOTAL
------------- ---------- ------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $62,596 $2,609 $65,205 $ 56,343 $2,759 $ 59,102
Provision for credit losses 3,157 (206) 2,951 12,919 (356) 12,563
Charge-offs (3,419) - (3,419) (10,306) - (10,306)
Recoveries 1,420 278 1,698 4,798 278 5,076
------- ------ ------- -------- ------ --------
Net charge-offs (1,999) 278 (1,721) (5,508) 278 (5,230)
------- ------ ------- -------- ------ --------
Balance at end of period $63,754 $2,681 $66,435 $ 63,754 $2,681 $ 66,435
------- ------ ------- -------- ------ --------
------- ------ ------- -------- ------ --------
Allowance for loan losses as a
percentage of gross loan balances,
excluding loans held for sale 1.18% 1.18%
Ratio of annualized net loan
charge-offs to average loans
outstanding, excluding loans held
for sale .15 .14
</TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
Allowance for Real Estate Losses: SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ -------
Balance at beginning of period $1,149 $1,569 $1,526 $ 2,576
Provision for losses 121 195 418 736
Charge-offs (113) (294) (787) (1,842)
------ ------ ------ -------
Balance at end of period $1,157 $1,470 $1,157 $ 1,470
------ ------ ------ -------
------ ------ ------ -------
TCF has experienced an increase in the level of net loan charge offs related
to its consumer finance portfolio. As a result, net loan charge offs as a
percentage of average loans outstanding for TCF's consumer finance portfolio
increased to 2.68% and 2.20% for the three and nine month periods ended
September 30, 1996, respectively, compared with 1.12% and .85% for the same
periods of 1995.
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 allowance for loan losses is maintained at a level
believed to be adequate by management to provide for estimated loan losses.
Management's judgment as to the adequacy of the allowance is a result of
ongoing review of larger individual loans, 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. Loans are charged
off to the extent they are deemed to be uncollectible. The unallocated
portion of TCF's allowance for loan losses totaled $24.1 million at September
30, 1996, compared with $17.8 million at December 31, 1995.
18
<PAGE>
The allowance for real estate losses is based on management's periodic
analysis of real estate holdings and is maintained at a level believed to be
adequate by management to provide for estimated real estate losses. The
allowance for real estate losses is established to reduce the carrying value
of real estate to fair value less disposition costs. A weakness in
commercial real estate markets may result in declines in the values of TCF's
real estate 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. The provision for
real estate losses for the third quarter and first nine months of 1996
reflects a reduction in the balance of real estate.
TCF, as the acquiring entity of Republic Capital Group, Inc., guarantees
certain industrial development and housing revenue bonds issued by
municipalities to finance commercial and multi-family real estate owned by
third parties. The balance of such financial guarantees at September 30,
1996 was $12.4 million, down from $13.5 million at December 31, 1995. The
provision for credit losses on industrial revenue bond financial guarantees
reflects a reduction in the balance of the financial guarantees. 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.
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, evaluations of
performance and status, and the amounts and timing of future cash flows
expected to be received on impaired loans. Such estimates, appraisals,
evaluations and cash flows may be subject to frequent adjustments due to
changing economic conditions and the economic prospects of borrowers or
properties. These estimates are reviewed periodically and adjustments, if
necessary, are reported in the provisions for credit and real estate losses
in the periods in which they become known. Management believes the
allowances for loan and real estate losses and industrial revenue bond
reserves are adequate.
NON-PERFORMING ASSETS
Non-performing assets (principally non-accrual loans and real estate acquired
through foreclosure) totaled $50.9 million at September 30, 1996, down $19.8
million, or 28%, from the December 31, 1995 total of $70.7 million. The
decrease in non-performing assets reflects the accelerated disposition of
certain of Great Lakes' remaining problem assets. At September 30, 1996,
four commercial real estate loans or properties comprised $10.1 million, or
19.9%, of total non-performing assets. These loans or properties had been
written down by $446,000 as of September 30, 1996. Properties acquired are
being actively marketed. Approximately 76% of non-performing assets at
September 30, 1996 consist of, or are secured by, real estate. The accrual
of interest income is generally discontinued when loans become more than 90
days past due with respect to either principal or interest unless such loans
are adequately secured and in the process of collection.
19
<PAGE>
Non-performing assets are summarized in the following table:
AT AT
SEPTEMBER 30, DECEMBER 31,
(Dollars in thousands) 1996 1995
------------- ------------
Loans (1):
Consumer:
Savings bank lending $ 2,557 $ 1,799
Consumer finance lending 9,775 5,688
------- -------
12,332 7,487
Residential real estate 5,202 7,045
Commercial real estate 13,750 22,255
Commercial business 1,546 7,541
------- -------
32,830 44,328
Real estate and other assets (2) 18,074 26,402
------- -------
Total non-performing assets $50,904 $70,730
------- -------
------- -------
Non-performing assets as a percentage
of net loans 1.02% 1.36%
Non-performing assets as a percentage
of total assets .72 .98
(1) Included in total loans in the Consolidated Statements of Financial
Condition.
(2) Includes commercial real estate of $2.1 million and $11.4 million and
automobiles of $2.7 million and $2.5 million at September 30, 1996 and
December 31, 1995, respectively.
TCF had accruing loans 90 days or more past due totaling $90,000 at September
30, 1996, compared with $761,000 at December 31, 1995. These loans are in
the process of collection and management believes they are adequately
secured. The over 30-day delinquency rate on TCF's loans (excluding loans
held for sale and non-accrual loans) was .86% of gross loans outstanding at
September 30, 1996, compared with .78% at year-end 1995. TCF's delinquency
rates are determined using the contractual method. The following table sets
forth information regarding TCF's over 30-day delinquent loan portfolio,
excluding loans held for sale and non-accrual loans:
AT SEPTEMBER 30, 1996 AT DECEMBER 31, 1995
--------------------- --------------------
PERCENTAGE PERCENTAGE
PRINCIPAL OF GROSS PRINCIPAL OF GROSS
(Dollars in thousands) BALANCES LOANS BALANCES LOANS
--------- ----------- --------- ----------
Consumer:
Savings bank lending $ 7,721 .64% $11,110 .96%
Consumer finance lending 20,877 3.78 16,188 3.77
------- -------
28,598 1.63 27,298 1.72
Residential real estate 9,448 .41 12,056 .46
Commercial real estate 3,218 .36 1,411 .15
Commercial business 2,472 1.62 591 .37
------- -------
$43,736 .86 $41,356 .78
------- -------
------- -------
TCF's over 30-day delinquency rate on gross consumer loans was 1.63% at
September 30, 1996, down from 1.72% at year-end 1995. Management continues
to monitor the consumer loan portfolio, which will generally have higher
delinquencies, especially consumer finance loans. TCF's over 30-day
delinquency rate on gross consumer finance loans was 3.78% at September 30,
1996, compared with 3.77% at December 31, 1995. Consumer finance lending is
generally considered to involve a higher level of credit risk. The
underwriting criteria for loans originated by TCF's consumer finance
subsidiaries are generally less stringent than those historically adhered to
by TCF's savings bank
20
<PAGE>
subsidiaries and, as a result, these loans have 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, but no assurance can be given as to the level of
future delinquencies and loan charge-offs.
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 $32.4 million outstanding at
September 30, 1996 for which management has concerns regarding the ability of
the borrowers to meet existing repayment terms. This amount consists of
loans that were classified for regulatory purposes as substandard, doubtful
or loss, or were to borrowers that currently are experiencing financial
difficulties or that management believes may experience financial
difficulties in the future. This compares with $56.5 million of such loans
at December 31, 1995. Although these loans 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.
DEPOSITS
Deposits totaled $5 billion at September 30, 1996, down $172.9 million from
December 31, 1995. The decrease reflects the previously described branch
sales during the first nine months of 1996. Lower interest-cost checking,
savings and money market deposits totaled $2.6 billion, up $58.1 million from
year-end 1995, and comprised 52.2% of total deposits at September 30, 1996.
Checking, savings and money market deposits are an important source of lower
cost funds and fee income for TCF. The Company's weighted average rate for
deposits, including non-interest bearing deposits, decreased to 3.33% at
September 30, 1996, from 3.60% at December 31, 1995. The following table
summarizes TCF's deposits:
AT SEPTEMBER 30, 1996 AT DECEMBER 31, 1995
------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE % OF AVERAGE % OF
(Dollars in thousands) RATE AMOUNT TOTAL RATE AMOUNT TOTAL
-------- ---------- ----- --------- ---------- -----
Checking:
Non-interest bearing 0.00% $ 682,179 13.6% 0.00% $ 573,004 11.0%
Interest bearing 1.04 501,868 10.0 1.06 530,268 10.2
---------- ----- ---------- -----
.44 1,184,047 23.6 .51 1,103,272 21.2
Passbook and statement 1.75 806,209 16.1 1.88 841,115 16.2
Money market 3.07 628,932 12.5 3.12 616,667 11.9
Certificates 5.36 2,399,484 47.8 5.56 2,630,498 50.7
---------- ----- ---------- -----
3.33 $5,018,672 100.0% 3.60 $5,191,552 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
21
<PAGE>
Certificates had the following remaining maturities:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996 AT DECEMBER 31, 1995
---------------------------------------- ----------------------------------------
WEIGHTED WEIGHTED
(Dollars in NEGOTIABLE AVERAGE NEGOTIABLE AVERAGE
millions) RATE OTHER TOTAL RATE RATE OTHER TOTAL RATE
---------- -------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity:
0-3 months $66.3 $ 557.5 $ 623.8 5.15% $141.0 $ 617.4 $ 758.4 5.45%
4-6 months 18.7 477.9 496.6 5.22 26.7 474.8 501.5 5.50
7-12 months 11.0 553.0 564.0 5.31 5.5 575.4 580.9 5.52
13-24 months 1.8 469.1 470.9 5.59 1.3 472.5 473.8 5.62
25-36 months .3 135.4 135.7 5.73 1.8 158.8 160.6 5.77
37-48 months - 50.4 50.4 5.84 .1 82.2 82.3 5.74
49-60 months - 41.7 41.7 6.30 - 26.5 26.5 5.64
Over 60 months - 16.4 16.4 5.81 - 46.5 46.5 6.46
----- -------- -------- ------ -------- --------
$98.1 $2,301.4 $2,399.5 5.36 $176.4 $2,454.1 $2,630.5 5.56
----- -------- -------- ------ -------- --------
----- -------- -------- ------ -------- --------
</TABLE>
BORROWINGS
Borrowings are used primarily to fund the purchase of investments and
securities available for sale. These borrowings totaled $1.5 billion as of
September 30, 1996, up $27.3 million from year-end 1995. The increase was
primarily due to increases of $43.1 million in securities sold under
repurchase agreements and $26 million in FHLB advances, partially offset by
decreases of $28.5 million in TCF's bank line of credit and $14.5 million in
federal funds purchased. The weighted average rate on borrowings decreased
to 5.78% at September 30, 1996, from 5.98% at December 31, 1995. At
September 30, 1996, borrowings with a maturity of one year or less totaled $1
billion.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." The statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings, among other things. The statement requires that a transfer of a
financial asset in which the transferor surrenders control over the financial
asset shall generally be accounted for as a sale, with appropriate
recognition of gain or loss. The statement provides that the transferor has
surrendered control if and only if certain conditions are met. The statement
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and will be
applied prospectively. Earlier or retroactive application will not be
permitted. It is too early to predict what effect, if any, the statement
will have on TCF's financial condition or results of operations.
22
<PAGE>
TCF's borrowings consist of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996 AT DECEMBER 31, 1995
----------------------------- ----------------------
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 1996 $ 238,540 5.61% $ 363,426 5.91%
1997 174,993 5.93 75,000 6.12
1998 68,000 6.18 - -
---------- ----------
481,533 5.81 438,426 5.94
---------- ----------
Federal Home Loan Bank advances 1996 355,000 5.40 589,339 5.79
1997 290,014 5.62 90,014 5.90
1998 210,300 5.88 128,000 5.76
1999 41,000 6.01 63,000 6.38
2000 8,074 7.24 8,074 7.24
2001 15,000 6.97 15,000 6.97
2008 154 6.17 160 6.15
---------- ----------
919,542 5.65 893,587 5.87
---------- ----------
Subordinated debt:
Senior subordinated
debentures 2006 6,248 18.00 6,248 18.00
Convertible subordinated
debentures 2011 7,149 7.25 7,272 7.25
---------- ----------
13,397 12.26 13,520 12.22
Collateralized obligations:
Collateralized notes 1997 37,500 6.06 37,500 6.19
Less unamortized discount 36 - 59 -
---------- ----------
37,464 6.07 37,441 6.20
---------- ----------
Collateralized mortgage
obligations 2008 1,828 6.50 2,627 6.50
2010 1,598 5.90 1,530 5.90
---------- ----------
3,426 6.22 4,157 6.28
Less unamortized discount 163 - 207 -
---------- ----------
3,263 6.53 3,950 6.61
---------- ----------
40,727 6.11 41,391 6.24
---------- ----------
Other borrowings:
Federal funds purchased 1996 - - 14,500 5.58
Bank line of credit 1996 11,500 6.31 40,000 6.53
Treasury tax and loan note 1996 2,000 5.09 - -
Other 1998 15 7.60 20 7.60
---------- ----------
13,515 6.13 54,520 6.28
---------- ----------
$1,468,714 5.78 $1,441,444 5.98
---------- ----------
---------- ----------
</TABLE>
STOCKHOLDERS' EQUITY
Stockholders' equity at September 30, 1996 was $522.5 million, or 7.3% of
total assets, down from $527.7 million at December 31, 1995. The decrease in
stockholders' equity is primarily due to the repurchase of 1,073,568 shares
of TCF's common stock at a cost of $36.9 million, payments of $18.8 million
in dividends on TCF's common stock and an increase of $16.7 million in net
unrealized losses on securities available for sale, partially offset by net
income of $58.2 million for the first nine months of 1996.
23
<PAGE>
On December 19, 1995, TCF's Board of Directors (the "Board") authorized the
repurchase of up to 5% of TCF common stock, or approximately 1.8 million
shares. During the first nine months of 1996, TCF completed its repurchase of
137,158 shares of stock remaining from its initial 5% stock repurchase
program, authorized by the Board in January 1994. TCF purchased a total of
1,073,568 shares of stock under these plans during the first nine months of
1996. The repurchased shares will be used primarily for employee benefit
plans.
On October 22, 1996, TCF declared a quarterly dividend of 18.75 cents per
common share payable on November 29, 1996 to stockholders of record as of
November 8, 1996.
At September 30, 1996, TCF's savings bank subsidiaries exceeded their fully
phased-in capital requirements and believe that they would be considered
"well-capitalized" under guidelines established pursuant to the Federal
Deposit Insurance Corporation Improvement Act of 1991.
PENDING ACQUISITION
On June 25, 1996, TCF signed a stock purchase agreement to acquire BOC
Financial Corporation, an Illinois-based holding company with $185.2 million
in assets and $169.9 million in deposits, for cash. BOC Financial
Corporation is the parent company of the Bank of Chicago which operates three
branch offices in the Chicago area. The acquisition, which will be accounted
for as a purchase, is contingent upon regulatory approvals and is expected to
close in the fourth quarter of 1996.
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS
Federal legislation enacted on September 30, 1996 addressed inadequate
funding of the SAIF, which had resulted in a large deposit insurance premium
disparity between banks insured by the Bank Insurance Fund ("BIF") and
SAIF-insured thrifts, which were required to pay significantly higher deposit
insurance premiums. As a result of this new legislation, a one-time special
assessment was imposed on thrift institutions, and TCF recognized a $34.8
million pretax charge for assessments imposed on its savings bank
subsidiaries. The legislation also provides for a reduction in deposit
insurance premiums in subsequent periods and other regulatory reforms.
Other recently enacted federal legislation repealed the reserve method of
accounting for thrift bad debt reserves. This legislation eliminated the
recapture of a thrift institution's bad debt reserve under certain
circumstances, including the institution's conversion to a bank or as a
result of similar charter changes.
As a result of both the BIF/SAIF legislation and repeal of the reserve method
of accounting for bad debts, TCF is pursuing the conversion of its existing
savings bank subsidiaries into national bank subsidiaries. Such a
conversion would require the approval of applications filed with the
Comptroller of the Currency, and would also require TCF to file an
application with the Federal Reserve Board to become a bank holding company.
24
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
AT AT AT AT AT AT AT
(Dollars in thousands SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
except per-share data) 1996 1996 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $7,114,466 $7,000,871 $7,039,282 $7,239,911 $7,331,962 $7,432,692 $7,369,061
Investments(1) 400,799 157,368 59,202 64,345 73,651 64,874 91,969
Securities available for sale 997,964 1,049,183 1,117,439 1,201,490 32,117 38,575 89,693
Mortgage-backed securities held
to maturity - - - - 1,199,231 1,251,705 1,291,370
Loans 5,049,508 5,124,106 5,174,923 5,277,101 5,323,912 5,329,880 5,237,533
Deposits 5,018,672 5,052,557 5,150,023 5,191,552 5,181,765 5,249,819 5,371,461
Borrowings 1,468,714 1,359,145 1,268,887 1,441,444 1,553,693 1,589,861 1,445,327
Stockholders' equity 522,515 523,788 541,019 527,675 490,542 495,550 470,501
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------------------------------
SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1996 1996 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Interest income $145,380 $146,394 $148,893 $153,222 $154,036 $151,641 $148,791
Interest expense 59,586 60,518 64,439 70,451 72,549 72,349 73,143
-------- -------- -------- -------- -------- -------- --------
Net interest income 85,794 85,876 84,454 82,771 81,487 79,292 75,648
Provision for credit losses 6,564 6,823 2,802 2,649 2,951 2,924 6,688
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for credit losses 79,230 79,053 81,652 80,122 78,536 76,368 68,960
-------- -------- -------- -------- -------- -------- --------
Non-interest income:
Gain on sale of loans 4,633 - - - - - -
Loss on sale of mortgage-backed
securities - - - - - - (21,037)
Gain on sale of loan servicing - - - 3 3 1,006 523
Gain (loss) on sale of securities
available for sale - - 85 - - 60 (250)
Gain on sale of branches - 480 1,245 - - 1,061 42
Other non-interest income 38,050 37,152 34,499 35,620 34,164 31,981 29,600
-------- -------- -------- -------- -------- -------- --------
Total non-interest income 42,683 37,632 35,829 35,623 34,167 34,108 8,878
-------- -------- -------- -------- -------- -------- --------
Non-interest expense:
Provision for real estate losses 121 (151) 448 1,068 195 378 163
Amortization of goodwill and
other intangibles 795 794 795 791 791 791 790
FDIC special assessment 34,803 - - - - - -
Merger-related expenses - - - - - - 21,733
Cancellation cost on early
termination of interest-rate
exchange contracts - - - - - - 4,423
Other non-interest expense 78,020 72,670 74,563 74,140 71,554 70,465 70,051
-------- -------- -------- -------- -------- -------- --------
Total non-interest expense 113,739 73,313 75,806 75,999 72,540 71,634 97,160
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax
expense (benefit) and
extraordinary item 8,174 43,372 41,675 39,746 40,163 38,842 (19,322)
Income tax expense (benefit) 2,878 16,721 15,388 14,263 15,750 15,448 (7,683)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item 5,296 26,651 26,287 25,483 24,413 23,394 (11,639)
Extraordinary item:
Penalties on early repayment of
FHLB advances, net of tax
benefit of $578 - - - - - - (963)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) 5,296 26,651 26,287 25,483 24,413 23,394 (12,602)
Dividends on preferred stock - - - - - - 678
-------- -------- -------- -------- -------- -------- --------
Net income (loss) available
to common shareholders $ 5,296 $ 26,651 $ 26,287 $ 25,483 $ 24,413 $ 23,394 $(13,280)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Per common share:
Income (loss) before
extraordinary item $ .15 $ .75 $ .73 $ .71 $ .68 $ .66 $ (.36)
Extraordinary item - - - - - - (.03)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ .15 $ .75 $ .73 $ .71 $ .68 $ .66 $ (.39)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Dividends declared $ .1875 $ .1875 $ .15625 $ .15625 $ .15625 $ .15625 $ .125
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
FINANCIAL RATIOS:
Return on average assets (2) .31% 1.54% 1.48% 1.40% 1.32% 1.27% (.67)%
Return on average common equity (2) 4.03 20.22 19.67 20.21 20.44 20.48 (11.86)
Return on average realized common
equity (2) 3.97 20.04 19.97 20.29 20.38 20.41 (11.83)
Average total equity to average
assets 7.70 7.60 7.51 6.95 6.56 6.53 6.33
Net interest margin (2)(3) 5.36 5.27 5.06 4.86 4.71 4.58 4.31
</TABLE>
- --------------------
(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.
25
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
INTEREST INTEREST
AVERAGE YIELDS AND AVERAGE YIELDS AND
(Dollars in thousands) BALANCE INTEREST(1) RATES (2) BALANCE INTEREST(1) RATES (2)
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Securities available
for sale $1,078,355 $ 57,750 7.14% $ 64,746 $ 3,497 7.20%
---------- -------- ---------- --------
Loans held for sale 237,068 13,461 7.57 226,657 13,825 8.13
---------- -------- ---------- --------
Mortgage-backed securities
held to maturity - - - 1,312,909 70,216 7.13
---------- -------- ---------- --------
Loans:
Residential real estate 2,461,543 146,185 7.92 2,700,100 157,999 7.80
Commercial real estate 935,124 62,864 8.96 985,785 65,897 8.91
Commercial business 161,655 10,738 8.86 190,282 13,509 9.47
Consumer 1,597,533 146,458 12.22 1,384,935 124,919 12.03
---------- -------- ---------- --------
Total loans(3) 5,155,855 366,245 9.47 5,261,102 362,324 9.18
---------- -------- ---------- --------
Investments:
Interest-bearing
deposits with banks 2,239 93 5.54 8,499 389 6.10
Federal funds sold 1,739 75 5.75 9,492 424 5.96
U.S. Government and
other marketable
securities held
to maturity 3,798 149 5.23 3,572 151 5.64
FHLB stock 53,228 2,894 7.25 66,559 3,642 7.30
---------- -------- ---------- --------
Total investments 61,004 3,211 7.02 88,122 4,606 6.97
---------- -------- ---------- --------
Total interest-
earning assets 6,532,282 440,667 8.99 6,953,536 454,468 8.71
-------- ----- -------- -----
Other assets(4) 431,635 453,721
---------- ----------
Total assets $6,963,917 $7,407,257
---------- ----------
---------- ----------
Liabilities and
Stockholders' Equity:
Noninterest-bearing deposits $ 591,813 $ 494,681
---------- ----------
Interest-bearing deposits:
Checking 513,635 4,234 1.10 535,099 5,161 1.29
Passbook and
statement 805,248 10,920 1.81 868,405 14,173 2.18
Money market 631,370 14,402 3.04 661,044 16,894 3.41
Certificates 2,484,869 100,204 5.38 2,671,858 109,218 5.45
---------- -------- ---------- --------
Total interest-
bearing deposits 4,435,122 129,760 3.90 4,736,406 145,446 4.09
---------- -------- ---------- --------
Borrowings:
Securities sold under
repurchase agreements 527,359 22,156 5.60 583,902 26,610 6.08
FHLB advances 685,569 28,046 5.45 880,644 39,189 5.93
Subordinated debt 13,441 1,422 14.11 49,809 3,987 10.67
Collateralized
obligations 40,950 1,931 6.29 41,662 2,186 7.00
Other borrowings 26,988 1,228 6.07 12,600 623 6.59
---------- -------- ---------- --------
Total borrowings 1,294,307 54,783 5.64 1,568,617 72,595 6.17
---------- -------- ---------- --------
Total interest-bearing
liabilities 5,729,429 184,543 4.29 6,305,023 218,041 4.61
-------- ----- -------- -----
Other liabilities(4) 113,985 128,753
---------- ----------
Total liabilities 6,435,227 6,928,457
---------- ----------
Stockholders' equity:(4)
Preferred equity - 17,514
Common equity 528,690 461,286
---------- ----------
Total stockholders' equity 528,690 478,800
---------- ----------
Total liabilities
and stockholders'
equity $6,963,917 $7,407,257
---------- ----------
---------- ----------
Net interest income $256,124 $236,427
-------- --------
-------- --------
Net interest rate spread 4.70% 4.10%
----- -----
----- -----
Net interest margin 5.23% 4.53%
----- -----
----- -----
</TABLE>
- --------------------
(1) Tax-exempt income was not significant and thus has not been presented on a
tax equivalent basis. Tax-exempt income of $270,000 and $372,000 was
recognized during the nine months ended September 30, 1996 and 1995,
respectively.
(2) Annualized.
(3) Average balance of loans includes non-accrual loans and is presented net of
unearned income.
(4) Average balance is based upon month-end balances.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, TCF is a party to legal proceedings arising out of its
general lending and operating activities. TCF is and expects to become
engaged in a number of foreclosure proceedings and other collection actions
as part of its loan collection activities. From time to time, borrowers have
also brought actions against TCF, in some cases claiming substantial amounts
in damages. TCF is also from time to time involved in litigation relating to
its retail banking, consumer credit and mortgage banking operations and
related consumer financial services, including class action litigation.
Management, after review with its legal counsel, believes that the ultimate
disposition of its litigation will not have a material effect on TCF's
financial condition.
On November 2, 1993, TCF Bank Minnesota fsb ("TCF Minnesota"), TCF's wholly
owned subsidiary, filed a complaint in the United States Court of Federal
Claims seeking monetary damages from the United States for breach of
contract, taking of property without just compensation and deprivation of
property without due process. TCF Minnesota's claim is based on the
government's breach of contract in connection with TCF Minnesota's
acquisitions of certain savings institutions prior to the enactment of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), which contracts allowed TCF Minnesota to treat the "supervisory
goodwill" created by the acquisitions as an asset that could be counted
toward regulatory capital, and provided for other favorable regulatory
accounting treatment. Because TCF Minnesota's suit had been stayed pending
final appellate resolution of another case addressing the government's
liability for breach of supervisory goodwill contracts (the WINSTAR case,
discussed below) the United States has not answered TCF Minnesota's
complaint. TCF Minnesota's complaint involves approximately $80.3 million in
supervisory goodwill.
In August 1995, Great Lakes filed with the United States Court of Federal
Claims a complaint seeking monetary damages from the United States for breach
of contract, taking of property without just compensation and deprivation of
property without due process. Great Lakes' claim is based on the
government's breach of contract in connection with Great Lakes' acquisitions
of certain savings institutions prior to the enactment of FIRREA in 1989,
which contracts allowed Great Lakes to treat the "supervisory goodwill"
created by the acquisitions as an asset that could be counted toward
regulatory capital, and provided for other favorable regulatory accounting
treatment. The United States has not answered Great Lakes' complaint, as the
Court had entered a stay of proceedings pending final appellate resolution of
the WINSTAR case, discussed below. Great Lakes' complaint involves
approximately $87.3 million in supervisory goodwill.
On July 1, 1996, the United States Supreme Court issued a decision affirming
the August 30, 1995 decision of the U.S. Court of Appeals for the Federal
Circuit, which decision had affirmed Court of Federal Claims' liability
determinations in three other "supervisory goodwill" cases, consolidated for
review under the title WINSTAR CORP. V. UNITED STATES, 64 U.S.L.W. 4739
(1996). In rejecting the United States' consolidated appeal from the Court
of Federal Claims' decisions, the Supreme Court held in WINSTAR that the
United States had breached contracts it had entered into with the plaintiffs
which provided for the treatment of supervisory goodwill, created through the
plaintiffs' acquisitions of failed or failing savings institutions, as an
asset that could be counted toward regulatory capital.
There are a variety of contracts and contract provisions in the TCF Minnesota
and Great Lakes transactions. The government has indicated that it will have
a number of affirmative defenses in goodwill litigation filed against it.
There can be no assurance that the U.S. Supreme Court decision in WINSTAR
will mean that a similar result would be obtained in the actions filed by TCF
Minnesota and Great Lakes. There also can be no assurance that the
government will be determined liable in connection
27
<PAGE>
with the loss of supervisory goodwill by either TCF Minnesota or Great Lakes
or, even if a determination favorable to TCF Minnesota or Great Lakes is made
on the issue of the government's liability, that a measure of damages will be
employed that will permit any recovery on TCF Minnesota's or Great Lakes'
claim. Because of the complexity of the issues involved in both the
liability and damage phases of this litigation, and the usual risks
associated with litigation, the Company cannot predict the outcome of TCF
Minnesota's or Great Lakes' cases, and investors should not anticipate any
recovery in making their investment decision.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits on page 30 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated October 14, 1996, was filed in
connection with the announcement of the impact on TCF of a one-time special
assessment from the FDIC to recapitalize the SAIF.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCF FINANCIAL CORPORATION
/S/ RONALD J. PALMER
-------------------------------------------
Ronald J. Palmer, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/S/ MARK R. LUND
-------------------------------------------
Mark R. Lund, Senior Vice President,
Assistant Treasurer and Controller
(Principal Accounting Officer)
Dated: November 12, 1996
29
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
4(a) Copies of instruments with respect N/A
to long-term debt will be furnished
to the Securities and Exchange
Commission upon request.
11 Computation of Earnings Per Common Share -
27 Financial Data Schedule -
30
<PAGE>
Exhibit 11 - Computation of Earnings Per Common Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER COMMON SHARE THREE MONTHS ENDED NINE MONTHS ENDED
FOR STATEMENTS OF OPERATIONS: SEPTEMBER 30, SEPTEMBER 30,
- ---------------------------------------- -------------------------- ------------------------
1996 1995 1996 1995
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Income before extraordinary item $ 5,296 $ 24,413 $ 58,234 $ 36,168
Less: Dividends on preferred stock - - - 678
----------- ----------- ---------- -----------
Income applicable to common stock before
extraordinary item 5,296 24,413 58,234 35,490
Extraordinary item - - - (963)
----------- ----------- ---------- -----------
Income applicable to common stock $ 5,296 $ 24,413 $ 58,234 $ 34,527
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares
outstanding 34,955,961 35,497,928 35,351,584 35,009,878
Dilutive effect of stock option plans
and common stock warrants after
application of treasury stock method 99,712 395,900 144,908 574,124
----------- ----------- ---------- -----------
35,055,673 35,893,828 35,496,492 35,584,002
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Earnings per common share:
Income before extraordinary item $ .15 $ .68 $ 1.64 $ 1.00
Extraordinary item - - - (.03)
----------- ----------- ---------- -----------
Net income $ .15 $ .68 $ 1.64 $ .97
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
COMPUTATION OF FULLY DILUTED EARNINGS
PER COMMON SHARE (1):
Income before extraordinary item $ 5,296 $ 24,413 $ 58,234 $ 36,168
Add: Interest expense on 7 1/4% convertible
subordinated debentures 84 87 244 298
Less: Dividends on preferred stock - - - 678
----------- ----------- ---------- -----------
Income applicable to common stock before
extraordinary item 5,380 24,500 58,478 35,788
Extraordinary item - - - (963)
----------- ----------- ---------- -----------
Income applicable to common stock $ 5,380 $ 24,500 $ 58,478 $ 34,825
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares
outstanding 34,955,961 35,497,928 35,351,584 35,009,878
Dilutive effect of stock option plans
and common stock warrants after
application of treasury stock method 100,817 407,882 149,294 645,014
Dilutive effect from assumed
conversion of 7 1/4% convertible
subordinated debentures 419,542 465,274 422,043 530,954
----------- ----------- ---------- -----------
35,476,320 36,371,084 35,922,921 36,185,846
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Earnings per common share:
Income before extraordinary item $ .15 $ .67 $ 1.63 $ .99
Extraordinary item - - - (.03)
----------- ----------- ---------- -----------
Net income $ .15 $ .67 $ 1.63 $ .96
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
- --------------------
(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> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 3RD
QUARTER 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 205,741
<INT-BEARING-DEPOSITS> 333,132
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 997,964
<INVESTMENTS-CARRYING> 3,856
<INVESTMENTS-MARKET> 3,856
<LOANS> 5,049,508
<ALLOWANCE> 71,581
<TOTAL-ASSETS> 7,114,466
<DEPOSITS> 5,018,672
<SHORT-TERM> 1,047,047
<LIABILITIES-OTHER> 104,565
<LONG-TERM> 421,667
0
0
<COMMON> 359
<OTHER-SE> 522,156
<TOTAL-LIABILITIES-AND-EQUITY> 7,114,466
<INTEREST-LOAN> 366,245
<INTEREST-INVEST> 60,961
<INTEREST-OTHER> 13,461
<INTEREST-TOTAL> 440,667
<INTEREST-DEPOSIT> 129,760
<INTEREST-EXPENSE> 184,543
<INTEREST-INCOME-NET> 256,124
<LOAN-LOSSES> 16,389
<SECURITIES-GAINS> 85
<EXPENSE-OTHER> 262,858
<INCOME-PRETAX> 93,221
<INCOME-PRE-EXTRAORDINARY> 58,234
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,234
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.63
<YIELD-ACTUAL> 5.23
<LOANS-NON> 32,830
<LOANS-PAST> 90
<LOANS-TROUBLED> 3,042
<LOANS-PROBLEM> 32,415
<ALLOWANCE-OPEN> 65,695
<CHARGE-OFFS> 16,846
<RECOVERIES> 6,343
<ALLOWANCE-CLOSE> 71,581
<ALLOWANCE-DOMESTIC> 47,482
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 24,099
</TABLE>
