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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE
NO. 0-16431
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TCF FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 41-1591444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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
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Securities registered pursuant to Section 12(b) of the Act
(all registered on the New York Stock Exchange):
COMMON STOCK (PAR VALUE $.01 PER SHARE)
PREFERRED SHARE PURCHASE RIGHTS
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2011
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 8, 1996, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, computed by reference to the average of the
high and low prices on such date as reported by the New York Stock Exchange, was
$1,076,070,517.
As of March 8, 1996, there were outstanding 35,854,534 shares of the
registrant's common stock, par value $.01 per share, its only outstanding class
of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Specific portions of the registrant's annual report to shareholders for the
year ended December 31, 1995 are incorporated by reference into Parts I, II and
IV hereof.
Specific portions of the registrant's definitive proxy statement dated March
22, 1996 are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................................................... 1
General...................................................................................... 1
Lending Activities........................................................................... 3
Investment Activities........................................................................ 11
Sources of Funds............................................................................. 13
Other Information............................................................................ 15
Activities of Subsidiaries of TCF Financial................................................ 15
Recent Accounting Developments............................................................. 15
Competition................................................................................ 17
Employees.................................................................................. 17
Regulation................................................................................... 17
Taxation..................................................................................... 29
Item 2. Properties..................................................................................... 30
Item 3. Legal Proceedings.............................................................................. 31
Item 4. Submission of Matters to a Vote of Security Holders............................................ 33
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters....................... 33
Item 6. Selected Financial Data........................................................................ 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 35
Item 8. Financial Statements and Supplementary Data.................................................... 35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 36
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 36
Item 11. Executive Compensation......................................................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 36
Item 13. Certain Relationships and Related Transactions................................................. 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 36
Signatures................................................................................................. 37
Index to Consolidated Financial Statements................................................................. 39
Index to Exhibits.......................................................................................... 39
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i
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PART I
ITEM 1. BUSINESS
GENERAL
TCF Financial Corporation ("TCF Financial", "TCF" or the "Company"), a
Delaware corporation based in Minneapolis, Minnesota, with $7.2 billion in
assets, is the holding company of four federally chartered savings banks, TCF
Bank Minnesota fsb ("TCF Minnesota"), TCF Bank Illinois fsb ("TCF Illinois"),
TCF Bank Wisconsin fsb ("TCF Wisconsin") and Great Lakes Bancorp, A Federal
Savings Bank ("Great Lakes"). TCF Wisconsin and TCF Illinois are wholly owned
subsidiaries of TCF Minnesota, the largest savings bank and third largest
depository institution headquartered in Minnesota. On February 8, 1995, TCF
completed its acquisition of Great Lakes, a Michigan-based savings bank with
$2.8 billion in assets, $1.6 billion in deposits, 39 offices in Michigan and
five offices in western Ohio. As a result of the acquisition, Great Lakes was
merged into TCF's existing Michigan-based wholly owned savings bank subsidiary,
TCF Bank Michigan fsb, ("TCF Michigan"). The resulting savings bank is operated
as a direct subsidiary of TCF Financial and retained the Great Lakes name and
headquarters in Ann Arbor, Michigan. The resulting savings bank operates 54
offices in Michigan and five offices in western Ohio. Unless otherwise
indicated, references herein to TCF include its direct and indirect
subsidiaries. TCF Minnesota, TCF Illinois, TCF Wisconsin and Great Lakes are
collectively referred to herein as the "TCF Savings Banks." References herein to
the "Holding Company" or "TCF Financial" refer to TCF Financial Corporation on
an unconsolidated basis. Where information is incorporated in this report by
reference to TCF's 1995 Annual Report, only those portions specifically
identified are so incorporated.
TCF Financial was organized in 1987 as a thrift holding company, and its
common stock has been listed on the New York Stock Exchange since 1989. TCF has
positioned the TCF Savings Banks as "community banks" focusing on lending,
deposit products and other services offered in their local markets and has
significantly expanded their consumer lending activities, including home equity
lending. TCF's strategic emphasis on retail banking has allowed it to fund its
assets primarily with retail core deposits, significantly reduce wholesale
borrowings and lower its interest-rate risk. TCF Minnesota is also engaged in
consumer finance lending through its consumer finance subsidiaries.
TCF's marketing strategy emphasizes attracting deposits held in checking,
passbook and statement savings, and money market accounts, which also provide
TCF with a significant source of fee income. TCF engages in commercial,
residential and consumer lending activities, and in the insurance services
business, including the sale of single premium tax-deferred annuities. It also
has a broker dealer selling non-proprietary mutual funds. TCF's lending
activities emphasize consumer and residential mortgage loans.
In connection with its acquisition of Great Lakes, TCF issued approximately
9.7 million shares of its common stock for all of the outstanding common shares
of Great Lakes. In addition, each outstanding share of Great Lakes preferred
stock was exchanged for one share of TCF preferred stock with substantially
identical terms. On July 3, 1995, TCF exercised its right of redemption on its
2.7 million shares of preferred stock at $10 per share. TCF also assumed the
obligation to issue common stock upon the exercise or conversion of the
outstanding warrants to purchase Great Lakes common stock (which expired on July
1, 1995), the outstanding employee and director options to purchase Great Lakes
common stock and the outstanding 7 1/4% Convertible Subordinated Debentures due
2011 of Great Lakes. This acquisition was accounted for as a
pooling-of-interests combination and, accordingly, TCF's consolidated financial
statements have been restated to include the accounts and results of operations
of Great Lakes for all periods presented, except for dividends declared
per-share. There were no material intercompany transactions prior to the
acquisition. In connection with the acquisition, an after-tax merger-related
charge of $32.8 million was incurred during the 1995 first quarter. Additional
information concerning the Great Lakes acquisition is set forth in Note 2 of
Notes to Consolidated Financial Statements on pages 48 through 50 of TCF's 1995
Annual Report, incorporated herein by reference.
1
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On April 21, 1993, TCF issued approximately 4.4 million shares of its common
stock for all of the outstanding common stock of Republic Capital Group, Inc.
("RCG"), a Milwaukee-based thrift holding company with approximately $1 billion
in assets. TCF's consolidated financial statements give effect to the merger,
which has been accounted for as a pooling-of-interests combination. Accordingly,
TCF's consolidated financial statements for periods prior to the combination
have been restated to include the accounts and results of operations of RCG for
all periods presented. As a result of the merger, TCF acquired RCG's two wholly
owned subsidiaries, Republic Capital Bank, F.S.B. (now TCF Wisconsin), and
Peerless Federal Savings Bank (now TCF Illinois). Subsequent to the merger, TCF
Minnesota's Illinois Division was merged into TCF Illinois.
On August 27, 1993, TCF Michigan, a newly formed subsidiary of TCF
Minnesota, acquired from the Resolution Trust Corporation ("RTC") $220.8 million
of insured deposits and 15 branch offices of First Federal Savings and Loan
Association, Pontiac, Michigan. TCF has accounted for this acquisition using the
purchase method of accounting.
TCF operated 68 bank branches in Minnesota at December 31, 1995. It also
operated 30 bank branches in Illinois, 28 in Wisconsin, 54 in Michigan and five
in Ohio at December 31, 1995. TCF strives to develop innovative banking products
and services. At December 31, 1995, TCF operated 37 "in-store" bank branches.
These in-store bank branches provide TCF with the opportunity to sell its
consumer products and services, including deposits and loans, at a relatively
low entry cost and feature extended hours, including Saturdays and Sundays.
TCF's "Totally Free"-SM- checking accounts and other deposit products provide it
with a significant source of low-cost funds and fee income. TCF has expanded its
automated teller machine ("ATM") network to 757 machines processing
approximately 2.5 million transactions monthly, and offers its customers a
telephone accessible voice communication system that has enabled TCF to respond
to approximately 4.4 million inquiries each month.
In recent years, significant new federal legislation has imposed numerous
new legal and regulatory requirements on thrift institutions. Among the most
significant of these requirements are new minimum regulatory capital levels and
enforcement actions that can be taken by regulators when an institution's
regulatory capital is deemed to be inadequate. Each of the TCF Savings Banks
currently exceeds all of the current and fully phased-in regulatory capital
requirements. As a result of the failure of a number of thrift institutions in
recent years and the obligation of the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") to fund debt
obligations of the Financing Corporation ("FICO"), the thrift industry currently
pays significantly higher deposit insurance premiums than those paid by banks,
and faces the prospect of other charges necessary to meet the obligations of the
SAIF. Federal legislation to recapitalize the SAIF proposed in 1995 would entail
charging savings institutions a one-time special assessment. It is unclear
whether such legislation, which has been tied to budget reconciliation
proposals, will be adopted anytime soon, and if it is adopted, the final form of
such legislation is unclear. The proposed assessment, if imposed in early 1996,
is estimated to range from .80% to .82% of total insured deposits, or
approximately $42.7 million to $43.8 million pretax and $26.7 million to $27.4
million after-tax for TCF, would be tax deductible for federal and state income
tax purposes and would be in addition to TCF's annual deposit insurance premium.
Deposit insurance premium rates would likely decline following such a charge.
See "REGULATION."
In addition to the uncertainties posed by possible legislative change, there
are many other uncertainties that may make TCF's historical performance an
unreliable indicator of its future performance, and forward-looking information,
including projections of future performance, is subject to numerous possible
adverse developments, including but not limited to the possibility of adverse
economic developments which may increase default and delinquency risks in TCF's
loan 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.
2
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As federally chartered savings banks, the TCF Savings Banks are subject to
regulation and examination by the Office of Thrift Supervision ("OTS"). The TCF
Savings Banks' deposits are insured to $100,000 by the FDIC, and as such these
institutions are subject to regulations promulgated by the FDIC. The TCF Savings
Banks are variously members of the Federal Home Loan Bank ("FHLB") of Des
Moines, Chicago and/or Indianapolis. TCF Financial is a thrift holding company
under the Home Owners' Loan Act ("HOLA") and is subject to regulation and
examination by the OTS and, in certain cases, by the FDIC. See "REGULATION --
Regulation of TCF Financial and Affiliate and Insider Transactions." The
executive offices of TCF Financial are located at 801 Marquette Avenue, Suite
302, Minneapolis, Minnesota 55402. Its telephone number is (612) 661-6500.
The following description includes detailed information regarding the
business of TCF and its subsidiaries.
LENDING ACTIVITIES
GENERAL
TCF's lending activities reflect its community banking philosophy,
emphasizing loans to individuals and small to medium-sized businesses in its
primary market areas in Minnesota, Illinois, Wisconsin and Michigan. In recent
years, TCF has expanded its consumer lending and consumer finance operations and
placed relatively less emphasis on new commercial real estate lending.
TCF is expanding its consumer lending and consumer finance operations.
During 1995, the Company opened 24 new consumer finance offices, most of which
were in areas outside its traditional market locations. As of December 31, 1995,
TCF had 70 such offices in 16 states. TCF is seeking to expand its commercial
business and commercial real estate lending activity in its primary markets in
an attempt to maintain the size of these lending portfolios and, where feasible
under local economic conditions, achieve some growth in these lending categories
over time.
The following table sets forth the contractual amortization of TCF's loan
portfolios at December 31, 1995, excluding loans held for sale. Commercial
business demand loans are reported due within one year. This table does not
include the effect of prepayments, which is an important consideration in
management's interest-rate risk analysis. Industry experience indicates that
loans remain outstanding for significantly shorter periods than their
contractual terms.
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AT DECEMBER 31, 1995 (1)
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REAL ESTATE
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TOTAL COMMERCIAL
RESIDENTIAL COMMERCIAL REAL ESTATE BUSINESS CONSUMER TOTAL LOANS
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(IN THOUSANDS)
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Amounts due:
Within 1 year................. $ 126,947 $ 163,311 $ 290,258 $ 72,254 $ 197,257 $ 559,769
After 1 year:
1 to 2 years................ 119,145 141,069 260,214 40,255 167,638 468,107
2 to 3 years................ 158,760 128,705 287,465 19,984 156,401 463,850
3 to 5 years................ 327,845 152,683 480,528 17,344 295,042 792,914
5 to 10 years............... 598,083 324,908 922,991 3,425 475,943 1,402,359
10 to 15 years.............. 435,995 45,767 481,762 198 298,645 780,605
Over 15 years............... 851,950 14,320 866,270 14,203 2,513 882,986
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Total after 1 year............ 2,491,778 807,452 3,299,230 95,409 1,396,182 4,790,821
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Total..................... $ 2,618,725 $ 970,763 $ 3,589,488 $ 167,663 $ 1,593,439 $ 5,350,590
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(1) Amounts presented are the gross balances before adjustment for net
discounts, premiums, deferred fees, and unearned discounts and finance
charges.
3
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AT DECEMBER 31, 1995 (1)
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REAL ESTATE
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TOTAL COMMERCIAL
RESIDENTIAL COMMERCIAL REAL ESTATE BUSINESS CONSUMER TOTAL LOANS
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(IN THOUSANDS)
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Amounts due after 1 year on:
Fixed-rate loans.............. $ 1,458,246 $ 176,505 $ 1,634,751 $ 35,099 $ 273,365 $ 1,943,215
Adjustable-rate loans......... 1,033,532 630,947 1,664,479 60,310 1,122,817 2,847,606
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Total after 1 year........ $ 2,491,778 $ 807,452 $ 3,299,230 $ 95,409 $ 1,396,182 $ 4,790,821
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(1) Amounts presented are the gross balances before adjustment for net
discounts, premiums, deferred fees, and unearned discounts and finance
charges.
RESIDENTIAL REAL ESTATE LENDING
TCF's residential real estate lending activities (first mortgage loans for
the financing of one- to four-family homes) are conducted through certain of the
TCF Savings Banks and through TCF Mortgage Corporation ("TCF Mortgage"), a
wholly owned subsidiary of TCF Minnesota. Residential mortgage loan originations
are predominantly secured by properties in Minnesota, Illinois, Wisconsin and
Michigan. TCF engages in both adjustable-rate and fixed-rate residential real
estate lending. Adjustable-rate residential real estate loans held in TCF's
portfolio totaled $1.1 billion at December 31, 1995, compared with $1 billion at
December 31, 1994.
Loan originations by TCF Mortgage include loans purchased from loan
correspondents and also loans purchased from Great Lakes Mortgage, a mortgage
origination joint venture between a subsidiary of TCF Mortgage and Burnet
Mortgage Corporation, an affiliate of Burnet Realty Inc. Great Lakes Mortgage
loan officers originate loans from certain offices of Burnet Realty Inc.
TCF sells residential real estate loans and loan participations in the
secondary market, primarily on a nonrecourse basis. TCF retains servicing rights
for the majority of the loans it sells into the secondary market. These sales
provide additional funds for loan originations and also generate fee income. TCF
may also from time to time purchase or sell servicing rights on residential real
estate loan portfolios. At December 31, 1995, TCF serviced for others $4.5
billion in residential real estate loans and loan participations, compared with
$4.4 billion at December 31, 1994. During 1995, 1994 and 1993, TCF sold
servicing rights on $146.3 million, $169 million and $44 million of loans
serviced for others at net gains of $1.5 million, $2.4 million and $137,000,
respectively. TCF adopted Statement of Financial Accounting Standards ("SFAS")
No. 122, "Accounting for Mortgage Servicing Rights," on a prospective basis
effective April 1, 1995. Additional information concerning TCF's adoption of
SFAS No. 122 is set forth in Note 1 of Notes to Consolidated Financial
Statements on pages 46 through 48 of TCF's 1995 Annual Report, incorporated
herein by reference. TCF serviced residential real estate loans for its own
account, including loans held for sale, of $2.7 billion at December 31, 1995.
Adjustable-rate residential real estate loans originated by TCF have various
adjustment periods and generally provide for limitations on the amount the rate
may adjust on each adjustment date, as well as the total amount of adjustments
over the lives of the loans. Accordingly, while this portfolio of loans is rate
sensitive, it may not be as rate sensitive as TCF's cost of funds. In addition
to such interest-rate risk, TCF faces credit risks resulting from potential
increased costs to borrowers as a result of rate adjustments on adjustable-rate
loans in its portfolio, which will depend upon the magnitude and frequency of
shifts in market interest rates. Some adjustable-rate residential real estate
loans originated by TCF in prior periods did not provide for limitations on rate
adjustments. Credit risk may also result from declines in the values of
underlying real estate collateral. See "-- Classified Assets, Loan Delinquencies
and Defaults."
4
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TCF Mortgage and the TCF Savings Banks generally adhere to Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
Veterans Administration ("VA") or Federal Housing Administration ("FHA")
guidelines in originating residential real estate loans. TCF generally requires
that all conventional real estate loans with loan-to-value ratios in excess of
80% carry private mortgage insurance.
CONSUMER LENDING
GENERAL
TCF makes consumer loans for personal, family or household purposes, such as
the financing of home improvements, automobiles, vacations and education. Most
of TCF's consumer loans are originated in markets in which the TCF Savings Banks
or TCF's three consumer finance subsidiaries (TCF Financial Services, Inc., TCF
Consumer Financial Services, Inc. and TCF Real Estate Financial Services, Inc.,
which are collectively referred to herein as the "Consumer Finance
Subsidiaries") have their offices. Total consumer loans for the TCF Savings
Banks and the Consumer Finance Subsidiaries totaled $1.6 billion at December 31,
1995, with $318 million, or 20% having fixed interest rates and $1.3 billion, or
80% having adjustable interest rates. The following discussion provides
additional information on TCF's consumer lending operations.
SAVINGS BANK CONSUMER DIVISION LENDING
The TCF Savings Banks make consumer loans for personal, family or household
purposes. Such consumer loans are originated in markets in which the TCF Savings
Banks have their offices. The consumer lending activities of the TCF Savings
Banks include a full range of consumer-oriented products including real estate
secured loans, loans secured by personal property and unsecured personal loans.
Each of these loan types can be made on an open- or closed-end basis. Closed-end
and open-end loans are available on either a variable- or fixed-rate basis. TCF
also originates student loans for resale. TCF Minnesota is an issuer of credit
cards which it offers to customers of the TCF Savings Banks and others. TCF also
engages in the origination of consumer loans through the use of loan brokers.
Consumer loans having adjustable interest rates present a credit risk similar to
that posed by residential real estate loans as a result of increased costs to
borrowers in the event of a rise in rates (see discussion above under "--
Residential Real Estate Lending"). Consumer loans secured by real estate will
present additional credit risk in the event of a decline in the value of real
estate collateral.
TCF had $163.2 million of education loans held for sale at December 31,
1995, compared with $155.5 million at December 31, 1994. TCF generally retains
the student loans it originates until they are fully disbursed. Under a forward
commitment agreement with the Student Loan Marketing Association ("SLMA"), TCF
can sell the student loans to SLMA once they are fully disbursed, but must sell
the student loans to SLMA before they go into repayment status. These loans are
originated in accordance with designated guarantor and U.S. Department of
Education guidelines and may not involve any independent credit underwriting by
TCF. During the years ended December 31, 1995, 1994 and 1993, TCF sold $91
million, $80.3 million and $65.3 million of its student loans, respectively. TCF
subcontracts for the servicing of student loans in its portfolio. TCF's future
student loan origination activity will be dependent on continued support of
guaranteed student loan programs by the U.S. Government and TCF's ability to
continue to sell such loans to SLMA or other parties. Recent federal legislation
has limited the role of private lenders in originating student loans, and this
may reduce the volume of TCF's student loan originations in future periods.
CONSUMER FINANCE LENDING
TCF engages in consumer finance lending through the Consumer Finance
Subsidiaries. As previously mentioned, TCF has significantly expanded its
consumer finance operations in recent periods. TCF opened 24 such offices in
1995 and as of December 31, 1995 had 70 consumer finance offices in 16 states.
As a result of this expansion, TCF's consumer finance loan portfolio totaled
$374.4 million at December 31, 1995, compared with $201 million at December 31,
1994. The Company intends to concentrate on increasing the outstanding loan
balances of these existing offices and improving the profitability of the
Consumer Finance Subsidiaries in 1996.
5
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The Consumer Finance Subsidiaries primarily originate home equity and
automobile loans and purchase automobile, marine and recreational vehicle
contracts. The Consumer Finance Subsidiaries also engage in the origination of
loans through loan brokers. Automobile, marine and recreational vehicle
contracts and loans comprise $207.8 million, or 55.5% of total consumer finance
outstandings at December 31, 1995. Home equity loans comprise $154.8 million, or
41.3% of total consumer finance loans outstanding at December 31, 1995. The
average individual balance of automobile, marine and recreational vehicle loans
and contracts, and home equity consumer finance loans were $9,000 and $30,000,
respectively, at December 31, 1995. The Consumer Finance Subsidiaries are
seeking to increase the percentage of home equity consumer finance loans to
total consumer finance loans over time.
Through their purchases of automobile loan contracts, the Consumer Finance
Subsidiaries provide indirect financing. The 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 of automobile, marine and
recreational vehicle financing such as banks, credit unions or finance companies
affiliated with major automobile manufactures. The Company believes that
traditional sources of automobile, marine and recreational vehicle financing
generally provide automobile financing for the most creditworthy, or so-called
"prime", borrowers. The Company believes that the financing market for
automobiles to prime borrowers is characterized by intense competition, and, in
turn, lower profit margins.
Included in consumer finance loans at December 31, 1995 are $163.6 million
of sub-prime automobile, marine and recreational vehicle loans which carry a
higher level of credit risk and higher interest rates. The term sub-prime
reflects 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 served by traditional lending sources. The underwriting
criteria for loans originated by the Consumer Finance Subsidiaries generally
have been less stringent than those historically adhered to by the TCF Savings
Banks and, as a result, carry a higher level of credit risk and higher interest
rates. The rapid expansion of the higher-risk lending engaged in by the Consumer
Finance Subsidiaries is expected, as these portfolios mature, to result in
increases in consumer loan loss ratios. These portfolios also represent an
increased risk of loss in the event of adverse economic developments. See "--
Classified Assets, Loan Delinquencies and Defaults." While the Company believes
that its experienced management personnel and credit quality standards will
enable it to control the higher risks inherent in lending to sub-prime
borrowers, no assurance can be given that such factors will afford adequate
protection against such risks.
The Consumer Finance Subsidiaries anticipate expanding their loan programs
to include typical bank or prime borrowers in states in which TCF does not have
TCF Savings Banks. The underwriting criteria for these loans will be similar to
those historically adhered to by the TCF Savings Banks; as a result, these loans
will have a lower interest rate than typical Consumer Finance Subsidiary loans.
6
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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):
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AT DECEMBER 31,
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1995 1994
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LOAN LOAN
BALANCE PERCENT BALANCE PERCENT
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Illinois...................................... $ 116,866 31.2% $ 88,383 44.0%
Minnesota..................................... 96,533 25.7 80,671 40.1
Wisconsin..................................... 27,911 7.4 16,571 8.2
Georgia....................................... 23,044 6.2 6,734 3.4
Florida....................................... 19,925 5.3 2,140 1.1
Missouri...................................... 19,295 5.2 1,080 .5
Kentucky...................................... 13,017 3.5 1,203 .6
Tennessee..................................... 11,474 3.1 2,245 1.1
Ohio.......................................... 11,459 3.1 1,819 .9
Mississippi................................... 9,187 2.5 -- --
North Carolina................................ 8,053 2.2 -- --
Colorado...................................... 5,337 1.4 -- --
Other......................................... 12,293 3.2 131 .1
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Total consumer finance loans................ $ 374,394 100.0% $ 200,977 100.0%
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Since many of the Consumer Finance Subsidiary offices are new, the
geographical location of consumer loans may change significantly in future
periods. At December 31, 1995, the Consumer Finance Subsidiaries were a party to
"Dealer Agreements" with approximately 700 franchised automobile dealers. Most
of these dealers regularly submit contracts to the Consumer Finance Subsidiaries
for purchase, although such dealers are under no obligation to submit contracts
to the Consumer Finance Subsidiaries, and the Consumer Finance Subsidiaries are
not obligated to purchase any contracts. Contracts generally must be secured by
a first priority lien on a new or used automobile, boat or recreational vehicle
and must meet the Consumer Finance Subsidiaries' underwriting criteria. In
addition, each contract with a principal balance greater than $5,000 requires
the borrower to maintain physical damage insurance covering the financed vehicle
naming the Consumer Finance Subsidiaries as the loss payee. The Consumer Finance
Subsidiaries may, nonetheless, suffer a loss upon theft or physical damage of
any financed vehicle if the borrower fails to maintain insurance as required by
the contract and is unable to pay for repairs to or replacement of the vehicle
or is otherwise unable to fulfill its obligations under the contract.
Although the Consumer Finance Subsidiaries believe that their underwriting
criteria enable them to evaluate effectively 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. Applicable underwriting criteria include
standards for term; amount of downpayment, installment payment and interest
rate; 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.
The Consumer Finance Subsidiaries believe that the most important
requirements to succeed in the sub-prime automobile financing market are the
ability to control borrower and dealer misrepresentations at the point of
origination; the development and consistent implementation of objective
underwriting criteria specifically designed to evaluate the creditworthiness of
sub-prime borrowers; and the maintenance of an active program to monitor
performance and collect payments.
COMMERCIAL REAL ESTATE LENDING
TCF currently originates longer-term loans on commercial real estate and, to
a lesser extent, shorter-term construction loans. TCF's commercial real estate
lending activity has declined in recent
7
<PAGE>
years, primarily as a result of more stringent underwriting standards and
competition from other lenders. In recent years, deterioration in the value and
collectibility of commercial real estate loans and the value of commercial real
estate in certain markets, and the effect of these developments on the
performance of TCF's loan portfolio or TCF's ability to market commercial real
estate assets, has been a significant concern to TCF management. See "Financial
Review -- Financial Condition -- Non-Performing Assets" on pages 35 and 36 of
TCF's 1995 Annual Report, incorporated herein by reference.
TCF's current strategy, consistent with its credit quality standards, is to
focus its commercial lending activities on borrowers based in its primary
markets and, at a minimum, to generate enough new commercial lending activity to
maintain the size of its commercial lending portfolios. Due to TCF's increasing
emphasis on lending to small to medium-sized businesses in its market areas, the
portion of its commercial real estate loan portfolio secured by properties
located in its primary markets had increased to 92% at December 31, 1995.
TCF's commercial real estate loans are generally originated with adjustable
interest rates or fixed interest rates for terms of up to five years. At
December 31, 1995, adjustable-rate loans represented 77% of commercial real
estate loans outstanding. At December 31, 1995, TCF had a total of 1,630
commercial real estate loans outstanding secured by properties located in its
primary markets. Of this total, 233 loans totaling $548.5 million had balances
exceeding $1 million. At December 31, 1995, the average individual balance of
commercial real estate loans was $578,000. Information regarding the types of
properties securing TCF's commercial real estate loans is set forth on page 75
of TCF's 1995 Annual Report, incorporated herein by reference.
At December 31, 1995, TCF's commercial construction and development loan
portfolio totaled $59.9 million. Construction and permanent commercial real
estate lending is generally considered to involve a higher level of risk than
single-family residential lending due to the concentration of principal in a
limited number of loans and borrowers. In addition, the nature of these loans is
such that they are generally less predictable and more difficult to evaluate and
monitor. Construction and permanent commercial real estate lending is also
highly dependent on economic conditions, which in certain markets are not
favorable for this type of lending activity. TCF's risk of loss on a
construction and development loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of the project and the
estimated cost (including interest) of the project. If the estimate of
construction or development cost proves to be inaccurate or if economic
conditions change, TCF may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value proves to be inaccurate at any time before or after maturity, TCF's loan
may be secured by a project having a value which is insufficient to assure full
repayment. Borrowers, which are often limited partnerships formed to purchase a
specific property, may receive limited cash flow from the property, be unable to
service the total debt, and as a result fail to make required loan payments.
At times prior to its acquisition by TCF, RCG had engaged in the business of
guaranteeing certain industrial development and housing revenue bonds issued by
government authorities to finance commercial and multi-family real estate
projects for private owners/developers. In the event of a default by the
borrowers, TCF, as acquiring entity, may be required to fund the amount of its
guarantee or acquire the then outstanding bonds, and in order to recover these
amounts may be forced to foreclose on the underlying real estate. In such an
event, TCF would be subject to the risk of market declines in the values of such
properties. Management has considered these guarantees in its review of the
adequacy of industrial revenue bond reserves. The balance of such financial
guarantees at December 31, 1995 and 1994 was $13.5 million and $18.6 million,
respectively. TCF no longer engages in the business of issuing such guarantees.
Additional information concerning such guarantees is set forth in Note 16 of
Notes to Consolidated Financial Statements on pages 59 through 62 of TCF's 1995
Annual Report, incorporated herein by reference.
8
<PAGE>
COMMERCIAL BUSINESS LENDING
TCF engages in general commercial business lending. Commercial business
loans may be secured by various types of business assets, including commercial
real estate, and in some cases may be made on an unsecured basis. At December
31, 1995, TCF had $167.7 million in commercial business loans outstanding, with
an average individual balance of $229,000.
TCF is seeking to expand its commercial business lending activity by lending
to small and medium-sized businesses and professionals through the TCF Savings
Banks. TCF's commercial business lending activities encompass loans with a broad
variety of purposes, including corporate working capital loans and loans to
finance the purchase of equipment or other acquisitions. TCF also makes loans to
individuals who use the funds for business or personal purposes. As part of its
commercial business and commercial real estate lending activities, TCF also
issues standby letters of credit. At December 31, 1995, TCF had 89 such standby
letters of credit outstanding in the aggregate amount of $26.8 million.
Recognizing the generally increased risks associated with commercial
business lending, TCF originates commercial business loans in order to increase
its short-term, variable-rate asset base and to contribute to its profitability
through the higher rates earned on these loans and the marketing of other bank
products. TCF concentrates on originating commercial business loans primarily to
middle-market companies based in its primary markets with borrowing requirements
of less than $10 million. Approximately 90% of TCF's commercial business loans
outstanding at December 31, 1995 were to borrowers based in its primary markets.
CLASSIFIED ASSETS, LOAN DELINQUENCIES AND DEFAULTS
TCF has established a classification system for individual commercial loans
or other assets based on OTS regulations under which all or part of a loan or
other asset may be classified as "substandard," "doubtful," "loss" or "special
mention." It has also established overall ratings for various credit portfolios.
A loan or other asset is placed in the substandard category when it is
considered to have a well-defined weakness. A loan or other asset is placed in
the doubtful category when some loss is likely but there is still sufficient
uncertainty to permit the asset to remain on the books at its full value. All or
a portion of a loan or other asset is classified as loss when it is considered
uncollectible, in which case it is generally charged off. In some cases, loans
or other assets for which there is perceived some possible exposure to credit
loss are classified as special mention. Loans and other assets that are
classified are subject to periodic review of their appropriate regulatory
classifications. See "REGULATION -- Classification of Assets."
The following table summarizes information about TCF's non-accrual,
restructured and past due loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans................... $ 44.3 $ 33.8 $ 88.3 $ 79.7 $ 116.6
Restructured loans.................. 1.6 4.3 10.8 58.7 46.5
--------- --------- --------- --------- ---------
Total non-accrual and restructured
loans............................ $ 45.9 $ 38.1 $ 99.1 $ 138.4 $ 163.1
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Accruing loans 90 days or more past
due................................ $ .8 $ 2.4 $ 5.2 $ 4.6 $ 10.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
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. See
"Financial Review -- Financial Condition -- Non-Performing Assets" on pages 35
and 36 of TCF's 1995 Annual Report, incorporated herein by reference, for
information regarding other problem loans in TCF's portfolio.
9
<PAGE>
TCF has established loan loss reserves for known and anticipated problem
loans as well as for loans which are not currently known to require a specific
reserve. Total loan loss reserves at December 31, 1995 were $65.7 million, which
amounts to 1.23% of gross loans outstanding. The following table summarizes the
allocation of the allowance for loan losses (includes general and specific loss
allocations):
<TABLE>
<CAPTION>
ALLOCATIONS AS A PERCENTAGE OF
GROSS LOANS OUTSTANDING BY TYPE (1)
AT DECEMBER 31, AT DECEMBER 31,
------------------------------------------- -------------------------------------
1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate................. $ 3,238 $ 2,493 $ 2,449 $ 2,696 $ 2,812 .12% .09% .11% .14% .14%
Commercial real estate.................. 20,701 22,006 24,869 22,616 29,294 2.13 2.21 2.28 1.81 2.09
Commercial business..................... 7,261 5,603 13,605 14,097 16,889 4.33 2.93 6.33 5.97 5.21
Consumer................................ 16,667 10,757 7,797 8,425 7,944 1.05 .83 .72 .77 .69
Unallocated............................. 17,828 15,484 5,724 -- -- N.A. N.A. N.A. -- --
------- ------- ------- ------- -------
Total allowance balance............... $65,695 $56,343 $54,444 $47,834 $56,939 1.23 1.09 1.16 1.05 1.17
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ------------------------------
(1) Excluding loans held for sale.
N.A. -- Not applicable.
The following table summarizes the percentage of the outstanding balance of
gross loans in each category to total gross loans, excluding loans held for
sale:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Residential real estate............... 48.9% 51.7% 49.1% 43.1% 40.9%
Commercial real estate................ 18.2 19.4 23.3 27.5 28.7
Commercial business................... 3.1 3.7 4.6 5.2 6.7
Consumer.............................. 29.8 25.2 23.0 24.2 23.7
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
The following table summarizes additional information about TCF's allowance
for loan losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................. $ 56,343 $ 54,444 $ 47,834 $ 56,939 $ 54,030
Adjustments for pooling-of-interests......... -- -- (56) -- --
Charge-offs:
Residential real estate.................... (472) (1,070) (896) (1,259) (963)
Commercial real estate..................... (4,189) (8,039) (18,942) (30,762) (20,075)
Commercial business........................ (1,695) (2,804) (8,473) (16,963) (24,970)
Consumer................................... (8,414) (4,081) (4,483) (5,886) (8,006)
------------ ------------ ------------ ------------ ------------
(14,770) (15,994) (32,794) (54,870) (54,014)
------------ ------------ ------------ ------------ ------------
Recoveries:
Residential real estate.................... 157 222 274 315 421
Commercial real estate..................... 1,080 2,475 2,132 1,044 933
Commercial business........................ 4,862 3,132 2,309 3,067 309
Consumer................................... 1,892 1,262 1,353 1,443 1,630
------------ ------------ ------------ ------------ ------------
7,991 7,091 6,068 5,869 3,293
------------ ------------ ------------ ------------ ------------
Net charge-offs.......................... (6,779) (8,903) (26,726) (49,001) (50,721)
Provision charged to operations.............. 16,131 10,802 33,392 39,896 53,630
------------ ------------ ------------ ------------ ------------
Balance at end of year....................... $ 65,695 $ 56,343 $ 54,444 $ 47,834 $ 56,939
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Ratio of net loan charge-offs to average
loans outstanding (1)....................... .13% .19% .60% 1.05% 1.01%
Year-end allowance as a percentage of
year-end gross loan balance (1)............. 1.23 1.09 1.16 1.05 1.17
</TABLE>
- ------------------------
(1) Excluding loans held for sale.
10
<PAGE>
In addition to its allowance for loan losses, TCF had an allowance for real
estate losses of $1.5 million and an industrial revenue bond reserve of $2
million at December 31, 1995. Additional information concerning TCF's allowances
for loan and real estate losses and industrial revenue bond reserves is set
forth in "Financial Review -- Financial Condition -- Allowances for Loan and
Real Estate Losses and Industrial Revenue Bond Reserves" on pages 33 through 35
and in Note 8 of Notes to Consolidated Financial Statements on pages 53 and 54
of TCF's 1995 Annual Report, incorporated herein by reference.
A summary of the industrial revenue bond reserves follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................................. $ 2,759 $ 2,689 $ 1,463 $ 2,881 $ 408
Adjustments for pooling-of-interests....................... -- -- 225 -- --
Provision for losses....................................... (919) -- 1,726 767 2,473
Net (charge-offs) recoveries............................... 120 70 (725) (2,185) --
--------- --------- --------- --------- ---------
Balance at end of year....................................... $ 1,960 $ 2,759 $ 2,689 $ 1,463 $ 2,881
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The provision for losses on industrial revenue bond guarantees for the year
ended December 31, 1995 reflects a reduction in the balance of the guarantees.
See "-- Commercial Real Estate Lending" for additional information concerning
TCF's industrial revenue bond reserves.
The allowances for loan and real estate losses and industrial revenue bond
reserves are based upon management's periodic analysis of TCF's loan portfolio,
industrial revenue bond financial guarantees and real estate holdings. Although
appropriate levels of reserves have been estimated based upon factors and trends
identified by management, there can be no assurance that the levels are
adequate. Economic stagnation or reversals in the economy could give rise to
increasing risk of credit losses and necessitate an increase in the required
level of reserves. The expansion in the Company's consumer finance operation,
and in particular the emphasis on sub-prime automobile lending, creates
increased exposure to increases in delinquencies, repossessions, foreclosures
and losses that generally occur during economic downturns or recessions.
Adverse economic developments are also likely to adversely affect commercial
lending operations and increase the risk of loan defaults and credit losses on
such loans. Carrying values of foreclosed commercial real estate properties are
based on appraisals, prepared by certified appraisers, whenever possible. TCF
reviews each external commercial real estate appraisal it receives for accuracy,
completeness and reasonableness of assumptions used. Renewed weaknesses in real
estate markets may result in further declines in property values and the sale of
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.
INVESTMENT ACTIVITIES
Federal savings banks such as the TCF Savings Banks have authority to invest
in various types of liquid assets, including United States Treasury obligations
and securities of various federal agencies, certificates of deposit at insured
banks, bankers' acceptances and federal funds. The TCF Savings Banks must
maintain minimum levels of liquid assets specified by the OTS. These minimum
levels are subject to change. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. The TCF Savings Banks must also meet reserve requirements
of the Federal Reserve Board ("FRB"), which are imposed based on amounts on
deposit in various types of deposit categories. See "REGULATION -- Liquidity and
Reserve Requirements."
11
<PAGE>
Following is a table indicating the investments comprising TCF's portfolio,
excluding securities available for sale:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-bearing deposits with banks.............................. $ 533 $ 193,751 $ 10,513
Federal funds sold................................................ -- 6,900 105,541
U.S. Government and other marketable securities held to maturity:
U.S. Government and agency obligations.......................... 50 50 69,462
Corporate bonds................................................. -- -- 18,368
Bankers' acceptances............................................ -- -- 6,997
Commercial paper................................................ 3,666 3,478 3,244
Other........................................................... -- -- 1,058
--------- ----------- -----------
3,716 3,528 99,129
Federal Home Loan Bank stock...................................... 60,096 78,925 84,249
--------- ----------- -----------
$ 64,345 $ 283,104 $ 299,432
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
Information regarding the carrying values and fair values of TCF's
investments is set forth in Note 3 of Notes to Consolidated Financial Statements
on page 50 of TCF's 1995 Annual Report, incorporated herein by reference. A
summary of yields by scheduled maturities for indicated investment securities at
December 31, 1995 and December 31, 1994 is set forth on page 74 of TCF's 1995
Annual Report, incorporated herein by reference.
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
Special Report entitled "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities." In
conjunction with the issuance of the Guide, the FASB provided entities with a
one-time opportunity to reassess the classification of their held-to-maturity
debt securities without calling into question the entities' intent to hold to
maturity their remaining portfolio of such securities. During the 1995 fourth
quarter, TCF reassessed the balance sheet classifications of its mortgage-backed
securities. As a result, TCF reclassified its remaining $1.1 billion in
mortgage-backed securities from "held to maturity" to "available for sale"
effective December 31, 1995. This reclassification will allow increased future
asset/liability management flexibility. Unrealized gains on securities available
for sale, reported net of taxes as a separate component of stockholders' equity,
increased by $12.8 million as a result of this reclassification. TCF has no
current plans to dispose of these securities.
Following is a table indicating the investments comprising TCF's securities
available for sale:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1995 1994 1993
------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government and other marketable securities:
U.S. Government and agency obligations........................ $ 1,005 $ 54,298 $ --
Commercial paper.............................................. -- 14,843 --
Corporate bonds............................................... -- 14,918 --
Other......................................................... 57 30 10,003
------------- ----------- ---------
1,062 84,089 10,003
------------- ----------- ---------
Mortgage-backed securities:
FHLMC......................................................... 360,631 23,379 --
FNMA.......................................................... 655,568 4,345 --
GNMA.......................................................... 138,723 3,002 --
Private issuer................................................ 26,903 13,971 --
Collateralized mortgage obligations........................... 18,603 9,644 --
------------- ----------- ---------
1,200,428 54,341 --
------------- ----------- ---------
$ 1,201,490 $ 138,430 $ 10,003
------------- ----------- ---------
------------- ----------- ---------
</TABLE>
12
<PAGE>
Information regarding the amortized cost and fair values of TCF's securities
available for sale is set forth in Note 4 of Notes to Consolidated Financial
Statements on page 51 of TCF's 1995 Annual Report, incorporated herein by
reference. A summary of yields by scheduled maturities for securities available
for sale at December 31, 1995 and December 31, 1994 is set forth on page 74 of
TCF's 1995 Annual Report, incorporated herein by reference.
SOURCES OF FUNDS
DEPOSITS
Deposits are the primary source of TCF's funds for use in lending and for
other general business purposes. Deposit inflows and outflows are significantly
influenced by economic conditions, interest rates, money market conditions and
other factors. Demand for certain types of deposit products, such as
certificates of deposit, has declined in recent periods. Higher-cost borrowings
may be used to compensate for reductions in normal sources of funds, such as
deposit inflows at less than projected levels or net deposit outflows, or to
support expanded activities.
Consumer and commercial deposits are attracted principally from within TCF's
primary market areas through the offering of a broad selection of deposit
instruments including consumer and commercial demand deposit accounts,
Negotiable Order of Withdrawal or "NOW" (interest-bearing checking) accounts,
money market accounts, regular savings accounts, certificates of deposit and
retirement savings plans.
The composition of TCF's deposits has a significant impact on its cost of
funds. In recent years, TCF's marketing strategy has emphasized attracting
deposits held in checking, regular savings and money market accounts. These
accounts provide significant fee income and are a source of low-interest cost
funds. Checking, savings and money market accounts comprised 49% of total
deposits at December 31, 1995, relatively consistent with the composition at
December 31, 1994 and December 31, 1993. In addition, there were approximately 1
million retail checking, savings and money market accounts at December 31, 1995,
compared with approximately 985,000 and 964,000 such accounts at December 31,
1994 and 1993, respectively. Total deposits at TCF as of December 31, 1995 were
$5.2 billion, down $208.2 million from total deposits at December 31, 1994. The
decrease in deposits reflects a significant planned runoff of Great Lakes
brokered deposits and the sale of three branches located outside TCF Minnesota's
primary metropolitan retail markets.
The following table sets forth the deposit flows for each of the years in
the three-year period ended December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net withdrawal of deposits.......................... $ (332,632) $ (468,547) $ (413,340)
Adjustments for pooling-of-interests................ -- -- (7,529)
Deposits purchased.................................. 6,464 -- 246,040
Deposits sold....................................... (59,926) -- --
Interest credited................................... 177,928 172,337 187,627
------------ ------------ ------------
Net increase (decrease) in deposits............... $ (208,166) $ (296,210) $ 12,798
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
13
<PAGE>
The following table shows rate and maturity information as of December 31,
1995, and rate information as of December 31, 1994, for TCF's certificates of
deposit:
<TABLE>
<CAPTION>
INTEREST CATEGORY
------------------------------------------------------
MATURITY WITHIN 2.00- 4.00- 5.00- 6.00- 8.00-
THE YEAR ENDING 3.99% 4.99% 5.99% 7.99% 13.99% TOTAL % OF TOTAL
- ------------------------------------------ --------- --------- ---------- --------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996......................... $ 75,445 $ 350,751 $ 966,035 $ 436,018 $ 12,367 $1,840,616 70.0%
December 31, 1997......................... 11,587 69,734 237,266 153,104 2,205 473,896 18.0
December 31, 1998......................... 19 24,812 83,488 47,077 5,164 160,560 6.1
Thereafter................................ 2 25,423 52,857 76,196 948 155,426 5.9
--------- --------- ---------- --------- --------- ---------- -----
Total at December 31, 1995.............. $ 87,053 $ 470,720 $1,339,646 $ 712,395 $ 20,684 $2,630,498 100.0%
--------- --------- ---------- --------- --------- ---------- -----
--------- --------- ---------- --------- --------- ---------- -----
Total at December 31, 1994.............. $ 512,466 $ 776,077 $ 935,981 $ 489,244 $ 67,720 $2,781,488
--------- --------- ---------- --------- --------- ----------
--------- --------- ---------- --------- --------- ----------
</TABLE>
Information concerning TCF's deposits is set forth in "Financial Review --
Financial Condition -- Deposits" on page 37 and in Note 12 of Notes to
Consolidated Financial Statements on page 55 of TCF's 1995 Annual Report,
incorporated herein by reference.
BORROWINGS
The FHLB System functions as a central reserve bank providing credit for
thrift institutions through a regional bank located within a particular thrift's
assigned region. As members of the FHLB System, the TCF Savings Banks are
required to own a minimum level of FHLB capital stock and are authorized to
apply for advances on the security of such stock and certain of their loans and
other assets (principally securities which are obligations of, or guaranteed by,
the United States Government), provided certain standards related to
creditworthiness have been met. TCF's FHLB advances totaled $893.6 million at
December 31, 1995, compared with $1.4 billion at December 31, 1994. FHLB
advances are made pursuant to several different credit programs. Each credit
program has its own interest rates and range of maturities. The FHLB prescribes
the acceptable uses to which the advances pursuant to each program may be made
as well as limitations on the size of advances. Acceptable uses prescribed by
the FHLB have included expansion of residential mortgage lending and meeting
short-term liquidity needs. In addition to the program limitations, the amounts
of advances for which an institution may be eligible are generally based on the
FHLB's assessment of the institution's creditworthiness. See "REGULATION --
Federal Home Loan Bank System."
As an additional source of funds, TCF may sell securities subject to its
obligation to repurchase these securities under repurchase agreements ("reverse
repurchase agreements") with the FHLMC or major investment bankers utilizing
government securities or mortgage-backed securities as collateral. Reverse
repurchase agreements totaled $438.4 million at December 31, 1995, compared with
$429.5 million at December 31, 1994. Generally, securities with a value in
excess of the amount borrowed are required to be deposited as collateral with
the counterparty to a reverse repurchase agreement. The creditworthiness of the
counterparty is important in establishing that the overcollateralized amount of
securities delivered by TCF is protected and it is TCF's policy to enter into
reverse repurchase agreements only with institutions with a satisfactory credit
history.
The use of reverse repurchase agreements may expose TCF to certain risks not
associated with other sources of funds, including possible requirements to
provide additional collateral and the possibility that such agreements may not
be renewed. If for some reason TCF were no longer able to obtain reverse
repurchase agreement financing, it would be necessary for TCF to obtain
alternative sources of short-term funds. Such alternative sources of funds, if
available, may be higher-cost substitutes for the reverse repurchase agreement
funds.
Information concerning TCF's FHLB advances, reverse repurchase agreements
and other borrowings, and exposure to interest-rate risk is set forth in
"Financial Review -- Financial Condition -- Asset/Liability Management --
Interest-Rate Risk," on pages 38 and 39, in Note 13 of Notes to Consolidated
Financial Statements on pages 56 and 57, and in the tables which set forth
maximum and average borrowing levels on page 74 of TCF's 1995 Annual Report,
incorporated herein by reference.
14
<PAGE>
OTHER INFORMATION
ACTIVITIES OF SUBSIDIARIES OF TCF FINANCIAL
TCF's business operations include those conducted by direct and indirect
subsidiaries of TCF Financial. The TCF Savings Banks are permitted to invest an
amount equal to 2% of their assets (excluding those of its subsidiaries) in
subsidiaries called service corporations. Up to an additional 1% of assets may
be invested in certain types of community development projects. Under OTS
regulations, the ability of thrift institutions to invest an additional amount
up to 50% of their risk-based capital in conforming loans to service
corporations is tied to an institution's compliance with regulatory capital
requirements. Service corporations are authorized by regulation to engage in
various activities reasonably related to the activities of federal savings
associations as approved by the OTS. See "REGULATION -- Limitations on Certain
Investments."
In addition to investments in service corporations, the TCF Savings Banks
are also permitted to form subsidiaries known as operating subsidiaries.
Operating subsidiaries are permitted to engage in activities permitted for
federal savings associations and are not subject to the service corporation
investment limitations. See "REGULATION -- Limitations on Certain Investments."
During the year ended December 31, 1995, TCF's subsidiaries were principally
engaged in the following activities:
MORTGAGE BANKING
TCF Mortgage Corporation, a subsidiary of TCF Minnesota, and Great Lakes
originate, sell and service residential mortgage loans. A subsidiary of TCF
Mortgage Corporation is involved in a joint venture, known as Great Lakes
Mortgage, with Burnet Mortgage Corporation, an affiliate of Burnet Realty Inc.,
for the origination of residential mortgage loans from offices of Burnet Realty.
ANNUITIES AND INVESTMENT SERVICES
TCF Financial Insurance Agency, Inc., TCF Financial Insurance Agency
Illinois, Inc., TCF Financial Insurance Agency Wisconsin, Inc. and TCF Financial
Insurance Agency Michigan, Inc. are insurance agencies engaging in the sale of
single premium tax-deferred annuities. TCF Securities, Inc. engages in the sale
of mutual fund products of Putnam Investments.
INSURANCE, TITLE INSURANCE AND APPRAISAL SERVICES
TCF Agency Minnesota, Inc., TCF Agency Wisconsin, Inc., TCF Agency Illinois,
Inc. and Lakeland Group Insurance Agency, Inc. provide various types of
insurance, principally credit-related insurance, marketed primarily to TCF's
customers. In the event TCF becomes a bank holding company, it could be required
to discontinue insurance operations which are not credit related. North Star
Title, Inc. is a title insurance agent for several title insurance underwriters,
operating primarily in Minnesota, Illinois and Indiana and providing title
insurance, real estate abstracting, and closing services to affiliates and third
parties. North Star Real Estate Services, Inc. provides real estate appraisal
services to its affiliates and to third parties. In the event TCF becomes a bank
holding company, it could be required to divest its title insurance operations,
or to restrict its title insurance and related activities. See "REGULATION --
Regulation of TCF Financial and Affiliate and Insider Transactions."
CONSUMER FINANCE
TCF Financial Services, Inc., TCF Consumer Financial Services, Inc. and TCF
Real Estate Financial Services, Inc. make loans to consumers for personal,
family or household purposes such as the financing of home improvements,
automobiles and vacations.
RECENT ACCOUNTING DEVELOPMENTS
During the past several years, there has been an ongoing review of the
accounting principles and practices used by financial institutions for certain
types of transactions. This review is expected to continue by thrift and banking
regulators, the Securities and Exchange Commission ("SEC"), the
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FASB, the American Institute of Certified Public Accountants ("AICPA") and other
organizations. As a result of this process, there have been new accounting
pronouncements which have had an impact on TCF. Further developments may be
forthcoming in light of this ongoing review process.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Additional
information on SFAS No. 121 is set forth in "Financial Review -- Results of
Operations -- Non-Interest Expense" on pages 29 through 31 of TCF's 1995 Annual
Report, incorporated herein by reference.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Additional information on SFAS No. 123 is set forth in "Financial
Review -- Results of Operations -- Non-Interest Expense" on pages 29 through 31
of TCF's 1995 Annual Report, incorporated herein by reference.
In October 1995, the FASB issued an Exposure Draft of a Proposed Statement
of Financial Accounting Standards, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The proposed statement
would provide consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings, among other
things. The proposed statement would require 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 proposed statement provides that the transferor has surrendered
control if and only if certain conditions are met, including that the transfer
is not assuredly temporary. Under the proposed statement's definition, reverse
repurchase agreements qualify as assuredly temporary transfers only if they have
maturities under three months or have indefinite maturities, are repriced daily
at overnight market rates, and can be terminated by either party on short
notice. The proposed statement would be effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and would be applied prospectively. Earlier or retroactive application
would not be permitted. It is too early to predict whether the proposed
statement will be adopted in its present form or what effect, if any, the
proposed statement will have on TCF's financial condition or results of
operations.
In October 1995, the FASB issued an Exposure Draft of a Proposed Statement
of Financial Accounting Standards, "Consolidated Financial Statements: Policy
and Procedures." This proposed statement sets forth standards for when entities
should be consolidated and how consolidated financial statements should be
prepared. The proposed statement would require a controlling entity (parent) to
consolidate all entities that it controls (subsidiaries) unless control is
temporary. It would require that the aggregate amount of the noncontrolling
interest in subsidiaries that are not wholly owned by the parent or its
affiliates be reported in consolidated financial statements as a separate
component of equity. The amount of net income or loss of a subsidiary that is
attributable to the noncontrolling interest would be deducted from consolidated
net income to compute net income attributable to the controlling interest. The
proposed statement would be effective for financial statements issued for fiscal
years beginning after December 15, 1996. Earlier application would be
encouraged. The proposed statement would be applied by restatement of
comparative financial statements for earlier periods except certain
consolidation procedures could be applied prospectively if retroactive
application is not practicable. It is too early to predict whether the proposed
statement will be adopted in its present form, or what effect, if any, the
proposed statement will have on TCF's financial condition or results of
operations.
In January 1996, the FASB issued an Exposure Draft of a Proposed Statement
of Financial Accounting Standards, "Earnings per Share and Disclosure of
Information about Capital Structure." This proposed statement would establish
standards for computing and presenting earnings per share ("EPS") as well as
standards for disclosing information about an entity's capital structure. The
standards for EPS would apply to entities with publicly held common stock or
potential common stock, while the standards for disclosure about capital
structure would apply to all entities. This proposed statement would eliminate
the presentation of primary EPS and would require presentation
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<PAGE>
of basic EPS (the principal difference being that common stock equivalents would
not be considered in the computation of basic EPS). It would also require dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and would require a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS would include no
dilution and would be computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS would reflect the potential dilution that could occur if the
potential common shares were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. The proposed statement would be effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Earlier application would not be permitted. The proposed statement would require
restatement of all prior-period EPS data presented. It is too early to predict
whether the proposed statement will be adopted in its present form, or what
effect, if any, the proposed statement will have on TCF's results of operations.
COMPETITION
TCF Minnesota is the largest savings bank and third largest depository
institution headquartered in Minnesota. TCF Illinois, TCF Wisconsin and Great
Lakes compete with a number of larger depository institutions in their market
areas. The TCF Savings Banks experience significant competition in attracting
and retaining deposits and in lending funds. TCF believes the primary factors in
competing for deposits are the ability to offer attractive rates and products,
convenient office locations and supporting data processing systems and services.
Direct competition for deposits comes primarily from commercial banks and credit
unions, and from other savings institutions. Additional significant competition
for deposits comes from institutions selling money market mutual funds and
corporate and government securities. The primary factors in competing for loans
are interest rates, loan origination fees and the range of services offered. TCF
competes for origination of loans with commercial banks, mortgage bankers,
mortgage brokers, consumer finance companies, credit unions, insurance companies
and other savings institutions.
EMPLOYEES
As of December 31, 1995, TCF had approximately 4,600 employees, including
1,100 part-time employees. TCF provides its employees with a comprehensive
program of benefits, some of which are on a contributory basis, including
comprehensive medical and dental plans, life insurance, accident insurance,
short- and long-term disability coverage, a pension plan and a shared
contribution stock ownership-401(k) plan.
REGULATION
RECENT DEVELOPMENTS
In recent years the legislative and regulatory environment has changed
significantly for savings institutions, and future significant legislative and
regulatory change is possible which will have an uncertain and possibly negative
effect on TCF. Budget reconciliation legislation recently before the U.S.
Congress contained a provision calling for a one-time assessment on all
SAIF-insured deposits, which would include all of the deposits held by the TCF
Savings Banks, in order to recapitalize the SAIF. Legislation approved by the
U.S. Senate and House of Representatives was vetoed by President Clinton in
December 1995. Discussions regarding acceptable budget reconciliation
legislation are ongoing at this time, and such legislation may include a
provision for a one-time SAIF assessment. As proposed in the bill approved by
Congress, the one-time assessment could amount to .80% to .82% of total insured
deposits if such an assessment were imposed at this time. Based on total
deposits of the TCF Savings Banks, such an assessment would amount to between
$42.7 million and $43.8 million pretax. Such an assessment is expected to be a
tax-deductible expense and to have the effect of immediately reducing the
capital of each of the TCF Savings Banks by the amount of their respective
assessment, net of tax.
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It is expected that if a one-time SAIF assessment is imposed, deposit
insurance premiums paid by the TCF Savings Banks would decline. If legislation
imposing the assessment is not adopted, the TCF Savings Banks will continue to
pay deposit insurance rates that are significantly higher than rates paid by
banks insured by the Bank Insurance Fund ("BIF"). This will adversely affect the
earnings of the TCF Savings Banks and place them at a competitive disadvantage
to banks. It cannot be predicted whether legislation providing for such an
assessment will be enacted or, if enacted, when such enactment would be made
effective. The timing of the assessment could raise or lower the amount of the
assessment, depending on the loss experience of the SAIF, among other factors.
As a result, the ultimate impact of the legislation on the TCF Savings Banks
cannot be predicted.
The budget reconciliation legislation approved by Congress also contained a
provision that would repeal the reserve method of accounting for thrift bad debt
reserves, including the percentage-of-taxable income method, for tax years
beginning after December 31, 1995. This would require institutions such as the
TCF Savings Banks to account for bad debts using either the specific charge-off
method, which is available to all thrifts, or the experience method, which is
currently available only to thrifts and to small banks with under $500 million
in assets. In recent years, the TCF Savings Banks have used both the
percentage-of-taxable income method and the experience method of accounting for
bad debts, depending on which method resulted in the greatest tax deduction.
Under the proposed legislation, the change in accounting method that
eliminates the reserve method would trigger bad debt reserve recapture for
post-1987 reserves over a six-year period. As of December 31, 1995, the TCF
Savings Banks' post-1987 reserves amounted to $18.6 million, and a deferred tax
liability has been recorded for such post-1987 bad debt reserves. Pre-1988
reserves would be subject to recapture if the institution makes distributions in
excess of accumulated earnings and profits or makes a distribution in a complete
or partial liquidation. A special provision suspends recapture of post-1987
reserves for up to two years if, during those years, the institution satisfies a
"residential loan requirement." This requirement would be met if the principal
amount of the institution's residential loan originations exceeds a base year
amount, which is determined by reference to the average of the institution's
residential loan originations during the six taxable years before January 1,
1996. Notwithstanding this special provision, however, recapture would in any
event be required to begin no later than the first taxable year beginning after
December 31, 1997.
The proposed legislation differs significantly from current law, which
triggers recapture upon a thrift institution's conversion to a bank or upon
failure to satisfy the tax law definition of a thrift. It cannot be predicted
whether legislation providing for recapture of bad debt reserves will be enacted
or, if enacted, what the final form of such legislation and its effect on TCF
will be.
In addition, separate federal legislation has been proposed which would
merge the BIF and SAIF on January 1, 1998, at which time banks and thrifts would
pay the same deposit insurance premiums, require federal savings associations
such as the TCF Savings Banks to convert to a national or state bank or a
state-chartered thrift by January 1, 1998, require all savings and loan holding
companies, including TCF Financial, to become bank holding companies as of
January 1, 1998 and abolish the OTS. It also cannot be predicted whether such
legislation will be enacted or, if enacted, what its final form and effect on
TCF will be.
If the TCF Savings Banks are permitted under new legislation to convert to
commercial banks without triggering a recapture of their bad debt reserves,
management has expressed an interest in converting to commercial bank charters.
Such conversions would be subject to regulatory approval, and would impose on
TCF and the TCF Savings Banks new regulatory requirements of the Federal Reserve
Board ("FRB") and the Office of the Comptroller of the Currency ("OCC"). Such
new regulatory requirements or conditions to regulatory approval of applications
for authority to convert could require significant operating changes for the TCF
Savings Banks and could impose limitations on branching authority or other
powers currently possessed by thrift institutions but not by commercial banks.
The ultimate effect of any such restrictions or conditions cannot be predicted
at this time.
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As a result of the failure of a number of thrift institutions in recent
years and the obligation of the SAIF to fund debt obligations of FICO, the
thrift industry is now paying significantly higher deposit insurance premiums
than those paid by banks. In order to maintain its ability to offer deposit
products at rates that are competitive with national banks, the TCF Savings
Banks have each filed applications with the OCC and the FDIC to charter new
national banks, which would operate at the locations from which the TCF Savings
Banks are now operating. These new national banks would be insured by the BIF of
the FDIC, which imposes deposit insurance rates far below those currently paid
by the TCF Savings Banks. (The TCF Savings Banks currently pay deposit insurance
premiums to the SAIF at the lowest-risk rate of .23% of total insured deposits,
whereas BIF-insured banks in the lowest-risk category now pay de minimis
premiums.) The applications for the new national banks are still pending. It
cannot be predicted whether such applications will be approved, or what
conditions might be imposed by the regulatory authorities in order to enable the
TCF Savings Banks to proceed with the organization of these new national banks.
Legislative proposals for tax reform have sought the elimination of certain
tax benefits for single premium annuities, which, if adopted, could impair TCF's
ability to market annuity products. Recent legislation has limited the role of
private lenders in education loans, and recent tax legislation has raised
corporate tax rates, among other changes. Financial institutions have also
increasingly been the subject of private class action lawsuits challenging
escrow account practices, private mortgage insurance requirements and other
practices, and TCF expects this trend will continue.
The Community Reinvestment Act ("CRA") and other fair lending laws and
regulations impose nondiscriminatory lending requirements on financial
institutions. In recent periods, federal regulatory agencies, including the FRB,
the OTS and the Department of Justice ("DOJ"), have sought a more rigorous
enforcement of the CRA and other fair lending laws and regulations. The DOJ is
authorized to use the full range of its enforcement authority under the fair
lending laws. The DOJ has authority to commence pattern or practice
investigations of possible lending discrimination on its own initiative or
through referrals from the federal financial institutions regulatory agencies,
and to file lawsuits in federal court where there is reasonable cause to believe
that such violations have occurred. The DOJ is also authorized to bring suit
based on individual complaints filed with the Department of Housing and Urban
Development where one of the parties to the complaint elects to have the case
heard in federal court. A successful challenge to an institution's performance
under the CRA and related laws and regulations could result in a wide variety of
sanctions, including the required payment of damages and civil money penalties,
prospective and retrospective injunctive relief and the imposition of
restrictions on mergers and acquisitions activity. Private parties may also have
the ability to challenge an institution's performance under fair lending laws in
private class action litigation. The ultimate effects of the foregoing or other
possible legal and regulatory developments cannot be predicted but may have an
adverse impact on TCF.
SIGNIFICANT FEDERAL LEGISLATION
TCF Financial, as a publicly-held thrift holding company, and the TCF
Savings Banks, as federally chartered savings banks with deposits insured by the
FDIC, are subject to a number of laws and regulations that have undergone change
in recent years. These laws and regulations impose restrictions on activities,
minimum capital requirements, lending and deposit restrictions, and numerous
other requirements.
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") was signed into law. A number of significant changes resulted
from this legislation, including more stringent capital requirements,
limitations on thrift activities, expanded regulatory enforcement measures and
changes to the deposit insurance system. The TCF Savings Banks (other than TCF
Michigan, which was newly chartered by the OTS in August 1993) were chartered by
the Federal Home Loan Bank Board ("FHLBB"). Under FIRREA, the FHLBB was
abolished and its thrift chartering and certain regulatory functions passed to
the newly created OTS, under the Treasury Department. All of the TCF Savings
Banks are members of the FHLB System. FIRREA created a new
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independent agency known as the Federal Housing Finance Board ("FHFB"), which is
the governing authority for the FHLB System. Under FIRREA, the Federal Savings
and Loan Insurance Corporation ("FSLIC") was abolished and the role of the FSLIC
as the insurer of thrift deposits passed to the FDIC through its SAIF.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
enacted by Congress in late 1991, requires federal regulators to impose a
conservator or receivership on undercapitalized institutions and generally
requires such early intervention when an institution's tangible capital falls
below 2% of total assets, provides for the assessment of deposit insurance
premiums based on assessed risk in the institution's asset portfolio, allows for
charges for FDIC examinations, authorizes federal regulators to establish
operating and other standards for insured institutions and their holding
companies, requires certain disclosures for savings accounts and imposes
liability on TCF Financial for capital deficiencies of the TCF Savings Banks
under certain circumstances, among other significant changes.
In September 1994, the Riegle Community Development and Regulatory
Improvement Act ("RCDRIA") was enacted. This legislation created a new federal
program to assist community development banks serving economically distressed
communities, and also made several changes to FDICIA designed to make certain
regulatory requirements less burdensome, among other changes. Also in September
1994, the Riegle-Neal Interstate Banking Efficiency Act of 1994 ("RNIBEA") was
enacted. Under this legislation, provisions of the Federal Deposit Insurance Act
("FDIA") and the Bank Holding Company Act of 1956 were amended, effective
September 29, 1995, to permit bank holding company acquisitions of banks in any
state, subject to certain requirements, and also to permit depository
institutions with the same depository holding company parent to enter into
arrangements under which a depository institution may act as agent for an
affiliated depository institution. Among other changes, RNIBEA also amended HOLA
and the FDIA to permit interstate bank mergers and acquisitions of out-of-state
branches, effective June 1, 1997, in states that do not prohibit such
transactions, provided that certain conditions are met.
REGULATORY CAPITAL REQUIREMENTS
FIRREA mandated significant new regulatory capital requirements for thrift
institutions. Under minimum regulatory capital regulations issued pursuant to
FIRREA by the Director of the OTS, thrift institutions are required to have
"core capital" equal to no less than 3% of adjusted total assets and "tangible
capital" equal to no less than 1.5% of adjusted total assets. In addition,
thrift institutions are required to maintain "risk-based capital" equal to 8% of
risk-weighted assets.
Under FDICIA, banking and thrift regulators are required to take prompt
regulatory action against institutions which are undercapitalized. FDICIA
requires banking and thrift regulators to categorize institutions as "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." A savings institution will
be deemed to be well-capitalized if it: (i) has a total risk-based capital ratio
of 10% or greater; (ii) has a Tier 1 (core) risk-based capital ratio of 6% or
greater; (iii) has a leverage (core) ratio of 5% or greater; and (iv) is not
subject to any order or written directive by the OTS to meet and maintain a
specific capital level for any capital measure. The TCF Savings Banks believe
they would be considered well-capitalized.
In addition to the regulatory action required to be taken with respect to
undercapitalized institutions, FDICIA also calls upon each financial institution
regulatory agency, in consultation with other federal banking agencies, to
review its capital standards at least once every two years to ensure that the
standards are sufficient to prevent or minimize loss to the deposit insurance
funds. In addition, the regulatory agencies are required to revise their
risk-based capital standards to make sure that they take adequate account of
interest-rate risk, concentration of credit risk, and the risks of non-
traditional activities. OTS regulations take into account an institution's
exposure to concentrations of credit risk and risks of non-traditional
activities in assessing the institution's overall capital adequacy. The OTS may
establish higher individual capital requirements for savings associations with
high
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degrees of exposure to interest rate risk, prepayment risk, credit risk,
concentration of credit risk, risks arising from nontraditional activities or
off-balance sheet risks, and that have demonstrated a poor record of monitoring
and controlling such risks.
Tangible capital is generally defined as core capital (see discussion below)
less intangible assets except that savings institutions may include the same
dollar amount of mortgage servicing rights in tangible capital that they include
in core capital.
Core capital generally includes par value of common stock, additional
paid-in capital, retained earnings, non-cumulative perpetual preferred stock and
minority interests in the equity accounts of fully consolidated subsidiaries,
less any "unidentifiable" intangible assets. Mortgage servicing rights are
exempted from the general requirement that unidentifiable intangible assets be
excluded from capital, but the amount of servicing rights includible in capital
is limited to the lower of 90% of fair market value to the extent determinable
or the current amortized book value determined under generally accepted
accounting principles ("GAAP"). In addition, as a matter of OTS policy, the
amount of such mortgage servicing rights included in core capital may not exceed
the amount that would be included if the savings association were an insured
state non-member bank governed by the FDIC's capital regulation.
Under the risk-based capital requirement, risk-weighted assets are
determined by multiplying each of an institution's assets by specified risk
weights. Certain off-balance sheet items must be converted into on-balance sheet
equivalent amounts and then multiplied by specified risk weights. Applicable
risk weights range from 0% to 100%. Cash, certain obligations of the federal
government and similar items have a 0% risk weight. Certain government or agency
insured or guaranteed loans or securities backed by these loans are
risk-weighted at 20%. Loans secured by a first mortgage on a borrower's
principal residence and certain qualifying commercial real estate loans are
risk-weighted at 50%. Other consumer and commercial loans and other assets
generally are risk-weighted at 100%.
An institution may use "supplementary capital" to satisfy the risk-based
capital requirement in an amount up to 100% of its core capital. Supplementary
capital includes certain permanent capital instruments such as cumulative
perpetual preferred stock and certain maturing capital instruments issued
pursuant to OTS regulations.
The following table sets forth the TCF Savings Banks' calculation of their
tangible, core and risk-based capital and applicable percentages of adjusted
assets, together with the excess over the minimum capital requirements at
December 31, 1995:
<TABLE>
<CAPTION>
TCF MINNESOTA TCF ILLINOIS TCF WISCONSIN GREAT LAKES
---------------- --------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital............................. $333,254 7.03% $49,853 6.87% $42,454 6.73% $171,126 6.81%
Tangible capital requirement................. 71,076 1.50 10,892 1.50 9,457 1.50 37,667 1.50
-------- ------ ------- ------ ------- ------ -------- ------
Excess..................................... $262,178 5.53% $38,961 5.37% $32,997 5.23% $133,459 5.31%
-------- ------ ------- ------ ------- ------ -------- ------
-------- ------ ------- ------ ------- ------ -------- ------
Core capital................................. $334,586 7.06% $51,185 7.04% $42,454 6.73% $182,268 7.23%
Core capital requirement..................... 142,193 3.00 21,824 3.00 18,914 3.00 75,669 3.00
-------- ------ ------- ------ ------- ------ -------- ------
Excess..................................... $192,393 4.06% $29,361 4.04% $23,540 3.73% $106,599 4.23%
-------- ------ ------- ------ ------- ------ -------- ------
-------- ------ ------- ------ ------- ------ -------- ------
Risk-based capital........................... $370,892 12.78% $55,386 13.30% $46,554 14.25% $215,132 13.63%
Risk-based capital requirement............... 232,224 8.00 33,319 8.00 26,143 8.00 126,293 8.00
-------- ------ ------- ------ ------- ------ -------- ------
Excess..................................... $138,668 4.78% $22,067 5.30% $20,411 6.25% $ 88,839 5.63%
-------- ------ ------- ------ ------- ------ -------- ------
-------- ------ ------- ------ ------- ------ -------- ------
</TABLE>
The OTS has adopted an amendment to its risk-based capital requirements that
requires institutions with more than a "normal" level of interest-rate risk to
maintain additional risk-based capital. A savings institution's interest-rate
risk is measured in terms of the sensitivity of its "net portfolio value." Net
portfolio value is defined generally as the present value of expected cash
inflows from existing assets and off-balance sheet contracts less the present
value of expected cash outflows from existing liabilities. The interest-rate
risk component creates a capital requirement based upon the
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decline in an institution's net portfolio value that would result from an
immediate 200 basis point increase or decrease (whichever results in the greater
decline) in prevailing interest rates. The OTS has defined as "above normal" any
decline in an institution's net portfolio value that exceeds 2% of the present
value of its assets. A savings institution with a greater than normal
interest-rate risk is required to deduct from total capital, for purposes of
calculating its risk-based capital requirement, an amount (the "interest-rate
risk component") equal to one-half the difference between the institution's
measured interest-rate risk and the normal level of interest-rate risk,
multiplied by the present value of its total assets. Management does not believe
the interest-rate risk component will have a significant impact on the TCF
Savings Banks' risk-based capital requirements. For the present time, the OTS
has delayed implementation of the automatic deduction of the interest-rate risk
component.
In the event a savings institution fails to comply with any of its existing
or future minimum regulatory capital requirements or applicable capital adequacy
standards, it would be required to file and implement a capital plan with the
appropriate regulatory agencies, would be subjected to restrictions on growth
and the payment of dividends, could have restrictions imposed on its ability to
form new branches, invest in service corporations or operating subsidiaries and
make equity risk investments, or be precluded from issuing securities as a means
of raising additional capital, among other negative effects. Such failure could
also permit the OTS to require that the institution subject itself to a
restrictive business plan or supervisory agreement that could impose limits on
dividends or compensation of officers and employees or impose other
restrictions. Such failure could also permit the FDIC to initiate action
resulting in the termination of deposit insurance.
The ability of the TCF Savings Banks to maintain compliance with regulatory
capital requirements may be adversely affected by unanticipated losses or lower
levels of earnings, by new or increased regulatory capital requirements or by
other factors.
RESTRICTIONS ON DISTRIBUTIONS
Dividends or other capital distributions from TCF Minnesota or Great Lakes
to TCF Financial, especially in the event of diminished earnings from other
direct subsidiaries of TCF Financial, may be necessary in order for TCF
Financial to pay dividends on its common stock, to make payments on TCF
Financial's other borrowings, or for other cash needs. The TCF Savings Banks'
ability to make any capital distributions in the future may require regulatory
approval and may be restricted by their regulatory authorities. The TCF Savings
Banks' ability to make any such distributions depends on their earnings and
ability to meet minimum regulatory capital requirements in effect during future
periods. These capital adequacy standards may be higher than existing minimum
capital requirements.
Capital distributions by institutions such as the TCF Savings Banks,
including dividends, stock repurchases, redemptions of securities and cash-out
mergers, are subject to restrictions tied to the institutions' capital levels
after giving effect to such a transaction. Under OTS regulations, institutions
identified as "Tier 1" institutions (see definitions below) generally are
authorized to make capital distributions during a calendar year up to the higher
of 100% of their net income to date during the calendar year plus the amount
that would reduce by one-half their surplus capital ratio at the beginning of
the calendar year or 75% of their net income over the most recent four-quarter
period. "Surplus capital ratio" refers to the percentage by which an
association's capital-to-assets ratio exceeds the ratio of its fully phased-in
capital requirement to its assets. Institutions identified as "Tier 2"
institutions may make capital distributions up to 75% of their net income over
the most recent four-quarter period. For purposes of computing the foregoing
amount, a Tier 2 institution must deduct the amount of capital distributions it
has previously made during the most recent four-quarter period. "Tier 3"
institutions would not be permitted to make capital distributions unless they
receive prior written approval from the OTS or unless such a distribution is
made in accordance with an approved capital plan.
"Tier 1" institutions are those which would have capital, immediately prior
to and on a pro forma basis after giving effect to a proposed capital
distribution, that is equal to or greater than the amount
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of their fully phased-in capital requirements. "Tier 2" institutions have
capital, immediately prior to and on a pro forma basis after giving effect to a
proposed capital distribution, that is equal to or in excess of their minimum
regulatory capital requirements, but is less than the amount of applicable fully
phased-in capital requirements. "Tier 3" institutions have capital, immediately
prior to or on a pro forma basis after giving effect to a proposed capital
distribution, that is less than the amount of their minimum regulatory capital
requirements. The capital distribution rule would also reflect any individual
minimum capital requirement and if such a requirement is imposed, general
minimum capital requirements would need to be adjusted accordingly. The OTS may
also prohibit any capital distribution that would otherwise be permitted if it
determines that such a distribution would constitute an unsafe and unsound
practice. Among the circumstances deemed to pose such a risk would be a capital
distribution by a Tier 1 or Tier 2 institution whose capital is decreasing
because of substantial losses. If an institution has been notified that it is in
need of more than normal supervision, the OTS has the discretion to treat an
institution otherwise considered a Tier 1 institution as a Tier 2 or Tier 3
institution if it is deemed necessary to ensure the association's safe and sound
operation. As of December 31, 1995, none of the TCF Savings Banks had an
individual minimum capital requirement and all of these institutions met their
fully phased-in capital requirements, and therefore would expect to be eligible
for treatment as Tier 1 institutions. As a result, as of such date the TCF
Savings Banks would be limited to capital distributions up to the higher of 100%
of their net income during the calendar year plus the amount that would reduce
by one-half their surplus capital ratio at the beginning of the calendar year,
or 75% of their net income over the most recent four-quarter period, assuming
the OTS did not determine that such a distribution would be contrary to the safe
and sound operation of the institutions. In December 1994, the OTS issued a
notice of proposed rulemaking which would modify the capital distribution
regulations to incorporate the prompt corrective action capital standards
promulgated by FDICIA, and which would permit savings associations with a CAMEL
rating of "1" or "2" which are not held by a holding company to make capital
distributions without providing prior notice to the OTS. TCF does not believe
that the proposed rule, if adopted, would materially change the capital
distribution restrictions applicable to it or to the TCF Savings Banks.
During 1986, TCF Minnesota converted from a federally chartered mutual
association to a federally chartered stock savings and loan association. At that
time, TCF Minnesota established a liquidation account in an amount equal to its
regulatory net worth as of April 30, 1986. Liquidation accounts have also been
established in the conversions of TCF Wisconsin, TCF Illinois and Great Lakes. A
liquidation account is maintained for the benefit of eligible depositors who
have continued to maintain their deposits in an institution since the
conversion. In the event of a liquidation, each eligible depositor will be
entitled to receive a liquidation distribution from the liquidation account in
the proportionate amount of the then current adjusted balance for deposits held
before any liquidation distribution may be made with respect to the
stockholders. The balance attributable to the liquidation account is decreased
by a proportionate amount as each accountholder closes an account or reduces the
balance in such account as of any subsequent fiscal year-end. Except for the
repurchase of stock and payment of dividends, the existence of the liquidation
account will not restrict the use or application of a savings institution's net
worth. A savings institution may not declare or pay a cash dividend or
repurchase any of its capital stock if it would cause its regulatory capital to
be reduced below the amount required for the liquidation account.
SAFETY AND SOUNDNESS STANDARDS
In July 1995, the OTS and other federal banking regulatory agencies jointly
issued final safety and soundness standards. These standards were issued in the
form of guidelines addressing such factors as internal controls and audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits. In the event of a failure to meet any
of these safety and soundness standards, the OTS could require the filing of a
compliance plan.
There is virtually no limit on the authority of the OTS or FDIC to take any
appropriate action with respect to conditions or activities it considers unsafe
or unsound.
23
<PAGE>
REGULATION OF TCF FINANCIAL AND AFFILIATE AND INSIDER TRANSACTIONS
TCF Financial and TCF Minnesota are subject to regulation as savings and
loan holding companies. They are required to register with the OTS and are
subject to OTS regulations, examinations and reporting requirements relating to
savings and loan holding companies. As subsidiaries of savings and loan holding
companies, the TCF Savings Banks are subject to certain restrictions in their
dealings with TCF Financial and with other companies affiliated with TCF
Financial, and also with each other. Under FDICIA, the TCF Savings Banks are
required to conform to regulatory standards promulgated by the OTS relating to
operations and management, asset quality, earnings, stock valuation, and
compensation of officers, employees or directors.
In connection with the reorganization of TCF Minnesota into a holding
company structure in 1987, TCF Financial was required to undertake that, as long
as it controls TCF Minnesota, it will cause the regulatory capital of TCF
Minnesota to be maintained at a level consistent with that required by
applicable regulations and, as necessary or appropriate, TCF Financial will
infuse sufficient additional equity capital to comply with such requirement. As
a result of FDICIA, TCF Financial may also be required to make up certain
capital deficiencies of the other TCF Savings Banks.
HOLA prohibits a savings and loan holding company, directly or indirectly,
from (i) acquiring control of another savings institution (or a holding company
thereof) without the prior approval of the OTS, (ii) acquiring 5% or more of the
voting shares of another savings institution (or a holding company thereof)
which is not a subsidiary; or (iii) acquiring control of a savings institution
not insured by the FDIC. Under HOLA, the OTS is prohibited from approving an
acquisition that would result in the formation of a multiple savings and loan
holding company controlling insured institutions in more than one state unless
(i) such company, or an insured institution subsidiary thereof, is authorized to
acquire an institution, or operate a home or branch office, in an additional
state pursuant to an emergency acquisition, (ii) such company controls an
insured institution subsidiary which operated a home or branch office in the
additional state on March 5, 1987, or (iii) state law in the state of the
institution to be acquired specifically authorizes such an acquisition. In
connection with changes in control, savings institutions may, depending on the
circumstances, also be subject to the Bank Merger Act or Change in Bank Control
Act.
As amended by FIRREA, HOLA provides generally that an insured savings
institution subsidiary of a holding company is subject to the restrictions on
affiliate transactions set forth in Federal Reserve Act Sections 23A and 23B. In
addition, an insured institution may not buy securities from an affiliate,
except for shares of stock of a subsidiary, and it may not make loans to an
affiliate engaged in a non-banking activity. As a result of FIRREA and FDICIA,
thrift institutions are subject to Sections 22(g) and 22(h) of the Federal
Reserve Act, which restrict a financial institution's ability to make loans to
"insiders" (executive officers, directors and certain shareholders). The OTS has
also adopted the FRB's Regulation O, which implements legislative restrictions
on insider loan transactions.
HOLA authorizes the OTS or the FDIC to identify holding company activities
that present excessive risk to insured institutions, and to restrict, among
other things, dividends to TCF Financial (or to TCF Minnesota by TCF Illinois or
TCF Wisconsin) and other affiliate transactions. If one or more of the TCF
Savings Banks were to lose their status as a Qualified Thrift Lender, TCF
Financial and/or TCF Minnesota would possibly be treated as a bank holding
company, resulting in additional restrictions on its activities and other
possible negative effects. Under HOLA, multiple savings and loan holding
companies such as TCF Financial may engage only in the following activities:
furnishing or performing management services for a savings association
subsidiary; conducting an insurance agency or escrow business; holding, managing
or liquidating assets owned or acquired from a savings association subsidiary;
holding or managing properties used or occupied by a savings association
subsidiary; acting as trustee under a deed of trust; any activity approved as an
activity under Section 4(c)(8) of the Bank Holding Company Act of 1956, as
amended (the "Bank Holding Company Act"), by the FRB (unless prohibited by the
Director of the OTS) or in which multiple savings and loan holding companies
were authorized to engage on March 5, 1987; or purchasing of stock in certain
qualified stock issuances which have been approved by the Director of the OTS.
24
<PAGE>
As discussed above, TCF has recently filed with appropriate banking agencies
applications for the formation of new national bank subsidiaries. In the event
these applications are approved and these banks are formed, TCF would become a
bank holding company subject to the regulatory authority of the Federal Reserve
System and its activities would become limited to those permitted for bank
holding companies under Regulation Y. In such event, TCF may be required to
divest its title insurance operations, or to restrict its title insurance
operations and related activities. In addition, among other possible actions
imposing changes or limitations on its operations, it could be required to
discontinue insurance operations which are not credit-related and to transfer
annuity operations to its depository institution subsidiaries.
RESTRICTIONS ON CHANGE IN CONTROL
Federal and state laws and regulations contain a number of provisions which
impose restrictions on changes in control of financial institutions such as the
TCF Savings Banks, and which require regulatory approval prior to any such
changes in control. With the passage of FIRREA in 1989, these laws and
regulations became less restrictive, especially with respect to the acquisition
of thrifts by bank holding companies which became permissible under FIRREA. The
Certificate of Incorporation of TCF Financial and a Shareholder Rights Plan
adopted by TCF Financial in 1989, among other items, contain features which may
inhibit a change in control of TCF Financial.
INTERSTATE OPERATIONS
In April 1992, the OTS issued a statement of policy, effective May 11, 1992,
amending its then-existing statement of policy on branching by federal savings
associations. The new statement of policy deletes restrictions on the branching
of federal associations to permit nationwide branching to the extent permitted
by federal statutes, provided the institution meets certain tests (domestic
building and loan test, minimum capital requirements and satisfactory Community
Reinvestment Act record). Under the new policy statement, it is believed that
the TCF Savings Banks may branch into any state with the approval of the OTS. In
the event the TCF Savings Banks were to convert to commercial banks, their
branching authority would likely be more limited, and could be subject to state
laws which in certain states restrict the branching authority of commercial
banks.
REGULATORY SUPERVISION
The TCF Savings Banks are subject to examination and supervision by the OTS
and the FDIC. The TCF Savings Banks are also subject to regulations governing
such matters as mergers, establishment of branch offices and subsidiary
investments and activities, and to general investment authority under
regulations applicable to federally chartered savings banks. As a result of its
insurance, mortgage banking and consumer finance activities, TCF is also subject
to state regulation and examination authority in various states. Recent federal
legislation, including both FIRREA and FDICIA, has resulted in increased costs
for the TCF Savings Banks including examination fees, supervisory assessments,
application fees and deposit insurance premiums. In addition, the TCF Savings
Banks expect reduced dividends from FHLB stock due to substantial contributions
which will be required from the FHLBs to fund FICO bonds or due to other adverse
developments in the FHLB System. Increased financial pressure on the FHLB System
may also result in higher FHLB advance rates in the future.
FEDERAL HOME LOAN BANK SYSTEM
The TCF Savings Banks are members of the FHLB System, consisting of twelve
regional FHLBs. The FHLB System functions as a central reserve credit facility
for member institutions. As members of the FHLB System, the TCF Savings Banks
are entitled to borrow funds from their respective FHLBs. As a result of FIRREA,
the FHLB System is now administered by the FHFB rather than the FHLBB.
As a result of the failure of a number of savings institutions and
reductions in outstanding loans to its members, the FHLB System has become less
profitable and its continued viability may depend upon its ability to attract
new members. The TCF Savings Banks are required to own capital stock of
25
<PAGE>
their respective FHLBs in an amount at least equal to the greater of 1% of the
aggregate outstanding balance of home mortgage loans and similar obligations,
1/20th of advances and letters of credit from the FHLB or .3% of assets. The TCF
Savings Banks are in compliance with this requirement.
At December 31, 1995, TCF's outstanding FHLB advances totaled $893.6
million. These advances were secured by shares of FHLB stock and by a pledge of
all notes and related mortgages and certain other assets held by TCF. The
maximum amount of credit which a FHLB will advance for purposes other than
meeting withdrawals varies from time to time in accordance with changes in
policies of the FHFB and the FHLB. Interest rates charged for advances vary
depending upon maturity, the cost of funds to the FHLB, and the purpose of the
borrowing.
LIQUIDITY AND RESERVE REQUIREMENTS
FIRREA amended HOLA to require that the Director of the OTS adopt
regulations providing for a minimum liquidity requirement for thrift
institutions. The minimum liquidity requirement must be in a range of 4% to 10%
of an institution's withdrawable accounts and borrowings payable on demand or
with maturities of one year or less. Current OTS regulations, which may be
modified by the Director of the OTS in accordance with FIRREA, provide that each
thrift institution must maintain an average daily balance for each calendar
month of liquid assets (cash, certain time deposits, certain bankers'
acceptances, specified corporate obligations and specified United States
government, state or federal agency obligations) equal to at least 5% of the sum
of its average daily balance of net withdrawable deposit accounts (the amount of
all withdrawable accounts less the unpaid balance of all loans on the security
of such accounts) plus borrowings payable in one year or less. These regulations
also provide that each thrift institution must maintain an average daily balance
for each calendar month of short-term liquid assets (generally those having
maturities of six months or less or twelve months or less, depending on the
asset) equal to at least 1% of its average daily balance of net withdrawable
deposit accounts plus short-term debt. The TCF Savings Banks have maintained
liquidity ratios in excess of these requirements. As a result of FDICIA,
institutions with liquidity shortages may be restricted in their ability to
borrow from the Federal Reserve "discount window."
The TCF Savings Banks are also subject to FRB reserve requirements imposed
under Regulation D. These requirements, which are subject to change from time to
time, call for minimum levels of reserves based on amounts held in transaction
accounts. The TCF Savings Banks are in compliance with these reserve
requirements.
INSURANCE OF ACCOUNTS
Under FIRREA, the deposits of the TCF Savings Banks are insured by the FDIC
up to $100,000 per insured depositor. Pursuant to FDICIA, the FDIC was required
to assess deposit premiums based on assessed risk in an institution's asset
portfolio no later than January 1, 1994. In October 1992, the FDIC issued a rule
implementing a transitional risk-based premium system effective January 1, 1993
that raised deposit insurance premiums for institutions that pose greater risk
to the deposit insurance system. Under the transitional risk-based system, the
FDIC placed each insured institution in one of nine risk categories based on
capital ratios and the FDIC's assessment of supervisory risk posed by an
institution. These initial risk-based premiums ranged from .23% to .31% of total
insured deposits. On June 17, 1993, the FDIC adopted a final rule establishing a
permanent risk-based assessment system effective with the semi-annual assessment
period commencing January 1, 1994. Except for limited changes, the permanent
system is substantially the same as the transitional system previously in
effect.
As a result of the failure of a number of thrift institutions in recent
years and the obligation of the SAIF to fund debt obligations of FICO, the
thrift industry now pays significantly higher deposit insurance premiums than
those paid by banks, and faces the prospect of other charges necessary to meet
the obligations of the SAIF. As a result, TCF has filed applications with the
OCC, the FDIC and the FRB, seeking the formation of national bank charters for
proposed new national bank subsidiaries of TCF that would operate in branch
locations in which the TCF Savings Banks are now operating. The new national
banks, if approved, would be insured by the BIF of the FDIC, which is expected
to be
26
<PAGE>
able to charge significantly lower deposit insurance premiums than those to be
charged to institutions that are part of the SAIF. The TCF Savings Banks
currently pay risk-based insurance premiums to the SAIF at the lowest-risk rate
of .23%. Banks insured by the BIF now pay deposit insurance premiums equal only
to the statutory minimum annual assessment of $2,000. See "-- Regulation of TCF
Financial and Affiliate and Insider Transactions."
QUALIFIED THRIFT LENDER
Savings institutions are subject to restrictions on permissible investments
that are generally known as Qualified Thrift Lender ("QTL") requirements. These
requirements were relaxed by FDICIA, but the new legislation retained FIRREA's
penalties for failing to meet the QTL test. An institution failing the QTL test
is required to become a commercial bank or is subject to a number of
restrictions, including: (i) a requirement that the institution not make any new
investment or engage in any new activity unless such investment or activity
would be permissible for a national bank; (ii) a requirement that the
institution not establish any new branch office at any location at which a
national bank located in the institution's home state may not establish a
branch; (iii) ineligibility for new FHLB advances; and (iv) any restrictions on
the payment of dividends to which a national bank would be subject. Where an
institution still does not meet QTL requirements three years from the date on
which it should have and failed to do so, the institution will be required to
divest any investment or discontinue any activity which is impermissible for a
national bank and will be required to repay any outstanding FHLB advances. Any
savings and loan holding company which holds a thrift that fails to meet the QTL
test will, within one year after the date on which the thrift should have become
or ceases to be a QTL, be deemed to be a bank holding company subject to all the
provisions of the Bank Holding Company Act and other statutes applicable to bank
holding companies. Such a development would impose a number of additional
activity, capital and other restrictions on any such thrift holding company. The
TCF Savings Banks are in compliance with all QTL requirements.
ACCOUNTING AND INVESTMENTS
During the past several years, there has been an ongoing review by thrift
and banking regulators, the SEC, the FASB, the AICPA and other organizations of
the accounting principles and practices used by financial institutions for
certain types of transactions. As a result of this process, there have been new
accounting pronouncements which have had an impact on TCF. This review is
expected to continue, and further developments may be forthcoming. For
information regarding new accounting pronouncements issued as a result of this
review, see "BUSINESS -- Other Information -- Recent Accounting Developments."
EXAMINATIONS AND REGULATORY SANCTIONS
The TCF Savings Banks are subject to periodic examination by the OTS and the
FDIC. Thrift regulatory authorities may impose on criticized institutions and,
in certain cases, their holding companies, a number of restrictions or new
requirements, including but not limited to growth limitations, dividend
restrictions, individual increased regulatory capital requirements, increased
loan and real estate loss reserve requirements, increased supervisory
assessments, activity limitations or other restrictions that could have an
adverse effect on such institutions, their holding companies or holders of their
debt and equity securities. Any insured institution which does not operate in
accordance with or conform to OTS or FDIC regulations, policies and directives
may also be sanctioned for noncompliance. Subsidiaries of TCF are also subject
to state and/or self-regulatory organization licensing, regulation and
examination requirements in connection with certain insurance, mortgage banking,
securities brokerage and consumer finance activities. Proceedings may be
instituted against any insured institution or any director, officer, employee or
person participating in the conduct of the affairs of such institution who
engages in unsafe or unsound practices, including the violation of applicable
laws, regulations, orders, agreements or similar items. If the assets of an
institution are overvalued on its books, it may be ordered to establish and
maintain a specific reserve in an amount equal to the determined overvaluation,
which may result in a charge against operations to the extent of the
overvaluation. FDIC insurance may be terminated, after notice and hearing, upon
a finding that an insured institution is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition
27
<PAGE>
to continue operating, does not meet minimum regulatory capital requirements, or
has violated any applicable law, rule, regulation or order of or condition
imposed by the FDIC. Upon termination, funds then on deposit continue to be
insured for at least six months and for up to two years, and due notice of such
termination must be provided to the institution's accountholders.
FIRREA substantially increased enforcement remedies, including civil money
penalties, that may be assessed against an institution or an institution's
directors, officers, employees, agents or independent contractors. For knowing
violations and under certain other aggravated circumstances, penalties up to $1
million per day may be assessed. For lesser violations where there is a pattern
of misconduct, or under certain other circumstances, a penalty of up to $25,000
per day may be imposed. Other violations may result in penalties of up to $5,000
per day. Violations of laws and regulations may also subject an institution's
officers and directors to removal and to criminal penalties.
LIMITATIONS ON CERTAIN INVESTMENTS
As federally chartered institutions, the TCF Savings Banks are generally
prohibited from investing directly in equity securities and real estate (other
than that used for offices and related facilities or acquired through, or in
lieu of, foreclosure or on which a contract purchaser has defaulted). In
addition, their authority to invest directly in service corporations is limited
to a maximum of 2% of their assets, plus an additional 1% of assets if the
amount over 2% is used for specified community or inner-city development
purposes. The TCF Savings Banks are also permitted, if their risk-based capital
is in compliance with the then-applicable minimum requirements, to make
additional loans in an amount not exceeding 50% of their risk-based capital to
service corporations of which they own more than 10% of the stock. Any failure
to meet their minimum capital requirements may disallow any such additional
investment authority. The TCF Savings Banks are in compliance with all
limitations on certain investments requirements.
In October 1992, the OTS issued a final rule under which savings
associations are authorized to establish and acquire "operating subsidiaries"
which may engage only in activities savings associations are authorized to
engage in directly. Operating subsidiaries are generally excluded from the scope
of the service corporation regulations, including limitations on investments in
service corporations.
Savings associations generally must provide a 30-day notice to the FDIC and
the OTS prior to acquiring or forming a new subsidiary or prior to engaging in a
new activity through a subsidiary. If the OTS or FDIC determine that any such
subsidiary or activity poses a threat to the safety and soundness of the
institution or is inconsistent with existing law or sound banking practices,
they may issue an order directing the institution not to proceed with such
plans.
LOANS-TO-ONE BORROWER RESTRICTION
Under FIRREA, all loans to a single borrower or to related borrowers are
generally limited to 15% of an institution's unimpaired capital and unimpaired
surplus, plus an additional 10% for loans fully secured by readily marketable
collateral. In addition, institutions which meet their fully phased-in capital
requirements are permitted under FIRREA to make loans to develop domestic
residential housing units, not to exceed the lesser of $30 million or 30% of the
institution's unimpaired capital and unimpaired surplus, subject to certain
conditions and other limitations. The OTS applies a definition of unimpaired
capital and unimpaired surplus in determining the maximum loans-to-one borrower
permitted for thrift institutions which is generally the same as the definition
employed by the OCC. All of the TCF Savings Banks are in compliance with
applicable loans-to-one borrower limitations. Such limitations are not expected
to have a material effect on TCF's lending activities.
CLASSIFICATION OF ASSETS
Under OTS rules, an asset is classified substandard when it has a
well-defined weakness or weaknesses. A substandard asset is one that is
inadequately protected by the net worth or paying capacity of the obligor or by
the collateral, if any. An asset is classified doubtful where some loss seems
very likely but there is still sufficient uncertainty to permit the asset to
remain on the books at its full
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<PAGE>
value. The possibility of a loss on an asset classified doubtful is high, but
because of important and reasonably specific pending factors which may work to
the strengthening of the asset, its classification as loss is deferred until its
more exact status may be determined. An asset, or a portion thereof, is
classified as loss when it is considered uncollectible and of such little value
that continuance as an asset without establishment of a specific reserve is not
warranted. Assets that do not warrant classification as substandard, doubtful or
loss, but possess credit deficiencies or potential weaknesses deserving
management's close attention are classified as special mention.
Assets may be classified in whole or in part, and part of an asset may be
classified in one category, and part in a different category. Insured
institutions are required to self-classify their assets. These classifications
are reviewed as part of the regulatory examination process. An institution is
required to have general valuation allowances that are adequate in light of its
level of classified assets. When an asset or portion of an asset has been
classified as loss, the institution must either charge off 100% of the portion
classified as loss or establish a specific valuation allowance in a like amount.
Specific allowances may not be included in regulatory capital, while general
loan loss reserves are included in risk-based capital, subject to certain
limitations.
OTHER LAWS AND REGULATIONS
TCF is subject to a wide array of other laws and regulations, both federal
and state, including, but not limited to, usury laws, the CRA and regulations
thereunder, the Equal Credit Opportunity Act and Regulation B, Regulation E
Electronic Funds transfer requirements, the Truth-in-Lending Act and Regulation
Z, the Real Estate Settlement Procedures Act and Regulation X. TCF is also
subject to laws and regulations that may impose liability on lenders and owners
for clean-up costs and other costs stemming from hazardous waste located on
property securing real estate loans made by lenders or on real estate that is
owned by lenders following a foreclosure or otherwise. Although TCF's lending
procedures include measures designed to limit lender liability for hazardous
waste clean-up or other related liability, TCF has engaged in significant
commercial lending activity, and recent court decisions have expanded the
circumstances under which lenders have been held liable for clean up costs
relating to hazardous wastes.
TAXATION
FEDERAL TAXATION
PERMISSIBLE BAD DEBT RESERVES
TCF files consolidated federal income tax returns. TCF has been an accrual
basis taxpayer since January 1, 1987. Thrift institutions, such as the TCF
Savings Banks, are subject to federal income tax under the Internal Revenue Code
of 1986 (the "Code") in the same general manner as other corporations except for
the application of special bad debt reserve rules discussed below and certain
other provisions. Under applicable provisions of the Code, a savings institution
that holds 60% or more of its assets in "qualifying assets" (as defined in the
Code) is permitted to maintain reserves for bad debts and to make annual
additions to such reserves which qualify as deductions from taxable income. All
of the TCF Savings Banks are in compliance with this requirement.
A qualifying savings institution may elect annually to compute its allowable
additions to bad debt reserves under either the percentage of taxable income
method or the experience method. The percentage of taxable income method of
calculating bad debt reserves limits the applicable percentage deduction to 8%
of taxable income and cannot cause the reserves to exceed 6% of qualifying loans
at the end of the taxable year. TCF Minnesota and TCF Illinois currently use the
percentage of taxable income method to calculate additions to the tax bad debt
reserves. TCF Wisconsin and Great Lakes currently use the experience method to
calculate additions to tax bad debt reserves.
IRS AUDIT HISTORY
The consolidated tax returns for the years ended 1992 through 1994 have been
reviewed by the IRS. The IRS had proposed certain immaterial adjustments which
TCF agreed to in November 1995.
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The consolidated tax returns for the years ended 1979 through 1982 have been
reviewed by the IRS. The IRS had proposed certain adjustments. In October 1992,
the Joint Committee of Congress approved a settlement agreement between TCF and
the IRS. The settlement allowed a loss deduction on the sale of mortgage loans
which the IRS had contended should be disallowed. The settlement also allowed,
based on a tax court ruling, certain tax bad debt losses that were not
previously deducted in TCF's tax returns. The allowance of the bad debt
deductions created a $2.8 million net operating loss benefit during 1992.
See "Financial Review -- Results of Operations -- Income Taxes" on page 31,
Note 1 of Notes to Consolidated Financial Statements on pages 46 through 48 and
Note 14 of Notes to Consolidated Financial Statements on page 58 of TCF's 1995
Annual Report, incorporated herein by reference, for additional information
regarding TCF's income taxes.
STATE TAXATION
TCF and its subsidiaries that operate in Minnesota are subject to Minnesota
state taxation. A Minnesota corporation's income or loss is allocated based on a
three-factor apportionment of the corporation's Minnesota gross receipts,
payroll and property over the total gross receipts, payroll and property of all
corporations in the unitary group. The corporate tax rate in Minnesota is 9.8%.
The Minnesota Alternative Minimum Tax rate is 5.8%.
TCF and its subsidiaries that operate in Illinois are subject to Illinois
state taxation. The Illinois corporate tax rate is 7.3%. Illinois corporate
income or loss is apportioned in a similar manner to Minnesota. For all TCF
entities operating in Illinois, except the TCF Savings Banks and Consumer
Finance Subsidiaries, the three-factor apportionment method is used. For the TCF
Savings Banks and Consumer Finance Subsidiaries, income is allocated using only
the sales factor in accordance with Illinois financial organization tax law.
TCF and its subsidiaries that operate in Wisconsin are subject to Wisconsin
state taxation. The Wisconsin state tax rate is 7.9%, and is computed on a
separate company basis. For all TCF entities operating in Wisconsin, except the
TCF Savings Banks, the three-factor apportionment method is used. For the TCF
Savings Banks, income is allocated using only the sales and payroll factors in
accordance with Wisconsin financial organization tax law.
TCF and its subsidiaries that operate in Michigan are subject to Michigan
state taxation. The corporate tax rate in Michigan is 2.30% and is computed on
taxable business activity in Michigan. For all TCF entities operating in
Michigan, except for the TCF Savings Banks, the three-factor apportionment
method is used. For the TCF Savings Banks, income is allocated using only the
sales factor in accordance with Michigan financial organization tax law.
Currently, TCF and its subsidiaries file state income tax returns in
Alabama, Arizona, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New
Mexico, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Utah and Wisconsin, and local income tax returns in
certain cities.
ITEM 2. PROPERTIES
OFFICES
At December 31, 1995, TCF owned the buildings and land for 112 of its bank
branch offices, owned the buildings but leased the land for 5 of its bank branch
offices and leased the remaining 68 bank branch offices. The properties related
to the bank branch offices owned by TCF, including vacant land upon which
permanent offices may be constructed, had a depreciated cost of approximately
$79.4 million at December 31, 1995. At December 31, 1995, the aggregate net book
value of leasehold improvements associated with leased bank branch office
facilities was $6.9 million. See Note 9 of Notes to Consolidated Financial
Statements on page 54 of TCF's 1995 Annual Report, incorporated herein by
reference.
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Leases for TCF's offices expire at various dates, with most leases expiring
during the period from 1996 through 2005.
The following table sets forth the net book value of the bank branch offices
owned and leasehold improvements on bank branch properties leased by TCF at
December 31, 1995:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Offices in Minnesota:
Minneapolis (home office)......................... $ 7,689
Minneapolis/St. Paul area (51 offices)............ 19,504
Greater Minnesota area (16 offices)............... 3,591
--------
Total Minnesota (68 offices).................... 30,784
--------
Offices in Illinois:
Chicago area (22 offices)......................... 7,768
Rockford area (5 offices)......................... 1,168
Joliet area (3 offices)........................... 580
--------
Total Illinois (30 offices)..................... 9,516
--------
Offices in Wisconsin:
Milwaukee area (14 offices)....................... 6,740
Southeast area (8 offices)........................ 6,082
Fox Valley area (4 offices)....................... 1,921
Madison area (2 offices).......................... 308
--------
Total Wisconsin (28 offices).................... 15,051
--------
Offices in Michigan:
Ann Arbor (home office)........................... 8,864
Macomb/Oakland region (15 offices)................ 4,485
Northeast region (12 offices)..................... 3,663
Southeast region (13 offices)..................... 3,573
West region (13 offices).......................... 4,362
--------
Total Michigan (54 offices)..................... 24,947
--------
Offices in Ohio (5 offices)......................... 5,963
--------
Total........................................... $ 86,261
--------
--------
</TABLE>
In addition to the above-referenced branch offices, TCF owned and leased
other facilities with an aggregate net book value of $4 million at December 31,
1995.
COMPUTER EQUIPMENT
TCF maintains depositor and borrower customer files on a batch and/or
on-line basis, utilizing an IBM computer system. TCF's general ledger accounting
and information reporting systems are generally maintained on the mainframe
computer. The net book value of all computer equipment was $13.8 million at
December 31, 1995. TCF also leases a variety of data processing equipment at a
total annual rental of $1.7 million.
ITEM 3. LEGAL PROCEEDINGS
From time to time, TCF is a party to legal proceedings arising out of its
general lending and operating activities. TCF is and expects to become engaged
in a number of foreclosure proceedings and other collection actions as part of
its loan collection activities. From time to time, borrowers have also brought
actions against TCF, in some cases claiming substantial amounts in damages. TCF
is also from time to time involved in litigation relating to its retail banking,
consumer credit and mortgage
31
<PAGE>
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.
As previously disclosed, the SEC has concluded an investigation, in which
the Company fully cooperated, concerning the appropriateness of the timing of
loan and real estate provisions taken by TCF in the second quarter of 1990. In
1994, TCF initiated discussions with the SEC Staff to ascertain whether the
proceedings could be settled on a mutually acceptable basis. For purposes of
settling this matter and without admitting or denying the SEC allegations, the
Company has agreed to the entry of an administrative cease-and-desist order with
respect to the financial reporting provisions of Sections 13(a) and 13(b)(2)(A)
of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a-13
promulgated thereunder. The order states that losses or reserves recognized or
taken on certain real estate assets in the second quarter of 1990 should have
been recognized or taken during the preceding three quarters. The order does not
concern any matters occurring later than the second quarter of 1990 and does not
require any restatement of prior period financial statements by TCF. In August
1995, the order was approved. TCF is of the view that the resolution of the
matter on this basis does not have a material effect on TCF's overall financial
condition, operations or profitability.
On November 2, 1993, TCF filed a complaint in the United States Court of
Federal Claims seeking monetary damages from the United States for breach of
contract, taking of property without just compensation and deprivation of
property without due process. TCF's claim is based on the government's breach of
contract in connection with TCF'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 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's suit has 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 yet answered TCF's complaint. TCF'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 yet answered Great Lakes' complaint, and the Court has 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 August 30, 1995, the United States Court of Appeals for the Federal
Circuit (the court of appeals which hears appeals from decisions of the Court of
Federal Claims), sitting EN BANC, issued a decision affirming the Court of
Federal Claims' liability determinations in three other "supervisory goodwill"
cases. WINSTAR CORP. V. UNITED STATES. 64 F.3d 1531 (Fed. Cir. 1995). In
rejecting the United States consolidated appeal from the Court of Federal
Claims' decisions, the Federal Circuit 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. The United States sought and was granted
review by the United States Supreme Court of the Federal Circuit decision in
WINSTAR. The Supreme Court is expected to issue a ruling in WINSTAR in 1996.
There can be no assurance that the U.S. Supreme Court will uphold the
liability determination in WINSTAR or, even if it does uphold WINSTAR, that a
similar result would be obtained in the actions filed by TCF and Great Lakes.
There also can be no assurance that the government will be determined
32
<PAGE>
liable in connection with the loss of supervisory goodwill by either TCF or
Great Lakes or, even if a determination favorable to TCF 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's or Great Lakes' claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
TCF's common stock trades on the New York Stock Exchange under the symbol
"TCB." The following table sets forth the high and low prices and dividends
declared for TCF's common stock. The stock prices represent the high and low
sale prices for the common stock on the New York Stock Exchange Composite Tape,
as reported by THE WALL STREET JOURNAL. The stock prices and dividends declared
for TCF's common stock have been restated giving retroactive effect to TCF's
November 30, 1995 two-for-one stock split. See Note 15 of Notes to Consolidated
Financial Statements on pages 58 and 59 of TCF's 1995 Annual Report,
incorporated herein by reference.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---------- ---------- --------
<S> <C> <C> <C>
1995:
First Quarter.......... $ 21 5/8 $ 18 9/16 $ .125
Second Quarter......... 24 1/16 21 1/4 .15625
Third Quarter.......... 29 7/8 23 1/2 .15625
Fourth Quarter......... 33 3/8 28 1/2 .15625
1994:
First Quarter.......... $ 17 1/8 $ 14 1/4 $ .125
Second Quarter......... 17 15/16 15 .125
Third Quarter.......... 21 9/16 17 .125
Fourth Quarter......... 21 1/4 17 11/16 .125
</TABLE>
As of March 8, 1996, there were approximately 9,000 record holders of TCF's
common stock.
The Board of Directors of TCF has not adopted a formal dividend policy. The
Board of Directors intends to continue its present practice of paying quarterly
cash dividends on TCF's common stock as justified by the financial condition of
TCF. The declaration and amount of future dividends will depend on circumstances
existing at the time, including TCF's earnings, financial condition and capital
requirements, the cash available to pay such dividends (derived mainly from
dividends and distributions from its direct subsidiaries, including TCF
Minnesota and Great Lakes), as well as regulatory and contractual limitations
and such other factors as the Board of Directors may deem relevant. OTS
regulations limit the amount of dividends TCF Minnesota and Great Lakes may pay
on its capital stock. Restrictions on the ability of TCF Minnesota and Great
Lakes to pay cash dividends or possible diminished earnings of the other direct
and indirect subsidiaries of the Holding Company may limit the ability of the
Holding Company to pay dividends in the future to holders of its common stock.
See "REGULATION -- Recent Developments," "REGULATION -- Regulatory Capital
Requirements," "REGULATION -- Restrictions on Distributions" and Note 15 of
Notes to Consolidated Financial Statements on pages 58 and 59 of TCF's 1995
Annual Report, incorporated herein by reference. Federal income tax rules may
also limit dividend payments under certain circumstances. See "TAXATION," and
Note 15 of Notes to Consolidated Financial Statements on pages 58 and 59 of
TCF's 1995 Annual Report, incorporated herein by reference.
33
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data of TCF
and its subsidiaries, and should be read in conjunction with the Consolidated
Financial Statements and related notes appearing on pages 40 through 71 of TCF's
1995 Annual Report, incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income..................... $ 607,690 $ 552,482 $ 558,645 $ 630,442 $ 733,234
Interest expense.................... 288,492 273,330 297,449 383,170 503,260
-------------- -------------- -------------- -------------- --------------
Net interest income................. 319,198 279,152 261,196 247,272 229,974
Provision for credit losses......... 15,212 10,802 35,118 40,663 56,103
-------------- -------------- -------------- -------------- --------------
Net interest income after
provision for credit losses...... 303,986 268,350 226,078 206,609 173,871
Gain (loss) on sale of loans,
mortgage-backed securities and
investments, net................... (21,037) -- -- 832 3,074
Gain (loss) on sale of securities
available for sale, net............ (190) 981 10,182 6,395 5,656
Gain on sale of loan servicing,
net................................ 1,535 2,353 137 -- 4,732
Gain on sale of branches, net....... 1,103 -- -- 5,199 1,971
Other non-interest income........... 131,365 121,885 128,686 113,098 99,471
Provision for real estate losses.... 1,804 4,022 10,308 21,881 17,358
Amortization of goodwill and other
intangibles........................ 3,163 3,282 2,981 3,854 4,083
Merger-related expenses............. 21,733 -- 5,494 -- --
Cancellation cost on early
termination of interest-rate
exchange contracts................. 4,423 -- -- -- --
Other non-interest expense.......... 286,210 269,680 254,175 238,504 232,452
-------------- -------------- -------------- -------------- --------------
Income before income tax expense
and extraordinary items.......... 99,429 116,585 92,125 67,894 34,882
Income tax expense................ 37,778 46,402 36,797 15,906 15,885
-------------- -------------- -------------- -------------- --------------
Income before extraordinary items... 61,651 70,183 55,328 51,988 18,997
Extraordinary items, net............ (963) -- (157) 339 720
-------------- -------------- -------------- -------------- --------------
Net income........................ 60,688 70,183 55,171 52,327 19,717
Dividends on preferred stock........ 678 2,710 2,769 2,911 2,728
-------------- -------------- -------------- -------------- --------------
Net income available to common
shareholders................... $ 60,010 $ 67,473 $ 52,402 $ 49,416 $ 16,989
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Per common share:
Income before extraordinary
items............................ $ 1.71 $ 1.95 $ 1.53 $ 1.51 $ .59
Extraordinary items............... (.03) -- -- .01 .03
-------------- -------------- -------------- -------------- --------------
Net income........................ $ 1.68 $ 1.95 $ 1.53 $ 1.52 $ .62
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Dividends declared.................. $ .59375 $ .50 $ .34375 $ .2375 $ .20
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Average common and common equivalent
shares outstanding................. 35,686 34,527 34,150 32,571 27,349
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
FINANCIAL CONDITION DATA:
<S> <C> <C> <C> <C> <C>
Total assets........................ $ 7,239,911 $ 7,845,588 $ 7,630,654 $ 7,774,537 $ 7,831,296
Investments (1)..................... 64,345 283,104 299,432 356,918 515,544
Securities available for sale....... 1,201,490 138,430 10,003 399,006 152,184
Loans held for sale................. 242,413 201,511 444,780 308,651 239,746
Mortgage-backed securities held to
maturity........................... -- 1,601,200 1,751,916 1,670,164 1,601,659
Loans............................... 5,277,101 5,118,381 4,665,567 4,516,982 4,826,954
Goodwill............................ 11,503 13,355 14,549 16,446 21,593
Deposits............................ 5,191,552 5,399,718 5,695,928 5,683,130 5,905,124
Federal Home Loan Bank advances..... 893,587 1,354,663 945,492 1,018,725 1,083,427
Other borrowings.................... 547,857 530,332 467,875 599,900 433,559
Stockholders' equity................ 527,675 475,469 428,065 375,495 286,225
Tangible net worth.................. 516,172 462,114 413,516 359,049 264,632
Book value per common share......... 14.82 13.44 12.10 11.03 9.99
Tangible book value per common
share.............................. 14.50 13.04 11.67 10.51 9.16
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
KEY RATIOS AND OTHER DATA:
Net interest margin................. 4.61% 3.96% 3.69% 3.43% 3.02%
Net interest rate spread during the
period............................. 4.16 3.65 3.44 3.25 2.91
Return on average assets............ .82 .93 .73 .68 .24
Return on average common equity..... 12.71 15.95 13.95 15.67 6.75
Average total equity to average
assets............................. 6.59 5.95 5.28 4.39 3.41
Average interest-earning assets to
average interest-bearing
liabilities........................ 110.76 107.85 105.98 103.24 101.63
Common dividend payout ratio........ 35.34% 25.64% 22.47% 15.63% 32.26%
Number of full service bank
offices............................ 185 177 177 156 164
</TABLE>
- --------------------------
(1) Includes interest-bearing deposits with banks, federal funds sold, U.S.
Government and other marketable securities held to maturity, securities
purchased under resale agreements and FHLB stock.
For additional information concerning yields earned on interest-earning
assets, rates paid on interest-bearing liabilities, and changes in net interest
income, see "Financial Review -- Results of Operations -- Net Interest Income"
on pages 24 through 28 of TCF's 1995 Annual Report, incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Financial Review on pages 23 through 39 of TCF's 1995 Annual Report,
presenting management's discussion and analysis of TCF's financial condition and
results of operations, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements, Independent Auditors' Report, Selected Quarterly Financial Data and
Other Financial Data set forth on pages 40 through 75 of TCF's 1995 Annual
Report are incorporated herein by reference. See Index to Consolidated Financial
Statements on page 39 of this report.
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of TCF is set forth
on pages 4 through 21 of TCF's definitive proxy statement dated March 22, 1996
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers of
TCF is set forth on pages 12 through 20 of TCF's definitive proxy statement
dated March 22, 1996 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of TCF's common stock by TCF's directors,
executive officers, and certain other shareholders is set forth on pages 9
through 11 of TCF's definitive proxy statement dated March 22, 1996 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between TCF and
management is set forth on pages 16 and 21 of TCF's definitive proxy statement
dated March 22, 1996 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statements
See Index to Consolidated Financial Statements on page 39 of this
report.
2. Financial Statement Schedules
All schedules to the Consolidated Financial Statements normally required
by the applicable accounting regulations are omitted since the required
information is included in the Consolidated Financial Statements or the
Notes thereto or is not applicable.
3. Exhibits
See Index to Exhibits on page 39 of this report.
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K, dated October 16, 1995, was filed in
connection with TCF's declaration of a two-for-one stock split in the form of a
100% common stock dividend payable November 30, 1995 to stockholders of record
as of November 10, 1995. A Current Report on Form 8-K, dated October 26, 1995,
was filed in connection with TCF's announcement that it will exercise its right
of redemption on its $34.5 million of 10% Subordinated Capital Notes due 2002 on
December 1, 1995. A Current Report on Form 8-K, dated January 5, 1996, was filed
in connection with TCF's announcement that it has authorized the repurchase of
up to 5% of the Company's outstanding shares through open market or privately
negotiated transactions.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TCF FINANCIAL CORPORATION
Registrant
By /s/ WILLIAM A. COOPER
-----------------------------------
William A. Cooper
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- -------------------------------------------------- ----------------------------------------- ------------------
<C> <S> <C>
/s/ WILLIAM A. COOPER
--------------------------------------- Chairman of the Board, Chief Executive
William A. Cooper Officer and Director March 29, 1996
/s/ THOMAS A. CUSICK
--------------------------------------- Vice Chairman of the Board and Director
Thomas A. Cusick March 29, 1996
/s/ ROBERT E. EVANS
--------------------------------------- Vice Chairman of the Board and Director
Robert E. Evans March 29, 1996
/s/ LYNN A. NAGORSKE
--------------------------------------- President and Chief Operating Officer and
Lynn A. Nagorske Director March 29, 1996
/s/ ROBERT J. DELONIS
--------------------------------------- Chairman of the Board of Great Lakes
Robert J. Delonis Bancorp and Director March 29, 1996
/s/ RONALD J. PALMER Executive Vice President, Chief Financial
--------------------------------------- Officer and Treasurer (Principal
Ronald J. Palmer Financial Officer) March 29, 1996
/s/ MARK R. LUND Senior Vice President, Assistant
--------------------------------------- Treasurer and Controller (Principal
Mark R. Lund Accounting Officer) March 29, 1996
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- -------------------------------------------------- ----------------------------------------- ------------------
<C> <S> <C>
/s/ BRUCE G. ALLBRIGHT
--------------------------------------- Director
Bruce G. Allbright March 29, 1996
/s/ RUDY E. BOSCHWITZ
--------------------------------------- Director
Rudy E. Boschwitz March 29, 1996
/s/ JOHN M. EGGEMEYER, III
--------------------------------------- Director
John M. Eggemeyer, III March 29, 1996
/s/ LUELLA G. GOLDBERG
--------------------------------------- Director
Luella G. Goldberg March 29, 1996
/s/ DANIEL F. MAY
--------------------------------------- Director
Daniel F. May March 29, 1996
/s/ THOMAS J. MCGOUGH
--------------------------------------- Director
Thomas J. McGough March 29, 1996
/s/ MARK K. ROSENFELD
--------------------------------------- Director
Mark K. Rosenfeld March 29, 1996
/s/ RALPH STRANGIS
--------------------------------------- Director
Ralph Strangis March 29, 1996
/s/ RONALD A. WARD
--------------------------------------- Director
Ronald A. Ward March 29, 1996
--------------------------------------- Director
Roy E. Weber March 29, 1996
</TABLE>
38
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of TCF and its subsidiaries,
included in TCF's 1995 Annual Report, are incorporated herein by reference in
this report:
<TABLE>
<CAPTION>
PAGE
IN 1995
DESCRIPTION ANNUAL REPORT
- ------------------------------------------------------------------------------- -------------------
<S> <C>
Independent Auditors' Report................................................... 71
Consolidated Statements of Financial Condition at December 31, 1995 and 1994... 40
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 1995................................................ 41
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1995................................................ 42
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1995..................................... 44
Notes to Consolidated Financial Statements..................................... 46
Selected Quarterly Financial Data (unaudited).................................. 72
Other Financial Data........................................................... 74
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- -------------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
3(a) Restated Certificate of Incorporation of TCF Financial Corporation, as
amended.........................................................................................
3(b) Bylaws of TCF Financial Corporation, as amended.................................................
4(a) Rights Agreement, dated as of May 23, 1989, between TCF Financial Corporation and Manufacturers
Hanover Trust Company [incorporated by reference to Exhibit 1 to TCF Financial Corporation's
Registration Statement on Form 8-A, No. 0-16431 (filed May 25, 1989)], as amended October 1,
1995 [incorporated by reference to Exhibit 4(a) to TCF Financial Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995, No. 0-16431 (filed November 14, 1995)]
4(b) Indenture dated March 1, 1986 between Great Lakes Federal Savings Association and J. Henry
Schroder Bank & Trust Company [incorporated by reference to Exhibit 4.4 to TCF Financial
Corporation's Registration Statement on Form S-4, No. 33-56137 (filed December 12, 1994)], as
amended by First Supplemental Indenture dated February 8, 1995..................................
4(c) Copies of instruments with respect to long-term debt will be furnished to the Securities and
Exchange Commission upon request.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- -------------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
10(a) Stock Option and Incentive Plan of TCF Financial Corporation, as amended [the Plan and First
Amendment to the Plan incorporated by reference to Exhibit 10.1 to TCF Financial Corporation's
Registration Statement on Form S-4, No. 33-14203 (filed May 12, 1987), Second Amendment, Third
Amendment and Fourth Amendment to the Plan incorporated by reference to Exhibit 10(a) to TCF
Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987,
No. 0-16431; Fifth Amendment to the Plan incorporated by reference to Exhibit 10(a) to TCF
Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1989,
No. 0-16431; amendment dated January 21, 1991, incorporated by reference to Exhibit 10(a) to TCF
Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990,
No. 0-16431, and as further amended by amendment dated January 28, 1992 and amendment dated
March 23, 1992 (effective April 15, 1992), incorporated by reference to Exhibit 10(a) to TCF
Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
No. 0-16431]
10(b) TCF Financial 1995 Incentive Stock Program, as amended October 1, 1995..........................
10(c) Amended and Restated TCF Financial Corporation Executive Deferred Compensation Plan
[incorporated by reference to Plan filed with registrant's definitive proxy statement dated
March 16, 1994, No. 0-16431]
10(d) Trust Agreement for TCF Financial Corporation Executive Deferred Compensation Plan, as amended
[the Trust Agreement incorporated by reference to Exhibit 10(c) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989, No. 0-16431; amendment
effective April 1, 1991, incorporated by reference to Exhibit 10(c) to TCF Financial
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No.
0-16431, and as further amended by amendment dated March 23, 1992, incorporated by reference to
Exhibit 10(c) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, No. 0-16431]
10(e) Amended and Restated Employment Agreement of William A. Cooper, dated July 1, 1993 [incorporated
by reference to Exhibit 10(d) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, No. 0-16431]
10(f) Severance Agreement of Thomas A. Cusick, dated August 22, 1988 [incorporated by reference to
Exhibit 19(c) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(f) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431], as amended October 24, 1995..................
10(g) Severance Agreement of William E. Dove, dated August 22, 1988 [incorporated by reference to
Exhibit 19(d) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(g) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431], as amended October 24, 1995..................
10(h) Severance Agreement of Robert E. Evans, dated August 23, 1988 [incorporated by reference to
Exhibit 19(e) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(h) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431], as amended October 24, 1995..................
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- -------------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
10(i) Severance Agreement of Lynn A. Nagorske, dated August 22, 1988 [incorporated by reference to
Exhibit 19(f) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(i) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431], as amended October 24, 1995..................
10(j) Severance Agreement of Gregory J. Pulles, dated August 23, 1988 [incorporated by reference to
Exhibit 19(g) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(j) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431], as amended October 24,
1995............................................................................................
10(k) Severance Agreement of James E. Tuite, dated August 23, 1988 [incorporated by reference to
Exhibit 19(i) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(l) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431], as amended October 24, 1995..................
10(l) Severance Agreement of Neil I. Whitehouse, dated August 23, 1988 [incorporated by reference to
Exhibit 19(j) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, No. 0-16431] and amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(m) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, No. 0-16431]
10(m) Severance Agreement of Barry N. Winslow, dated December 30, 1988 and amendment thereto dated
December 4, 1990 [incorporated by reference to Exhibit 10(n) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431], as amended
October 24, 1995................................................................................
10(n) Supplemental Employee Retirement Plan, as amended [the Plan, as amended by amendment dated
September 21, 1989 (effective January 1, 1990) incorporated by reference to Exhibit 10(n) to TCF
Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1989,
No. 0-16431; amendment dated July 31, 1990 (effective August 31, 1990) incorporated by reference
to Exhibit 10(o) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, No. 0-16431; amendment dated June 26, 1994 incorporated by reference to
Exhibit 10(n) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, No. 0-16431]
10(o) Trust Agreement for TCF Financial Corporation Supplemental Employee Retirement Plan, dated
August 21, 1991 [incorporated by reference to Exhibit 10.16 to TCF Financial Corporation's
Registration Statement on Form S-2, filed November 15, 1991, No. 33-43988]
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- -------------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
10(p) TCF Financial Corporation Senior Officer Deferred Compensation Plan [the Plan incorporated by
reference to Exhibit 10(o) to TCF Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, No. 0-16431; amendment effective April 1, 1991,
incorporated by reference to Exhibit 10(p) to TCF Financial Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1990, No. 0-16431; amendments dated June 26, 1994,
December 18, 1994 and January 23, 1995 incorporated by reference to Exhibit 10(p) to TCF
Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994,
No. 0-16431]
10(q) Trust Agreement for TCF Financial Corporation Senior Officer Deferred Compensation Plan
[incorporated by reference to Exhibit 10(p) to TCF Financial Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, No. 0-16431; amendment effective April 1,
1991, incorporated by reference to Exhibit 10(q) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431; amendment dated December 18,
1994 incorporated by reference to Exhibit 10(q) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, No. 0-16431]
10(r) Directors Stock Program [incorporated by reference to Program filed with registrant's definitive
proxy statement dated March 22, 1996]
10(s) Management Incentive Plan-Executive [incorporated by reference to Plan filed with registrant's
definitive proxy statement dated March 16, 1994, No. 0-16431] and 1995 Plan Acknowledgment......
10(t) 1996 Performance-Based Incentive Policy [incorporated by reference to Policy filed with
registrant's definitive proxy statement dated March 22, 1996] and 1996 Management Incentive
Plan-Executive..................................................................................
10(u) Supplemental Pension Agreement with James E. Tuite, dated June 27, 1991 [incorporated by
reference to Exhibit 10.21 to TCF Financial Corporation's Registration Statement on Form S-4,
No. 33-57290 (filed January 22, 1993)]
10(v) Supplemental Pension Agreement with Robert E. Evans, dated July 9, 1991 [incorporated by
reference to Exhibit 10.22 to TCF Financial Corporation's Registration Statement on Form S-4,
No. 33-57290 (filed January 22, 1993)]
10(w) Employment Agreement of Robert J. Delonis, dated February 9, 1995 [incorporated by reference to
Exhibit 10(v) to TCF Financial Corporation's Annual Report on Form 10-K, No. 0-16431 (filed
March 30, 1995)], as amended December 18, 1995..................................................
10(x) TCF Directors Deferred Compensation Plan [incorporated by reference to Plan filed with
registrant's definitive proxy statement dated March 15, 1995, No. 0-16431]
10(y) TCF Directors Retirement Plan dated October 24, 1995............................................
11 Statement regarding computation of earnings per common share....................................
13 TCF Financial Corporation 1995 Annual Report....................................................
21 Subsidiaries of TCF Financial Corporation (as of March 19, 1996)................................
24 Consent of KPMG Peat Marwick LLP dated March 29, 1996...........................................
27.1 Financial Data Schedule.........................................................................
27.2 Financial Data Schedule.........................................................................
27.3 Financial Data Schedule.........................................................................
</TABLE>
42
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
TCF FINANCIAL CORPORATION
As amended through April 15, 1988.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
TCF FINANCIAL CORPORATION
(INCORPORATED APRIL 28, 1987)
PURSUANT TO SECTION 245
OF THE GENERAL CORPORATION LAW
OF DELAWARE
ARTICLE 1. CORPORATE TITLE
The name of the Corporation is TCF Financial Corporation.
ARTICLE 2. ADDRESS
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3. PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE 4. CAPITAL STOCK
A. AUTHORIZED SHARES
The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is one hundred million (100,000,000) shares,
$.01 par value, divided into two classes of which seventy million (70,000,000)
shares shall be Common Stock (hereinafter the "Common Stock") and thirty million
(30,000,000) shares shall be Preferred Stock (hereinafter the "Preferred
Stock"). The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote without a separate vote of the holders of Preferred Stock as a
class.
B. COMMON STOCK
Subject to the rights of the holders of shares of any series of the
Preferred Stock, and except as may be expressly provided with respect to the
Preferred Stock or any series thereof herein or in a resolution of the Board of
Directors establishing such series or by law:
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<PAGE>
(1) the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of the Corporation's capital stock.
(2) Each share of Common stock shall be entitled to one vote for the
election of directors and on all other matters requiring stockholder action.
C. PREFERRED STOCK
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of the Preferred Stock
shall be as follows:
(1) The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred Stock in
one or more series, with such voting powers, full or limited (including, without
limitation, more than one vote, less than one vote or one vote per share and the
ability to vote separately as a class or together with all or some of the other
classes or series of capital stock on all or certain of the matters to be voted
on by the stockholders of the Corporation), or no voting powers, and with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for the issuance
thereof adopted by the Board of Directors, including, but not limited to, the
following:
(a) the designation and number of shares constituting such
series;
(b) the dividend rate or rates of such series, if any, or the
manner of determining such rate or rates, if any, the conditions and dates upon
which such dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other class or classes or
of any other series of capital stock and whether such dividends shall be
cumulative or non-cumulative, and, if cumulative, from which date or dates;
(c) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such redemption, the
times, prices and other terms and conditions of such redemption;
(d) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) whether the shares of such series shall be convertible into
or exchangeable for shares of any other class or classes or of any other series
of any class or classes of capital stock of the Corporation, and, if provision
be made for conversion or exchange, the time, prices, rates, adjustments and
other terms and conditions of such conversion or exchange;
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<PAGE>
(f) the extent, if any, to which the holders of the shares of
such series shall be entitled to vote as a class or otherwise, and if so
entitled, the number of votes to which such holder is entitled, with respect to
the election of directors or otherwise;
(g) the restrictions, if any, on the issue or reissue of any
additional series of Preferred Stock; and
(h) the rights, if any, of the holders of the shares of such
series in the event of voluntary or involuntary liquidation, dissolution or
winding up.
(2) Subject to any limitations or restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting a series, the Board of Directors may by resolution or
resolutions likewise adopted increase or decrease (but not below the number of
shares of the series then outstanding) the number of shares of the series
subsequent to the issue of that series, and in case the number of shares of any
series shall be so decreased the shares constituting the decrease shall resume
that status which they had prior to the adoption of the resolution originally
fixing the number of shares.
ARTICLE 5. ACQUISITION OF STOCK
A. RESTRICTIONS ON OFFERS AND ACQUISITIONS
Prior to June 24, 1991, no person other than the Corporation (or a direct
or indirect subsidiary thereof) shall directly or indirectly offer to acquire or
acquire the beneficial ownership of (i) more than ten percent (10%) of the
issued and outstanding shares of any class of equity security of the Corporation
or (ii) any securities convertible into, or exchangeable or exercisable for, any
equity securities of the Corporation if, together with all equity securities
issued upon such conversion, exchange and exercise, such person would be the
beneficial owner of more than ten percent (10%) of any class of equity security
of the Corporation. No person shall acquire any rights as a stockholder as to
shares purportedly acquired by any such person in excess of the number of shares
permitted by this Article 5 and, as to such shares, shall not be entitled to be
registered on the books of the Corporation as a stockholder to receive
dividends, to vote on any matter or take other stockholder action or be counted
in determining the total number of outstanding shares for purposes of any matter
involving stockholder action or to be entitled to any other rights conferred
upon stockholders of a Delaware corporation. This Article shall become
effective upon TCF Banking and Savings, F.A. becoming an eighty percent (80%) or
more owned subsidiary of the Corporation and shall cease to be effective in the
event that TCF Banking and Savings, F.A. (or any successor) ceases to be an
eighty percent (80%) or more owned direct or indirect subsidiary of the
Corporation (or any successor).
B. EXCLUSION FOR UNDERWRITERS, EMPLOYEE PLANS, DIRECTORS, OFFICERS,
EMPLOYEES AND CERTAIN PROXIES
The restriction contained in this Article 5 shall not apply to (i) any
underwriter or member of an underwriting or selling group involving a public
sale or resale of securities of the Corporation; PROVIDED, HOWEVER, that, upon
completion of the sale or resale of such securities,
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<PAGE>
no such underwriter or member (or any group thereof) is in violation of this
Article 5, (ii) any employee benefit plan or plans of the Corporation (or a
direct or indirect subsidiary thereof) organized, appointed or established by
the Corporation (or a direct or indirect subsidiary thereof), or (iii) any proxy
granted to a Continuing Director or to Continuing Directors by a stockholder of
the Corporation. In addition, the Continuing Directors, directors, officers,
and employees of the Corporation (or any direct or indirect subsidiary thereof)
and any employee benefit plan or plans of the Corporation (or a direct or
indirect subsidiary thereof) and any entity holding equity securities of the
Corporation organized, appointed or established by the Corporation (or a direct
or indirect subsidiary thereof) shall not be deemed to be a group with respect
to their individual acquisitions of any equity security of the Corporation
described in Paragraph A above solely by virtue of their being such Continuing
Directors, directors, officers, or employees or solely by virtue of such
Continuing Directors, directors, officers, employees or entities being
fiduciaries of any employee benefit plan or plans of the Corporation (or any
direct or indirect subsidiary thereof). Notwithstanding the foregoing, no such
Continuing Director, director, officer, employee, or entity (or any group
thereof) shall be exempt from this Article 5 should any such person (or group
thereof) be in violation of this Article 5.
C. EXCEPTION IN CASES OF ADVANCE APPROVAL
This Article 5 shall not apply to any offer or acquisition referred to in
paragraph A above if such offer or acquisition was approved, in advance of such
offer or acquisition, by a majority of the Continuing Directors.
D. ENFORCEMENT
A majority of the Continuing Directors shall have the power to take all
necessary or appropriate action, which shall be conclusive and binding, with
respect to this Article 5, including, without limitation, (i) the adoption of
Bylaws or resolutions, or the initiation of legal proceedings, to enforce this
Article 5, (ii) determining the amount of securities beneficially owned by any
person, (iii) determining whether a person is an Affiliate or Associate of
another person, (iv) applying or interpreting any definition or operative
provision of this Article 5, and (v) requesting any person reasonably believed
to be in violation of this Article 5 to supply information for the purposes of
determining the application of this Article 5.
E. CERTAIN DEFINITIONS
For the purposes of this Article 5:
(a) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, exercise, conversion, operation of law or
otherwise.
(b) The term "beneficial owner" shall have the meaning assigned to it
in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 (as in
effect on January 1, 1987).
(c) The term "beneficially owned" or "beneficial ownership" with
reference to any security shall mean any security as to which a person is the
beneficial owner.
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<PAGE>
(d) The term "Continuing Director" has the meaning assigned to it in
Article 8.
(e) The term "offer" includes every offer to buy or acquire
otherwise, solicitation of an offer to sell, tender offer for or request or
invitation for tenders of, a security or interest in a security for value.
(f) The term "person" shall have the meaning assigned to it in
Article 8 and shall include an Affiliate and Associate (as those terms are
defined in Article 8) of such person.
ARTICLE 6. INCORPORATOR
The name and mailing address of the Incorporator is as follows:
Gloria M. Barry
1025 Vermont Ave., N.W.
Washington, D.C. 20005
ARTICLE 7. BOARD OF DIRECTORS
A. NUMBER OF DIRECTORS
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors (the "Board of Directors"). The
authorized number of directors shall consist of not fewer than seven nor more
than fifteen directors. Within such limits, the exact number of directors shall
be fixed from time to time pursuant to a resolution adopted by a majority of the
Continuing Directors (as defined hereinafter in Article 8).
B. ELECTION OF DIRECTORS
Except as otherwise designated pursuant to the provisions of Article 4
relating to the rights of the holders of any class or series of Preferred Stock,
the directors of the Corporation shall be divided into three classes, as nearly
equal in number as possible: the first class, the second class and the third
class. Each director shall serve for a term ending on the third annual meeting
following the annual meeting at which such director was elected; PROVIDED,
HOWEVER, that the directors first elected to the first class shall serve for a
term ending upon the election of directors at the annual meeting next following
the end of the calendar year 1987, the directors first elected to the second
class shall serve for a term ending upon the election of directors at the second
annual meeting next following the end of the calendar year 1987, and the
directors first elected to the third class shall serve for a term ending upon
the election of directors at the third annual meeting next following the end of
the calendar year 1987.
At each annual election, the successors to the class of directors whose
term expires at that time shall be elected by the stockholders to hold office
for a term of three years (or until their successors are elected and qualified)
to succeed those directors whose term expires, so that the term of one class of
directors shall expire each year, unless, by reason of any intervening
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<PAGE>
changes in the authorized number of directors, the Board of Directors shall have
designated one or more directorships whose term then expires as directorships of
another class in order more nearly to achieve equality of number of directors
among the classes of directors.
Notwithstanding the requirement that the three classes of directors shall
be as nearly equal in number of directors as possible, in the event of any
change in the authorized number of directors, each director then continuing to
serve as such shall nevertheless continue as a director of the class of which he
or she is a member until the expiration of his or her current term, or his or
her prior resignation, disqualification, or removal from office.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Except as otherwise designated pursuant to the provisions of Article 4
relating to the rights of the holders of any class or series of Preferred Stock,
any vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
by the affirmative vote of a majority of the Continuing Directors (as defined
hereinafter in Article 8), or if there be no Continuing Directors, by the
affirmative vote of a majority of directors then in office, although less than a
quorum, or by the sole remaining director, or, in the event of the failure of
the Continuing Directors, the directors, or the sole remaining director so to
act, by the stockholders at the next election of directors; PROVIDED THAT, if
the holders of any class or classes of stock or series thereof of the
Corporation, voting separately, are entitled to elect one or more directors,
vacancies and newly created directorships of such class or classes or series may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so elected.
Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which they have been elected
expires. A director elected to fill a vacancy by reason of an increase in the
number of directorships shall be elected by a majority vote of the directors
then in office, although less than a quorum of the Board of Directors, to serve
until the next election of the class for which such director shall have been
chosen. If the number of directors is changed, any increase or decrease shall
be apportioned among the three classes so as to make all classes as nearly equal
in number as possible. If, consistent with the preceding requirement, the
increase or decrease may be allocated to more than one class, the increase or
decrease may be allocated to any such class the Board of Directors selects in
its discretion. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
D. REMOVAL
A director may be removed only for cause, as determined by the affirmative
vote of the holders of at least a majority of the shares then entitled to vote
in an election of directors, which vote may only be taken at a meeting of
stockholders (and not by written consent), the notice of which meeting expressly
states such purpose. Cause for removal shall be deemed to exist only if the
director whose removal is proposed has been convicted of a felony by a court of
competent jurisdiction or has been adjudged by a court of competent jurisdiction
to be liable for gross negligence or misconduct in the performance of such
director's duty to the Corporation and such adjudication is no longer subject
to direct appeal.
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<PAGE>
ARTICLE 8. CERTAIN BUSINESS COMBINATIONS
A. HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
In addition to any affirmative vote of holders of a class or series of
capital stock of the Corporation required by law or the provisions of this
Certificate of Incorporation, and except as otherwise expressly provided in
Paragraph B of this Article 8, a Business Combination (as hereinafter defined)
with, or upon a proposal by, a Related Person (as hereinafter defined) shall be
approved only upon the affirmative vote of the holders of at least eighty
percent (80%) of the Voting Stock (as hereinafter defined) of the Corporation
voting together as a single class, excluding all shares of Voting Stock
beneficially owned or controlled by a Related Person. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required by law
or regulation, or that a lesser percentage may be specified, by law or
regulation.
B. WHEN HIGHER VOTE IS NOT REQUIRED
The provisions of Paragraph A of this Article 8 shall not be applicable to
any particular Business Combination and such Business Combination shall require
only such affirmative vote as is required by law, regulation or any other
provision of this Certificate of Incorporation, if all of the conditions
specified in any one of the following Subparagraphs (1), (2), or (3) are met:
(1) Approval by directors. The Business Combination has been
approved by a vote of a majority of the Continuing Directors (as hereinafter
defined); or
(2) Combination with subsidiary. The Business Combination is solely
between the Corporation and a direct or indirect subsidiary of the Corporation
and such Business Combination does not have the direct or indirect effect set
forth in Paragraph C(2)(e) of this Article 8; or
(3) Price and procedural conditions. The proposed Business
Combination will be consummated within three years after the date the Related
Person became a Related Person (the "Determination Date") and all of the
following conditions have been met:
(a) The aggregate amount of cash and fair market value (as of
the date of the consummation of the Business Combination) of consideration other
than cash, to be received per share of Common Stock in such Business Combination
by holders thereof shall be at least equal to the highest of the following:
(i) the highest per share price (with appropriate adjustments for
recapitalizations, reclassifications (including stock splits and reverse stock
splits), and stock dividends), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Related Person for any shares of
Common Stock acquired by it, including those shares acquired by the Related
Person before the Determination Date, or (ii) the fair market value of the
common stock of the Corporation (as determined by the Continuing Directors) on
the date the Business Combination is first proposed (the "Announcement Date").
(b) The aggregate amount of cash and fair market value (as of
the date of the consummation of the Business Combination) of consideration other
than cash, to be received per share of any class or series of Preferred Stock in
such Business Combination by
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<PAGE>
holders thereof shall be at least equal to the higher of the following: (i) the
highest per share price (with appropriate adjustments for recapitalizations,
reclassifications (including stock splits and reverse stock splits), and stock
dividends), including any brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Related Person for any shares of such class or series
of Preferred Stock acquired by it, including those shares acquired by the
Related Person before the Determination Date; (ii) the fair market value of such
class or series of Preferred Stock of the Corporation (as determined by a
majority of the Continuing Directors) on the Announcement Date; and (iii) the
highest preferential amount per share of such class or series of Preferred Stock
to which the holders thereof would be entitled in the event of voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation (regardless of whether the Business Combination to be consummated
constitutes such an event).
(c) The consideration to be received by holders of a particular
class or series of outstanding Common or Preferred Stock shall be in cash or in
the same form as the Related Person has previously paid for shares of such class
or series of stock. If the Related Person has paid for shares of any class or
series of stock with varying forms of consideration, the form of consideration
given for such class of series of stock in the Business Combination shall be
either cash or the form used to acquire the largest number of shares of such
class or series of stock previously acquired by it.
(d) No Extraordinary Event (as hereinafter defined) occurs after
the Related Person has become a Related Person and prior to the consummation of
the Business Combination.
(e) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) is mailed to stockholders
of the Corporation at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is required
pursuant to such Act or subsequent provisions, although such proxy or
information statement need be filed with the Securities and Exchange Commission
only if a filing is required by such Act or subsequent provisions) and shall
contain at the front thereof in a prominent place the recommendations, if any,
of a majority of the Continuing Directors as to the advisability or
inadvisability of the Business Combination and of any investment banking firm
selected by a majority of the Continuing Directors as to the fairness of the
Business Combination from the point of view of the stockholders of the
Corporation other than the Related Person.
C. CERTAIN DEFINITIONS
For purposes of this Article 8, and such other Articles of this Certificate
of Incorporation that specifically incorporate by reference the definitions
contained in this Article 8:
(1) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934
is in effect on January 1, 1987.
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<PAGE>
(2) "Business Combination" shall mean any of the following
transactions, when entered into by the Corporation or a direct or indirect
subsidiary of the Corporation with, or upon a proposal by, a Related Person:
(a) the acquisition, merger or consolidation of the Corporation
or any direct or indirect subsidiary of the Corporation; or
(b) the sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one or a series of transactions) of any assets of the
Corporation or any direct or indirect subsidiary of the Corporation having an
aggregate fair market value of $10,000,000 or more; or
(c) the issuance or transfer by the Corporation or any direct or
indirect subsidiary of the Corporation (in one or a series of transactions) of
securities of this Corporation or that subsidiary having an aggregate fair
market value of $10,000,000 or more; or
(d) the adoption of a plan or proposal for the liquidation or
dissolution of the Corporation or any direct or indirect subsidiary of the
Corporation; or
(e) any reclassification of securities (including a stock split
or reverse stock split), recapitalization, consolidation or any other
transaction (whether or not involving a Related Person) which has the direct or
indirect effect of increasing the voting power, whether or not then
exercisable, of, a Related Person in any class or series of capital stock of the
Corporation or any direct or indirect subsidiary of the Corporation; or
(f) any agreement, contract or other arrangement providing
directly or indirectly for any of the foregoing or any amendment or repeal of
this Article 8.
(3) "Continuing Director" shall mean (a) if a Related Person exists,
any member of the Board of Directors of the Corporation who is not a Related
Person or an Affiliate or Associate of a Related Person and who was a member of
the Board of Directors immediately prior to the time that a Related Person
became a Related Person, and any successor to a Continuing Director who is not a
Related Person or an Affiliate or Associate of a Related Person and is
recommended to succeed a Continuing Director by a majority of the Continuing
Directors who are then members of the Board of Directors; and (b) if a Related
Person does not exist, any member of the Board of Directors.
(4) "Extraordinary Event" shall mean, as to any Business Combination
and Related Person, any of the following events that is not approved by a
majority of the Continuing Directors:
(a) any failure to declare and pay at the regular date therefor
any full quarterly dividend (whether or not cumulative) on outstanding Preferred
Stock; or
(b) any reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the Common
Stock); or
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(c) any failure to increase the annual rate of dividends paid on
the Common Stock as necessary to reflect any reclassification (including a stock
split or reverse stock split), recapitalization, reorganization or any similar
transaction that has the effect of reducing the number of outstanding shares of
the Common Stock; or
(d) the receipt by the Related Person, after the Determination
Date, of a direct or indirect benefit (except proportionately as a stockholder)
from any loans, advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by the Corporation or any
direct or indirect subsidiary of the Corporation, whether in anticipation of or
in connection with the Business Combination or otherwise.
(5) The term "person" shall mean any individual, corporation,
partnership, bank, association, joint stock company, trust, syndicate,
unincorporated organization or similar company, or a group of "persons" acting
or agreeing to act together for the purpose of acquiring, holding, voting or
disposing of securities of the Corporation, including any group of "persons"
seeking to combine or pool their voting or other interests in the equity
securities of the Corporation for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement whether written or
otherwise.
(6) "Related Person" shall mean any person (other than the
Corporation, a direct or indirect subsidiary of the Corporation, or any profit
sharing, employee stock ownership or other employee benefit plan of the
Corporation or a direct or indirect subsidiary of the Corporation or any trustee
of or fiduciary with respect to any such plan acting in such capacity) that is
the direct or indirect beneficial owner (as defined in Rule 13d-3 and Rule 13d-5
under the Securities Exchange Act of 1934 as in effect on January 1, 1987) of
more than ten percent (10%) of the outstanding Voting Stock of the Corporation,
and any Affiliate or Associate of any such person.
(7) "Voting Stock" shall mean all outstanding shares of the Common or
Preferred Stock of the Corporation entitled to vote generally in the election of
directors.
(8) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash" as used in
Paragraphs B(3)(a) and B(3)(b) of this Article 8 shall include the shares of
Common Stock and/or the shares of any other class of Preferred Stock retained by
the holders of such shares.
(9) A majority of the Continuing Directors shall have the power to
make all determinations with respect to this Article 8, including, without
limitation, the transactions that are Business Combinations, the persons who are
Related Persons, the time at which a Related Person became a Related Person, and
the fair market value of any assets, securities or other property, and any such
determinations of such Continuing Directors shall be conclusive and binding.
D. NO EFFECT ON FIDUCIARY OBLIGATIONS OF RELATED PERSONS
Nothing contained in this Article 8 shall be construed to relieve any
Related Person from any fiduciary obligation imposed by law.
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<PAGE>
ARTICLE 9. ACTION BY WRITTEN CONSENT
Except for the removal of a director pursuant to Article 7 hereof, any
action required to be taken or which may be taken at any annual or special
meeting of the stockholders of the Corporation may be taken by written consent
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the stockholders of the Corporation entitled to vote
thereon.
ARTICLE 10. SPECIAL MEETINGS
Special meetings of the stockholders may only be called by a majority of
the Continuing Directors (as defined in Article 8).
ARTICLE 11. BYLAWS
Bylaws may be adopted, amended or repealed by (i) the affirmative vote of
the holders of at least eighty percent (80%) of the total votes eligible to be
cast at a stockholders' meeting duly called and held or (ii) a resolution
adopted by the Board of Directors, including a majority of the Continuing
Directors (as defined in Article 8).
ARTICLE 12. LIMITATION OF DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware
("Delaware Corporation Law"), or (iv) for any transaction from which the
director derives any improper personal benefit. If the Delaware Corporation Law
is amended after the formation of this Corporation to permit the further
elimination or limitation of the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this Article 12 by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation in respect of any act or omission occurring prior to the time of
such repeal or modification.
ARTICLE 13. INDEMNIFICATION
A. Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or
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a subsidiary thereof or is or was serving at the request of the Corporation, as
a director, officer, partner, member or trustee of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, partner, member
or trustee or in any other capacity while so serving, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware Corporation Law, as the same exists or may hereinafter be amended (but,
in the case of any such amendment to the Delaware Corporation Law, the right to
indemnification shall be retroactive only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
prior to such amendment permitted the Corporation to provide), against all
expense, liability, and loss (including, without limitation, attorneys' fees and
related disbursements, judgments, fines, ERISA excise taxes or penalties, and
amounts paid or to be paid in settlement thereof) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer, partner,
member or trustee and shall inure to the benefit of his or her heirs, executors
and administrators; PROVIDED, HOWEVER, that, except as provided in Paragraph B
hereof with respect to proceedings seeking to enforce rights to indemnification,
the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Paragraph A
shall be a contract right and shall include the right to be paid the expenses
incurred in defending any such proceeding in advance of its final disposition;
PROVIDED, HOWEVER, that, if the Delaware Corporation Law so requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Paragraph A or
otherwise. Such right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of the final disposition may be conferred
upon any person who is or was an employee or agent of the Corporation or a
subsidiary thereof or is or was serving at the request of the Corporation as an
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, if, and to the extent, authorized by the Bylaws or the Board of
Directors, and shall inure to the benefit or his or her heirs, executors and
administrators.
B. If a claim under Paragraph A of this Article 13 is not paid in full by
the Corporation within thirty (30) days after a written claim has been received
by the Corporation, the claimant may at any time thereinafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither
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<PAGE>
the failure of the Corporation (including, without limitation, its Board of
Directors, independent legal counsel, or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware Corporation Law, nor an
actual determination by the Corporation (including without limitation, its Board
of Directors, independent legal counsel, or stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
C. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article 13 shall not be exclusive of any other right to which any person may
have or hereinafter acquire under any statute, provision of this Certificate of
Incorporation or by the Bylaws of the Corporation, agreement, vote of
stockholders or disinterested directors, or otherwise.
D. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability, or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware Corporation Law.
E. Any repeal or modification of the foregoing provisions of this
Article 13 shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
F. If this Article 13 or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director or officer of the Corporation as to any
expense (including attorneys' fees), judgment, fine and amount paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article 13 that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE 14. AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereinafter prescribed by law. Notwithstanding the foregoing and in addition to
any separate requirements contained in this Certificate of Incorporation, the
affirmative vote of the holders of at least eighty percent (80%) of the total
votes eligible to be cast at a legal meeting shall be required to amend, repeal
or adopt any provisions inconsistent with, Articles 5, 7, 8, 9, 10, 11, 12, 13,
and this Article 14.
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THE UNDERSIGNED, being the Chief Executive Officer and Chairman of the
Board of the Corporation, does hereby certify that this Restated Certificate of
Incorporation restates, integrates and further amends the Corporation's
Certificate of Incorporation and has been duly adopted in accordance with
sections 242 and 245 of the Delaware Corporation Law, and does hereby make and
file this Restated Certificate of Incorporation.
Dated: July 28, 1987.
/s/ William A. Cooper
-------------------------------
William A. Cooper
Chief Executive Officer;
Chairman of the Board and Director
Attest: /s/ Neil I. Whitehouse
-----------------------
Neil I. Whitehouse
Secretary
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<PAGE>
Amendment Dated April 19, 1995 SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/11/1995
950288105 - 2124645
- --------------------------------------------------------------------------------
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
- --------------------------------------------------------------------------------
TCF Financial Corporation a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST : That at a meeting of the Board of Directors of TCF Financial
Corporation resolutions were adopted setting forth proposed amendment of
the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation if this corporation be
amended by changing the Article thereof numbered "7" (Section A) so that,
as amended, said Article shall be read as follows:
A. Number of Directors
The Business and affairs of the Corporation shall be managed by or under
the direction of a board of directors (the "Board of Directors"). The
authorized number of directors shall consist of not fewer than seven nor
more than 25 directors. Within such limits, the exact number of directors
shall be fixed from time to time pursuant to a resolution adopted by a
majority of the Continuing Directors (as defined hereinafter in Article 8).
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called
and help upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said TCF Financial Corporation has caused this
certificate to be signed by Gregory J. Pulles, as authorized Officer this
4th day of December, 1995.
BY: /s/ Gregory Pulles
---------------------------------------------------
TITLE OF OFFICER: Vice Chairman, Secretary,
General Counsel
<PAGE>
BYLAWS
OF
TCF FINANCIAL CORPORATION
As amended through April 26, 1988
<PAGE>
BYLAWS OF
TCF FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of meeting or in a
duly executed waiver thereof.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders, commencing
with the year 1988, shall be held at 2:00 o'clock P.M. on the third Wednesday of
April, if not a legal holiday, and if a legal holiday, then on the next
succeeding day not a legal holiday at 2:00 o'clock P.M., or at such other date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of meeting or in a duly executed waiver thereof. At such
annual meeting, the stockholders shall elect by a plurality vote a class of
directors of the Board of Directors from among those nominated in conformance
with the procedures set forth in these Bylaws and transact such other business
as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may be
called as provided in Article 10 of the Certificate of Incorporation.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote thereat not less than ten nor
more than fifty days before the date of the meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the stockholder at his or her
address as it appears on the records of the
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Corporation. Notice by mail shall be deemed given at the time when the same
shall be deposited in the United States mail, postage prepaid. Whenever notice
is required to be given under any provision of statute or the Certificate of
Incorporation of the Corporation or these Bylaws, a written waiver, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, an
annual or special meeting of stockholders need be specified in any written
waiver of notice.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city, town or village where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 6. QUORUM, ADJOURNMENTS. The holders of a majority of the voting
power of the issued and outstanding stock of the Corporation entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of stockholders, except as
otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or, if after adjournment a new record
date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 7. ORGANIZATION. At each meeting of stockholders, the Chairman of
the Board, if one shall have been elected, or, in his or her absence or if one
shall not have been elected, the President or any person designated by the
Chairman of the Board or President, shall act as chairman of the meeting. The
Secretary or, in his or her absence or inability to act, the person whom the
chairman of the meeting shall appoint as secretary of the meeting shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 8. ORDER OF BUSINESS. All meetings of stockholders shall be
conducted in accordance with such rules as are prescribed by the chairman of the
meeting. The order of business at all meetings of the stockholders shall be as
determined by the chairman of the meeting.
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SECTION 9. VOTING. Except as otherwise provided by statute, the
Certificate of Incorporation or any resolution of the Board of Directors
establishing any class or series of Preferred Stock, each stockholder of the
Corporation shall be entitled at each meeting of stockholders to one vote for
each share of capital stock of the Corporation standing in such person's name on
the record of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these Bylaws as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice thereof
shall be given, or, if notice is waived, at the close of business on the
date next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him or her by a proxy signed by such
stockholder or his or her attorney-in-fact, but no proxy shall be voted after
eleven months from its date. Any such proxy shall be delivered to the secretary
of the meeting at or prior to the time designated in the order of business for
so delivering such proxies. When a quorum is present at any meeting, the vote
of the holders of a majority of the voting power of the issued and outstanding
stock of the Corporation entitled to vote thereon, present in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statute or of the
Certificate of Incorporation or of these Bylaws, a different vote is required,
in which case such express provision shall govern and control the decision of
such question. Unless required by statute, or determined by the chairman of the
meeting to be advisable, the vote on any question need not be by ballot. On a
vote by ballot, each ballot shall be signed by the stockholder voting, or by
such person's proxy, if there be such proxy, and shall state the number of
shares voted.
SECTION 10. VOTING BY THE CORPORATION. Shares of its own capital stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes. Nothing in this section shall be
construed as limiting the right of the Corporation to vote stock, including but
not limited to its own stock, held by it or by any of its subsidiaries in a
fiduciary capacity.
SECTION 11. INSPECTORS. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his or her ability. The inspectors shall determine the number of shares of
capital stock of the Corporation outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges
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and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the
office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
SECTION 12. ACTION BY CONSENT. The stockholders of the Corporation may
take action by written consent only in accordance with the provisions of the
Certificate of Incorporation of the Corporation.
SECTION 13. STOCKHOLDER NOMINATIONS; BUSINESS TO BE BROUGHT BEFORE THE
MEETING.
(a) STOCKHOLDER NOMINATIONS. Nominations of candidates for election
as directors at any annual meeting of stockholders may be made (i) by, or
at the direction of, a majority of the Continuing Directors (as such term
is defined in Article 8 of the Certificate of Incorporation of this
Corporation) or (ii) by any stockholder of record entitled to vote at such
annual meeting. Only persons nominated in accordance with procedures set
forth in this Section 13(a) shall be eligible for election as directors at
an annual meeting.
Nominations, other than those made by, or at the direction of, a
majority of the Continuing Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation as set forth in this
Section 13(a). To be timely, a stockholder's notice shall be delivered to,
or mailed and received at, the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days
prior to the date of the scheduled annual meeting, regardless of
postponements, deferrals, or adjournments of that meeting to a later date;
PROVIDED, HOWEVER, that if less than seventy (70) days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or
made, notice by the stockholder to be timely must be so delivered or
received not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public
disclosure was made. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election as a
director (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the
class and number of shares of the Corporation's equity securities which are
beneficially owned (as such term is defined in Rule 13d-3 or 13d-5 under
the Securities Exchange Act of 1934 as in effect on January 1, 1987 (the
"Exchange Act")) by such person on the date of such stockholder notice and
(d) any other information relating to such person that would be required to
be disclosed pursuant to Schedule 13D under the Exchange Act in connection
with the acquisition of shares, and pursuant to Regulation 14A under the
Exchange Act, in connection with the solicitation of proxies with respect
to nominees for election as directors, regardless of whether such person is
subject to the provisions of such regulations, including, but not limited
to, information required to be disclosed by Items 4(b) and 6 of
Schedule 14A under the Exchange Act and information which would be required
to be filed on Schedule 14B under the Exchange Act with the Securities and
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<PAGE>
Exchange Commission; and (ii) as to the stockholder giving the notice
(a) the name and address, as they appear on the Corporation's books, of
such stockholder and any other stockholder who is a record or beneficial
owner of any equity securities of the Corporation and who is known by such
stockholder to be supporting such nominee(s) and (b) the class and number
of shares of the Corporation's equity securities which are beneficially
owned, as defined above, and owned of record by such stockholder on the
date of such stockholder notice and the number of shares of the
Corporation's equity securities beneficially owned and owned of record by
any person known by such stockholder to be supporting such nominee(s) on
the date of such stockholder notice. At the request of a majority of the
Continuing Directors, any person nominated by, or at the direction of, the
Board of Directors for election as a director at an annual meeting shall
furnish to the Secretary of the Corporation that information required to be
set forth in a stockholder's notice of nomination which pertains to the
nominee.
No person shall be elected as a director of the Corporation unless
nominated in accordance with the procedures set forth in this
Section 13(a). Ballots bearing the names of all the persons who have been
nominated for election as directors at an annual meeting in accordance with
the procedures set forth in this Section 13(a) shall be provided for use at
the annual meeting.
A majority of the Continuing Directors may reject any nomination by a
stockholder not timely made in accordance with the requirements of this
Section 13(a). If a majority of the Continuing Directors determines that
the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 13(a) in any material respect,
the Secretary of the Corporation shall promptly notify such stockholder of
the deficiency in the notice. The stockholder shall have an opportunity to
cure the deficiency by providing additional information to the Secretary
within five (5) days from the date such deficiency notice is given to the
stockholder, or such shorter time as may be reasonably deemed appropriate
by a majority of the Continuing Directors, taking into consideration the
date of the meeting, the matters to be brought before the meeting, time
constraints for the printing and mailing of proxies and other materials to
stockholders, and such other considerations as may be deemed appropriate by
the Continuing Directors. If the deficiency is not cured within such
period, or if a majority of the Continuing Directors reasonably determines
that the additional information provided by the stockholder, together with
the information previously provided, does not satisfy the requirements of
this Section 13(a) in any material respect, then the Board of Directors may
reject such stockholder's nomination. The Secretary of the Corporation
shall notify a stockholder in writing whether his or her nomination has
been made in accordance with the time and informational requirements of
this Section 13(a). Notwithstanding the procedure set forth in this
Section 13(a), if the majority of the Continuing Directors does not make a
determination as to the validity of any nominations by a stockholder, the
chairman of the annual meeting shall determine and declare at the annual
meeting whether a nomination was not made in accordance with the terms of
this Section 13(a). If the chairman of such meeting determines that a
nomination was not made in accordance with the terms of this Section 13(a),
he or she shall so declare at the annual meeting and the defective
nomination shall be disregarded.
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(b) BUSINESS TO BE BROUGHT BEFORE THE MEETING. At an annual meeting
of stockholders, only such business shall be conducted, and only such
proposals shall be acted upon as shall have been brought before the annual
meeting (i) by, or at the direction of, the majority of the Continuing
Directors (as defined in Article 8 of the Certificate of Incorporation of
the Corporation), or (ii) by any stockholder of the Corporation who
complies with the notice procedures set forth in this Section 13(b). For a
proposal to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the Corporation not less than sixty (60) days nor more than ninety (90)
days prior to the scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
PROVIDED, HOWEVER, that if less than seventy (70) days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or
made, notice by the stockholder, to be timely, must be so delivered or
received not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public
disclosure was made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the proposal desired to be brought
before the annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and any
other stockholder who is the record or Beneficial Owner (as defined in
Section 13(a) of these Bylaws) of any equity security of the Corporation
known by such stockholder to be supporting such proposal, (iii) the class
and number of shares of the Corporation's equity securities which are
beneficially owned (as defined in Section 13(a) of these Bylaws) and owned
of record by the stockholder giving the notice on the date of such
stockholder notice and by any other record or Beneficial Owners of the
Corporation's equity securities known by such stockholder to be supporting
such proposal on the date of such stockholder notice, and (iv) any
financial or other interest of the stockholder in such proposal.
A majority of the Continuing Directors may reject any stockholder
proposal not timely made in accordance with the terms of this
Section 13(b). If a majority of the Continuing Directors determines that
the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 13(b) in any material respect,
the Secretary of the Corporation shall promptly notify such stockholder of
the deficiency in the notice. The stockholder shall have an opportunity to
cure the deficiency by providing additional information to the Secretary
within such period of time, not to exceed five days from the date such
deficiency notice is given to the stockholder, as the majority of the
Continuing Directors shall reasonably determine. If the deficiency is not
cured within such period, or if the majority of the Continuing Directors
determines that the additional information provided by the stockholder,
together with information previously provided, does not satisfy the
requirements of this Section 13(b) in any material respect, then a majority
of the Continuing Directors may reject such stockholder's proposal. The
Secretary of the Corporation shall notify a stockholder in writing whether
such person's proposal has been made in accordance with the time and
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information requirements of this Section 13(b). Notwithstanding the
procedures set forth in this paragraph, if the majority of the Continuing
Directors does not make a determination as to the validity of any
stockholder proposal, the chairman of the annual meeting shall determine
and declare at the annual meeting whether the stockholder proposal was made
in accordance with the terms of this Section 13(b). If the chairman of
such meeting determines that a stockholder proposal was not made in
accordance with the terms of this Section 13(b), he or she shall so declare
at the annual meeting and any such proposal shall not be acted upon at the
annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated,
filed and received as herein provided.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
The Board of Directors shall designate, when present, either the Chairman of the
Board, if one has been elected, the Vice Chairman, or any other member of the
Board of Directors, to preside at its meetings.
SECTION 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The
number of directors of the Corporation shall be set from time to time by the
then serving Continuing Directors of the Corporation, as defined in Article 8 of
the Certificate of Incorporation of the Corporation. Directors need not be
stockholders. Nominations of candidates for election as directors shall be made
pursuant to the procedures set forth in Article II, Section 13(a) of these
Bylaws.
SECTION 3. PLACE OF MEETINGS. Meetings of the Board of Directors shall be
held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 4. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
Article III.
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SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same time and place on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these Bylaws.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if one shall have been elected, the
Vice Chairman or by a majority of both the directors and the Continuing
Directors of the Corporation as such term is defined in Article 8 of the
Certificate of Incorporation of the Corporation. Except as otherwise limited by
statute, the Certificate of Incorporation of the Corporation or these Bylaws,
the persons authorized to call special meetings of the Board of Directors may
fix any place as the place for holding any special meeting of the Board of
Directors called by such person or persons.
SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these Bylaws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him or her at his or her residence or
usual place of business, by first class mail, at least two days before the day
on which such meeting is to be held, or shall be sent addressed to him or her at
such place by telegraph, cable, telex, telecopier or other similar means, or be
delivered to him personally or be given to him or her by telephone or other
similar means, at least twenty-four hours before the time at which such meeting
is to be held. Notice of any such meeting need not be given to any director who
shall, either before or after the meeting, submit a signed waiver of notice or
who shall attend such meeting, except when he or she shall attend for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. QUORUM AND MANNER OF ACTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these Bylaws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and
place of any such adjourned meeting shall be given to all of the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such, other than
acting as a member of the Board of Directors or a committee thereof.
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SECTION 9. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the Vice Chairman,
if present, and if not present, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat.
Each meeting of the Board of Directors shall be conducted in accordance with
such rules as are prescribed by the presiding officer of the meeting. The
Secretary or, in his or her absence, any person appointed by the chairman of the
meeting shall act as secretary of the meeting and keep the minutes thereof.
SECTION 10. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice of his or her resignation to the Chairman of
the Board or the Vice Chairman, and to the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 11. VACANCIES. Vacancies on the Board of Directors shall be
filled in accordance with the procedures described in the Certificate of
Incorporation.
SECTION 12. AGE LIMITATION. No person shall be nominated or renominated
for director if that person has attained the age of 70.
SECTION 13. COMPENSATION. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of directors
and any advisory directors for services to the Corporation in any capacity.
SECTION 14. COMMITTEES.
(a) APPOINTMENT. The Board of Directors, by resolution duly adopted
by a majority of the Board, may designate one or more directors to
constitute an Executive Committee, provided that at least one-third of the
members of the Executive Committee shall not be full time employees of the
Corporation. The designation of any Executive Committee pursuant to this
Article III, Section 14 and the delegation of authority thereto shall not
operate to relieve the Board of Directors, or any director, of any
responsibility imposed by law or regulation. The Board of Directors, by
resolution duly adopted by a majority of the Board, may designate not fewer
than three directors who are not employees of the Corporation or any of its
subsidiaries to constitute an Audit Committee.
(b) OTHER COMMITTEES. The Board of Directors may by resolution
establish any other committees composed of directors as they may determine
necessary or appropriate for the conduct of the business of the Corporation
and may prescribe the duties, constitution and procedures thereof. Any
committee so established shall have and may exercise all of the authority
granted to it by the resolution establishing such committee.
(c) AUTHORITY. The Executive Committee, when the Board of Directors
is not in session, shall have and may exercise all of the authority of the
Board of Directors.
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The Audit Committee shall recommend selection of and approve services to be
provided by the independent auditors for the Corporation, and shall review
matters pertaining to the audit, systems of internal control, and
accounting policies and procedures, and shall direct and supervise
investigations into matters within the scope of its duties.
(d) LIMITATIONS ON AUTHORITY. Notwithstanding any other provision of
these bylaws, neither the Executive Committee nor the Audit Committee or
any other committee established by the Board of Directors shall have the
power (i) to amend the Certificate of Incorporation of the Corporation
(except, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors of the Corporation, that a committee may fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or
the conversion into, or the exchange or such shares for, shares of any
other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of any
series); (ii) to adopt an agreement of merger or consolidation; (iii) to
recommend to the stockholders of the Corporation the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets, or to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution; (iv) to amend these bylaws;
and (v) in the absence of specific authorization in these Bylaws, the
Certificate of Incorporation of the Corporation or resolution of the Board
of Directors establishing such committee, to declare a dividend, authorize
the issuance of stock or adopt a certificate of ownership and merger; and
that such committee's powers shall be further limited to the extent, if
any, that such authority shall be limited by the resolution appointing such
committee, by statute, by the Certificate of Incorporation of the
Corporation, or by these Bylaws.
(e) TENURE. Subject to the provisions of these Bylaws, each member
of the Executive Committee and Audit Committee shall hold office until the
next regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of such
Committee.
(f) MEETINGS. Regular meetings of the Executive Committee and the
Audit Committee may be held without notice at such times and places as such
Committees may fix from time to time. Special meetings of such Committees
may be called by any member thereof upon notice given not less than twenty-
four hours prior to the meeting stating the place, date, and hour of the
meeting, which notice may be written or oral. Any member of the Executive
or Audit Committee may waive notice of any meeting and no notice of any
meeting need be given to any member thereof who attends in person. The
notice of a meeting of the Executive or Audit Committee need not state the
business proposed to be transacted at the meeting.
(g) QUORUM. A majority of the members of the Executive or Audit
Committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the Executive or Audit Committees must be
authorized by the affirmative vote of a majority of the members present at
a meeting at which a quorum is present.
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(h) VACANCIES. Any vacancy in the Executive or Audit Committee may
be filled by resolution duly adopted by a majority of the Board of
Directors.
(i) RESIGNATIONS AND REMOVAL. Any member of the Executive Committee
or Audit Committee may be removed at any time with or without cause by
resolution duly adopted by a majority of the Board of Directors. Any
member of either Committee may resign from such Committee at any time by
giving written notice to the Chairman of the Board, the Vice Chairman or
the Secretary of the Corporation. Unless otherwise specified therein, such
resignation shall take effect upon its receipt. The acceptance of such
resignation shall not be necessary to make it effective.
(j) PROCEDURE. The Executive Committee, Audit Committee and any
other committee established by the Board of Directors shall elect a
presiding officer from its members and may fix its own rules of procedure
which shall not be inconsistent with these Bylaws or the resolution adopted
by the Board of Directors establishing such committee. It shall keep
regular minutes of its proceedings and report the same to the Board of
Directors for its information at the meeting thereof held next after the
proceedings shall have occurred.
SECTION 15. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 16. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
SECTION 17. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he or she shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Corporation within ten
days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a director who voted in favor of such
action.
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ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Directors and shall include the Chairman of the
Board and Chief Executive Officer, the Vice Chairman of the Board, the
President, the Secretary and the Treasurer. If the Board of Directors wishes,
it may also elect other officers (including, without limitation, a Chief
Operating Officer, a Controller, a General Counsel, one or more Vice Presidents,
one or more Assistant Treasurers and one or more Assistant Secretaries) as may
be necessary or desirable for the business of the Corporation. The Board of
Directors may designate one or more Vice Presidents as Executive Vice President,
First Vice President, Senior Vice President or Assistant Vice President. Any
two or more offices may be held by the same person, and no officer except the
Chairman of the Board need be a director. Each officer shall hold office until
his or her successor shall have been duly elected and shall have qualified, or
until his or her death, or until he or she shall have resigned or have been
removed, as hereinafter provided in these Bylaws.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign at any
time by giving written notice of his or her resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the Corporation may be removed, either
with or without cause, at any time, by the Board of Directors at any meeting
thereof. Any removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause may be filled by a vote
of the majority of the Board of Directors.
SECTION 5. OFFICERS' BONDS OR OTHER SECURITY. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his or her duties, in such amount and with such
surety as the Board of Directors may require.
SECTION 6. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he or she is also a
director of the Corporation.
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ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him or her in the Corporation. If the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
designations, preferences, and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restriction of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
SECTION 3. LOST CERTIFICATES. The Corporation may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his or her legal representative, to
give the Corporation a bond in such sum as it may direct sufficient to indemnify
it against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
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SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these Bylaws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
SECTION 7. FIXING THE RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of capital
stock of the Corporation (Common or Preferred), unless otherwise provided by
statute or the Certificate of Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserves in the manner in which it was created.
SECTION 3. SEAL. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of
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the Corporation by such officer, officers, person or persons as from time to
time may be designated by the Board of Directors or by an officer or officers
authorized by the Board of Directors to make such designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman or Vice Chairman
of the Board or the President, from time to time, may (or may appoint one or
more attorneys or agents to) cast the votes which the Corporation may be
entitled to cast as a stockholder or otherwise in any other corporation, any of
whose shares or securities may be held by the Corporation, at meetings of the
holders of the shares or other securities of such other corporation. If one or
more attorneys or agents are appointed, the Chairman or Vice Chairman of the
Board or the President may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent. The Chairman or Vice
Chairman of the Board or the President may, or may instruct the attorneys or
agents appointed to, execute or cause to be executed in the name and on behalf
of the Corporation and under its seal or otherwise, such written proxies,
consents, waivers or other instruments as may be necessary or proper in the
circumstances.
ARTICLE VII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was an
employee or agent of the Corporation or a subsidiary thereof, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as an employee or
agent or in any other capacity while so serving, may be indemnified and held
harmless by the Corporation to the fullest extent authorized by the General
Corporation Law of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, the right to indemnification shall be
retroactive only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law prior to such amendment
permitted the Corporation to provide), against all expense, liability and loss
(including, without limitation, attorneys' fees and related disbursements,
judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification may continue as to a person who has ceased
to be an employee or agent and may inure to the benefit of his or her heirs,
executors and administrators; PROVIDED, HOWEVER, that the Corporation may
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the
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Board of Directors of the Corporation. The right to indemnification conferred
in this Section 1 shall be a contract right and may include the right to be paid
the expenses incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that the payment of such expenses incurred by an
employee or agent in his or her capacity as an employee or agent (and not in any
other capacity in which service was or is rendered by such person while an
employee or agent, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding may be made, if
required by the Board of Directors, upon delivery to the Corporation of an
undertaking, by or on behalf of such employee or agent, to repay all amounts so
advanced if it shall ultimately be determined that such employee or agent is not
entitled to be indemnified under this Section 1 or otherwise.
SECTION 2. INDEMNIFICATION NOT EXCLUSIVE. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article VII shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation or these Bylaws of the
Corporation, agreement, vote of stockholders or disinterested directors, or
otherwise.
SECTION 3. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any employee or agent of the Corporation or a
subsidiary thereof, another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of Delaware.
ARTICLE VIII
AMENDMENTS
These Bylaws may be amended or repealed or new bylaws adopted as
provided in the Certificate of Incorporation of the Corporation.
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EXCERPT FROM MINUTES
BOARD OF DIRECTORS MEETING
TCF FINANCIAL CORPORATION
JULY 25, 1995
********************************************************************************
Following discussion, and upon motion duly made, seconded and carried, the
following resolutions were adopted:
WHEREAS, Article II of the Restated Certificate of Incorporation
authorizes the board of directors to amend the Bylaws of this Corporation;
and
WHEREAS, the board wishes the delay of the annual shareholders meeting
date in order to allow more time to complete year end financial reports
and disclosure before the meeting;
NOW, THEREFORE, it is hereby
RESOLVED, that Article II, Section 2 of the Bylaws is amended to read
in full as follows (marked to show changes):
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders,
commencing with the year 1988, shall be held at 10:00 o'clock A.M. on the
fourth Wednesday of April, if not a legal holiday, and if a legal holiday,
then on the next succeeding day not a legal holiday at 10:00 o'clock A.M.,
or at such other date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of meeting or in a duly
executed waiver thereof. At such annual meeting, the stockholders shall
elect by a plurality vote a class of directors of the Board of Directors
from among those nominated in conformance with the procedures set forth in
these Bylaws and transact such other business as may properly be brought
before the meeting.
I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby certify
that the foregoing is a true and correct copy of excerpt of minutes of the Board
of Directors of the Corporation meeting held on July 25, 1995, and that the
minutes have not been modified or rescinded as of the date hereof.
/s/
-------------------------------
Gregory J. Pulles
(Corporate Seal)
Dated: October 23, 1995
<PAGE>
GREAT LAKES BANCORP, A FEDERAL SAVINGS BANK,
TCF FINANCIAL CORPORATION
AND
IBJ SCHRODER BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of February 8, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Supplementing and Amending
the
Indenture
Dated as of March 1, 1986
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7-1/4% CONVERTIBLE SUBORDINATED DEBENTURES
Due 2011
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of February 8, 1995, by and
among GREAT LAKES BANCORP, A FEDERAL SAVINGS BANK, a federal savings bank duly
organized and existing under the laws of the United States ("New GLB"), having
its principal office at 401 East Liberty Street, Ann Arbor, Michigan 48104, TCF
FINANCIAL CORPORATION, a corporation duly organized and existing under the laws
of the State of Delaware ("TCF"), having its principal office at 801 Marquette
Avenue, Suite 302, Minneapolis, Minnesota 55402 and IBJ SCHRODER BANK & TRUST
COMPANY, a banking corporation duly organized and existing under the laws of the
State of New York (the "Trustee"), as Trustee, having its principal corporate
office at One State Street, New York, New York 10004.
RECITALS
WHEREAS, Great Lakes Federal Savings and Loan Association (n/k/a, Great
Lakes Bancorp, A Federal Savings Bank) ("Old GLB") and J. Henry Schroder Bank &
Trust Company (n/k/a, the Trustee) entered into an indenture, dated as of March
1, 1986 (the "Indenture"), with respect to $35,000,000 aggregate principal
amount of 7-1/4% Convertible Subordinated Debentures due 2011 (the "Debentures")
of Old GLB; and
WHEREAS, $9,928,000 aggregate principal amount of the Debentures are
outstanding as of the date hereof; and
WHEREAS, pursuant to Section 14.01 of the Indenture, at any time the holder
of any Debenture or Debentures has the right, at his option (subject to
redemption in accordance with the terms of the Indenture and subject to the
terms and provisions of Article Fourteen of the Indenture) to convert the
principal of any such Debenture or Debentures (or any portion thereof which is
$100,000 or an integral multiple thereof) into shares of the common stock of Old
GLB, par value $.Ol per share (the "Old GLB Common Stock"), at the price (the
"Conversion Price") of $24.63 per share (subject to adjustment in accordance
with Section 14.04 of the Indenture); and
WHEREAS, TCF and Old GLB entered into an Agreement and Plan of
Reorganization, dated September 8, 1994 (the "Merger Agreement"), whereby Old
GLB will be merged with and into a wholly-owned subsidiary of TCF (the "Merger")
to be known as New GLB; and
WHEREAS, on February 8, 1995, stockholders of TCF and Old GLB,
respectively, approved the Merger; and
WHEREAS, in accordance with the terms of the Merger Agreement and Section
552.13 of the Office of Thrift Supervision ("OTS") Rules and Regulations, New
GLB and TCF, upon consummation of the Merger on the date hereof, will assume,
jointly and severally, Old GLB's obligations under the Indenture; and
WHEREAS, New GLB, TCF and the Trustee desire to amend the Indenture,
subject to the consummation of the Merger, to provide that, in accordance with
the terms of the Merger Agreement, Sections 8.01, 8.02 and 14.06 of the
Indenture, and the OTS Rules
<PAGE>
and Regulations, New GLB and TCF, shall assume, jointly and severally, all of
Old GLB's obligations under the Indenture and the Debentures, and that, in
accordance with the terms of the Merger Agreement and Section 14.06(a) of the
Indenture, the holder of each Debenture outstanding as of the consummation of
the Merger shall have the right thereafter (subject to redemption in accordance
with the terms of the Indenture) to convert such Debenture into only the kind
and amount of shares of stock and other securities or property, including cash,
receivable upon consummation of the Merger by a holder of the number of shares
of Old GLB Common Stock into which such Debenture might have been converted
immediately prior to the Merger; and
WHEREAS, New GLB, TCF and the Trustee desire to amend the Indenture in
accordance with the terms of Section 14.06(c) of the Indenture, subject to the
consummation of the Merger, (i) to state the Conversion Price in terms of one
full share of the common stock of TCF, par value $.Ol per share ("TCF Common
Stock"); and (ii) to provide that any subsequent adjustments shall be as nearly
equivalent as may be practicable to the adjustments provided for in Article 14
of the Indenture; and
WHEREAS, the Boards of Directors of New GLB and TCF, respectively, by
resolution, have approved this First Supplemental Indenture as hereinafter set
forth:
NOW, THEREFORE, in consideration of the above premises and in order to
comply with the terms of Sections 8.01, 8.02 and 14.06 of the Indenture, the
parties hereto agree that the Indenture is hereby amended to provide that, upon
and subject to consummation of the Merger:
(i) New GLB and TCF shall succeed to, and be substituted for, and may
exercise every right and power of, Old GLB under the Indenture with the
same effect as if TCF and New GLB had been named as Old GLB in the
Indenture, and shall assume, jointly and severally, all of Old GLB's
obligations under the Indenture and the Debentures, including without
limitation, the due and punctual payment of the principal of (and premium,
if any) and interest on all the Debentures and the performance and
observance of every covenant and term of the Indenture on the part of Old
GLB to be performed or observed, and Old GLB shall be relieved of all
liabilities, obligations and covenants under the Indenture and the
Debentures;
(ii) the holder of each Debenture outstanding as of the consummation of
the Merger shall have the right thereafter (subject to redemption in
accordance with the terms of the Indenture) to convert such Debenture into
shares of TCF Common Stock issuable in respect to the shares of Old GLB
Common Stock into which such Debentures might have been converted
immediately prior to the Merger, subject to such further adjustment as
provided in the Indenture;
(iii) at any time the holder of any Debenture or Debentures has the right,
at his option (subject to redemption in accordance with the terms of the
Indenture and subject to the
<PAGE>
terms and provisions of Article Fourteen of the Indenture) to convert the
principal of any such Debenture or Debentures (or any portion thereof which
is $100,000 or an integral multiple thereof) into shares of TCF Common
Stock at a Conversion Price of $34.09 per share (the Conversion Price of
$24.63 per share divided by 0.7225806, the Exchange Ratio in the Merger (as
defined in the Merger Agreement)), subject to adjustment in accordance with
Section 14.04 of the Indenture; and
(iv) any subsequent adjustments shall be as nearly equivalent as may be
practicable to the adjustments provided for in Article 14 of the Indenture.
This First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
such counterparts shall together constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
GREAT LAKES BANCORP,
A FEDERAL SAVINGS BANK
( S E A L )
By
--------------------------------
Name:
Title:
ATTEST:
- ------------------------------
Name:
Title:
TCF FINANCIAL CORPORATION
( S E A L )
By
-----------------------------
Name:
Title:
ATTEST:
- ------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
( S E A L )
By
---------------------------------
Name:
Title:
ATTEST:
- ---------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
GREAT LAKES BANCORP,
A FEDERAL SAVINGS BANK
( S E A L )
By
----------------------------------
Name:
Title:
ATTEST:
- --------------------------------
Name:
Title:
TCF FINANCIAL CORPORATION
( S E A L )
By /s/ William A. Cooper
----------------------------------
Name: William A. Cooper
Title: Chairman and Chief Executive
Officer
ATTEST:
/s/ Gregory J. Pulles
- ---------------------------------
Name: Gregory J. Pulles
Title. General Counsel, Secretary
and Vice Chairman
IBJ SCHRODER BANK & TRUST COMPANY
( S E A L )
By /s/ Barabara McCluskey
------------------------------
Name: Barabara McCluskey
Title: Asst. Vice President
ATTEST:
/s/ Susan Labelle
- ------------------------------------
Name: Susan Labelle
Title: Asst. Secretary
<PAGE>
STATE OF MICHIGAN )
) SS.
COUNTY OF WASHTENAW )
On the 7th day of February, 1995, before me personally came Robert J.
Delonis, to me known, who, being by me duly sworn, did depose and say that he
is the Chairman and C.E.O. of Great Lakes Bancorp, A Federal Savings Bank,
one of the entities described in and which executed the foregoing instrument;
that he knows the seal of said savings bank; that the seal affixed to said
instrument is such seal; that it was so affixed by authority of the Board of
Directors of Great Lakes Bancorp, A Federal Savings Bank, and that he signed
his name thereto by like authority.
(NOTARIAL SEAL) /s/ Karina H. Niemeyer
-------------------------------------
Notary Public Karin H. Niemeyer
My commission expires: 9/22/98
---------------------------------.
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
On the 8th day of February, 1995, before me personally came Williamn A.
Cooper, to me known, who, being by me duly sworn, did depose and say that he
is the Chairman and CEO of TCF Financial Corporation, one of the entities
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by authority of the Board of Directors of TCF Financial
Corporation, and that he signed his name thereto by like authority.
(NOTARIAL SEAL) /s/ Miriam A. Enge
---------------------------
Notary Public
My commission expires: January 31, 2000
--------------------------
[SEAL]
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the 6th day of February, 1995, before me personally came Barbara
McCluskey, to me known, who, being by me duly sworn, did depose and say that
she is an Asst. Vice President of IBJ Schroder Bank & Trust Company, one of
the entities described in and which executed the foregoing instrument; that
she knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of IBJ Schroder Bank & Trust Company, and that she signed
her name thereto by like authority.
(NOTARIAL SEAL) /s/ Kathleen Keally
----------------------------
Notary Public
My commission expires: November 9, 1995
-----------------
[SEAL]
<PAGE>
TCF FINANCIAL 1995 INCENTIVE STOCK PROGRAM
1. PURPOSE.
The purpose of the TCF Financial 1995 Incentive Stock Program (the
"Program") is to attract and retain outstanding individuals as officers and
other employees of TCF Financial Corporation (the "Company") and its
subsidiaries, and to furnish incentives to such persons by providing such
persons opportunities to acquire common shares of the Company, or monetary
payments based on the value of such shares or the financial performance of the
Company, or both, on advantageous terms as herein provided (the "Benefits").
2. ADMINISTRATION.
The Program will be administered by a committee (the "Committee") of
at least two persons which shall be either the Compensation Committee of the
Board of Directors of the Company or such other committee comprised entirely of
"disinterested persons" as defined in Rule 16b-3 of the Securities and Exchange
Commission as the Board of Directors may from time to time designate. In
addition, if necessary for purposes of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), membership on the Committee shall be
limited to individuals who qualify as "independent" under that Section. The
Committee shall interpret the Program, prescribe, amend and rescind rules and
regulations relating thereto, and make all other determinations necessary or
advisable for the administration of the Program. A majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
shall be made by a majority of its members. Any determination of the Committee
under the Program may be made without notice of meeting of the Committee by a
writing signed by a majority of the Committee members.
3. PARTICIPANTS.
Participants in the Program will consist of such officers and other
employees of the Company and its subsidiaries as the Committee in its sole
discretion may designate from time to time to receive Benefits hereunder. The
Committee's designation of a participant in any year shall not require the
Committee to designate such person to receive a Benefit in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
participants and in determining the type and amount of their respective
Benefits, including without limitation (i) the financial condition of the
Company; (ii) anticipated profits for the current or future years; (iii)
contributions of participants to the profitability and development of the
Company; and (iv) other compensation provided to participants.
4. TYPES OF BENEFITS.
Benefits under the Program may be granted in any one or a
combination of (a) Incentive Stock Options; (b) Non-qualified Stock Options;
(c) Stock Appreciation Rights; (d) Restricted Stock Awards; and (e)
Performance Units, all as described below and pursuant to
<PAGE>
the Plans set forth in paragraphs 6-10 hereof. Notwithstanding the foregoing,
the Committee may not award more than 100,000 shares in the aggregate in the
form of Incentive Stock Options, Non-qualified Stock Options and Stock
Appreciation rights combined in any one calendar year to any individual
participant. Any Benefits awarded under the Program shall be evidenced by a
written agreement containing such terms and conditions as the Committee may
determine, including but not limited to vesting of Benefits.
5. SHARES RESERVED UNDER THE PROGRAM.
There is hereby reserved for issuance under the Program, subject to
the adjustments under paragraph 17, an aggregate of five percent of the Common
Shares issued and outstanding (but excluding treasury shares) as of the date of
shareholder approval of this Program. If there is a lapse, expiration,
termination or cancellation of any Benefit granted hereunder without the
issuance of Common Shares or payment of cash thereunder, the shares subject to
or reserved for such Benefit may again be used for new options, rights or awards
of any sort authorized under this Program; provided, however, that in no event
may the number of Common Shares issued under this Program exceed the total
number of shares reserved for issuance hereunder.
6. INCENTIVE STOCK OPTION PLAN.
Incentive Stock Options will consist of options to purchase Common
Shares at purchase prices not less than one hundred percent (100%) of the Fair
Market Value (as defined in paragraph 16 below) of such Common Shares on the
date of grant. Incentive Stock Options will be exercisable over not more than
ten (10) years after the date of grant. In the event of termination of
employment for any reason other than retirement, disability or death, the right
of the optionee to exercise an Incentive Stock Option shall terminate upon the
earlier of the end of the original term of the option or three (3) months after
the optionee's last day of work for the Company and its subsidiaries. If the
optionee should die within three (3) months after termination of employment for
any reason other than retirement or disability, the right of his or her
successor-in-interest to exercise an Incentive Stock Option shall terminate upon
the earlier of the end of the original term of the option or three (3) months
after the date of such death. In the event of termination of employment due to
retirement or disability, or if the optionee should die while employed, the
right of the optionee or his or her successor in interest to exercise an
Incentive Stock Option shall terminate upon the earlier of the end of the
original term of the option or twelve (12) months after the date of such
retirement, disability or death. If the optionee should die within twelve (12)
months after termination of employment due to retirement or disability, the
right of his or her successor-in-interest to exercise an Incentive Stock Option
shall terminate upon the later of twelve (12) months after the date of such
retirement or disability or three (3) months after the date of such death, but
not later than the end of the original term of the option. The aggregate fair
market value (determined as of the time the Option is granted) of the Common
Shares with respect to which Incentive Stock Options are exercisable for the
first time by any individual during any calendar year (under all option plans of
the Company and its subsidiaries) shall not exceed $100,000. An Incentive Stock
Option granted to a participant who is subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Securities Exchange Act"), may be
exercised only after six (6)
2
<PAGE>
months from its grant date (unless otherwise permitted under Rule 16b-3 of the
Securities and Exchange Commission).
7. NON-QUALIFIED STOCK OPTION PLAN.
Non-qualified Stock Options will consist of options to purchase Common
Shares at purchase prices not less than eighty-five percent (85%) of the Fair
Market Value of such Common Shares on the date of grant. Non-qualified Stock
Options will be exercisable over not more than ten (10) years after the date of
grant. In the event of termination of employment for any reason other than
retirement, disability or death, the right of the optionee to exercise a Non-
qualified Stock Option shall terminate upon the earlier of the end of the
original term of the option or three (3) months after the optionee's last day of
work for the Company and its subsidiaries. If the optionee should die within
three (3) months after termination of employment for any reason other than
retirement or disability, the right of his or her successor-in-interest to
exercise a Non-qualified Stock Option shall terminate upon the earlier of the
end of the original term of the option or three (3) months after the date of
such death. In the event of termination of employment due to retirement or
disability, or if the optionee should die while employed, the right of the
optionee or his or her successor-in-interest to exercise a Non-qualified Stock
Option shall terminate upon the earlier of the end of the original term of the
option or twelve (12) months after the date of such retirement, disability or
death. If the optionee should die within twelve (12) months after termination
of employment due to retirement or disability, the right of his or her
successor-in-interest to exercise a Non-qualified Stock Option shall terminate
upon the later of twelve (12) months after the date of such retirement or
disability or three (3) months after the date of such death, but not later than
the end of the original term of the option. A Non-qualified Stock Option
granted to a participant who is subject to Section 16 of the Securities Exchange
Act may be exercised only after six (6) months from its grant date (unless
otherwise permitted under Rule 16b-3 of the Securities and Exchange Commission).
7. STOCK APPRECIATION RIGHTS PLAN.
The Committee may, in its discretion, grant a Stock Appreciation Right
to the holder of any Stock Option granted hereunder or under the Prior Stock
Option Programs. Such Stock Appreciation Rights shall be subject to such terms
and conditions consistent with the Program as the Committee shall impose from
time to time, including the following:
(a) A Stock Appreciation Right may be granted with respect to a
Stock Option at the time of its grant or at any time thereafter.
(b) Subject to paragraph 8(d) below, Stock Appreciation Rights will
permit the holder to surrender any related Stock Option or portion thereof
which is then exercisable and to elect to receive in exchange therefor cash
in an amount equal to:
(i) The excess of the Fair Market Value on the date of such
election of one Common Share over the option price multiplied by
3
<PAGE>
(ii) The number of shares covered by such option or portion
thereof which is so surrendered.
(c) A Stock Appreciation Right granted to a participant who is
subject to Section 16 of the Securities Exchange Act may be exercised only
after six (6) months from its grant date (unless otherwise permitted under
Rule 16b-3 of the Securities and Exchange Commission).
(d) The Committee shall have the discretion to satisfy a
participant's right to receive the amount of cash determined under
subparagraph (b) hereof, in whole or in part, by the delivery of Common
Shares valued as of the date of the participant's election.
(e) In the event of the exercise of a Stock Appreciation Right, the
number of shares reserved for issuance hereunder shall be reduced by the
number of shares covered by the Stock Option or portion thereof
surrendered.
9. RESTRICTED STOCK AWARDS PLAN.
Restricted Stock Awards will consist of Common Shares transferred to
participants without other payment therefor as additional compensation for their
services to the Company or one of its subsidiaries. Restricted Stock Awards
shall be subject to such terms and conditions as the Committee determines
appropriate including, without limitation, restrictions on the sale or other
disposition of such shares and rights of the Company to reacquire such shares
upon termination of the participant's employment within specified periods.
Subject to such other restrictions as are imposed by the Committee, the Common
Shares covered by a Restricted Stock Award granted to a participant who is
subject to Section 16 of the Securities Exchange Act may be sold or otherwise
disposed of only after six (6) months from the grant date of the award (unless
otherwise permitted under Rule 16b-3 of the Securities and Exchange Commission).
10. PERFORMANCE UNITS PLAN.
Performance Units shall consist of monetary units granted to
participants which may be earned in whole or in part if the Company achieves
certain goals established by the Committee over a designated period of time, but
not in any event more than five (5) years. The goals established by the
Committee may include earnings per share, return on shareholder equity, return
on average total capital employed, and/or such other goals as may be established
by the Committee in its discretion. In the event the minimum corporate goal
established by the Committee is not achieved at the conclusion of a period, no
amount shall be paid to or vested in the participant. In the event the maximum
corporate goal is achieved, one hundred percent (100%) of the monetary value of
the Performance Units shall be paid to or vested in the participants. Partial
achievement of the maximum goal may result in a payment or vesting corresponding
to the degree of achievement. Payment of an award earned may be in cash or in
Common Shares (valued as of the date on which certificates for such Common
Shares are issued to the participant) or in a combination of both, and may be
made when earned, or vested and deferred, as the Committee in its sole
discretion
4
<PAGE>
determines. Deferred awards shall earn interest on the terms and at a rate
determined by the Committee. The number of shares reserved for issuance
hereunder shall be reduced by the largest whole number obtained by dividing the
monetary value of the units at the commencement of the performance period by the
Fair Market Value of a Common Share at such time, provided that such number of
shares may again become available for issuance under this Program as is provided
in paragraph 5 hereof.
11. NONTRANSFERABILITY.
Each Stock Option and Stock Appreciation Right granted under this
Program shall not be transferable other than by will or the laws of descent and
distribution, and shall be exercisable, during the participant's lifetime, only
by the participant. A participant's interest in a Performance Unit shall not be
transferable until payment or delivery of the award is made.
12. OTHER PROVISIONS.
The award of any Benefit under the Program may also be subject to
other provisions (whether or not applicable to the Benefit awarded to any other
participant) as the Committee determines appropriate including, without
limitation, provisions for the purchase of Common Shares under Stock Options
under the Program in installments, provisions for the payment of the purchase
price of shares under Stock Options under the Program by delivery of other
Common Shares of the Company which have been owned for at least six months
having a then market value equal to the purchase price of such shares,
restrictions on resale or other disposition, such provisions as may be
appropriate to apply with federal or state securities laws and stock exchange
requirements and understandings or conditions as to the participant's employment
in addition to those specifically provided for under the Program.
The Committee may, in its discretion, permit payment of the purchase
price of shares under Stock Options under the Program by delivery of a properly
executed exercise notice together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
The Committee may, in its discretion and subject to such rules as
it may adopt, permit a participant to pay all or a portion of the federal,
state, and local taxes, including FICA withholding tax, arising in connection
with the following transactions: (a) the exercise of a Non-qualified Stock
Option; (b) the lapse of restrictions on Common Shares received as a
Restricted Stock Award; or (c) the receipt or exercise of any other Benefit;
by paying cash for such amount or by electing (i) to have the Company
withhold Common Shares, (ii) to tender back Common Shares received in
connection with such Benefit or (iii) to deliver other previously acquired
Common Shares of the Company, and, in each case, having a Fair Market Value
approximately equal to the amount to be withheld.
5
<PAGE>
13 TERM OF PROGRAM AND AMENDMENT, MODIFICATION, CANCELLATION OR
ACCELERATION OF BENEFITS.
No Benefit shall be granted more than ten (10) years after April 19,
1995, the date of the approval of this Program by the shareholders; provided,
however, that the terms and conditions applicable to any Benefits granted prior
to such date may at any time be amended, modified or cancelled by mutual
agreement between the Committee and the participant or such other persons as may
then have an interest therein, so long as any amendment or modification does not
increase the number of Common Shares issuable under this Program; and provided
further, that the Committee may, at any time and in its sole discretion, declare
any or all Stock Options and Stock Appreciation Rights then outstanding under
this Program or the Prior Stock Option Programs to be exercisable, any or all
then outstanding Restricted Stock Awards to be vested, and any or all then
outstanding Performance Units to have been earned, whether or not such options,
rights, awards or units are then otherwise exercisable, vested or earned, unless
the Committee has provided otherwise in the written agreement evidencing the
Benefit awarded in order for the Benefit to qualify for special treatment under
Section 162(m) of the Code.
14. AMENDMENT TO PRIOR STOCK OPTION PROGRAMS.
No options or other awards shall be granted under the Prior Stock
Option Programs on or after the date of shareholder approval of this Program.
15. TAXES.
The Company shall be entitled to withhold the amount of any tax
attributable to any amount payable or shares deliverable under this Program
after giving the person entitled to receive such amount or shares notice as far
in advance as practicable, and the Company may defer making payment or delivery
if any such tax may be pending unless and until indemnified to its satisfaction.
16. DEFINITIONS.
FAIR MARKET VALUE. The term "Fair Market Value" of the Company's
Common Shares at any time shall be the average of the high and low sales prices
for the Company's Common Shares for the date, as reported on the New York Stock
Exchange.
SUBSIDIARY. The term "subsidiary" for all purposes other than the
Incentive Stock Option Plan described in paragraph 6, shall mean any
corporation, partnership, joint venture or business trust, fifty percent (50%)
or more of the control of which is owned, directly or indirectly, by the
Company. For Incentive Stock Option Plan purposes the term "subsidiary" shall
be defined as provided in Section 424(f) of the Code.
CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(a) any "person" as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the
"beneficial owner" as
6
<PAGE>
defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of
securities of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this clause (a), the term "beneficial owner" does not include
any employee benefit plan maintained by the Company that invests in the
Company's voting securities; or
(b) during any period of two (2) consecutive years (not including any
period prior to the date on which the Program was approved by the Company's
Board of Directors) there shall cease to be a majority of the Board
comprised as follows: individuals who at the beginning of such period
constitute the Board or new directors whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved; or
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 70% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all the
Company's assets; provided, however, that no change in control will be
deemed to have occurred if such merger, consolidation, sale or disposition
of assets, or liquidation is not subsequently consummated.
STOCK OPTIONS. The term "Stock Options" shall mean Incentive Stock
Options and Non-qualified Stock Options under the Program and, if the context
includes the Prior Stock Option Programs, options granted under the Prior Stock
Option Programs.
DISABILITY. The term "disability" for all purposes of this Program
shall be determined by the Committee in such manner as the Committee deems
equitable or required by the applicable laws or regulations.
RETIREMENT. The term "retirement" for all purposes of the Program
shall be determined by the Committee in such manner as the Committee may deem
equitable or required by law.
17. ADJUSTMENT PROVISIONS.
If the Company shall at any time change the number of issued Common
Shares without new consideration to the Company (such as by stock dividends or
stock splits), the
7
<PAGE>
total number of shares reserved for issuance under this Program, the maximum
limit on awards to any person in any year in paragraph 4 hereof, and the number
of shares covered by each outstanding Benefit shall be adjusted so that the
limitations, the aggregate consideration payable to the Company, and the value
of each such Benefit shall not be changed. The Committee shall also have the
right to provide for the continuation of Benefits or for other equitable
adjustments after changes in the Common Shares resulting from reorganization,
sale, merger, consolidation or similar occurrence.
Notwithstanding any other provision of this Program, and without
affecting the number of shares otherwise reserved or available hereunder, the
Committee may authorize the issuance or assumption of Benefits in connection
with any merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem appropriate.
Subject to the six month holding requirements of paragraphs 6, 7, 8(c)
and 9 but notwithstanding any other provision of this Program or the Prior Stock
Option Programs, upon the occurrence of a Change in Control:
(a) All Stock Options then outstanding under this Program shall
become fully exercisable as of the date of the Change in Control, whether
or not then otherwise exercisable;
(b) All Stock Appreciation Rights then outstanding shall become fully
exercisable as of the date of the Change in Control, whether or not then
otherwise exercisable;
(c) All terms and conditions of all Restricted Stock Awards then
outstanding shall be deemed satisfied and all such Awards shall vest as of
the date of the Change in Control; and
(d) All Performance Units then outstanding shall be deemed to have
been fully earned as determined by the Committee and to be immediately
payable, in cash, as of the date of the Change in Control and shall be paid
within thirty (30) days thereafter.
Provided, however, that no change in vesting or exerciseability shall occur
as a result of the foregoing provisions on or before April 19, 1997 without the
express advance approval of the Committee.
18. AMENDMENT AND TERMINATION OF PROGRAM.
The Committee may amend this Program from time to time or terminate
this Program at any time, but no such action shall reduce the then existing
amount of any participant's Benefit or adversely change the terms and conditions
thereof without the
8
<PAGE>
participant's consent. No amendment of this Program shall result in any
Committee member losing his or her status as a "disinterested person" as defined
in Rule 16b-3 of the Securities and Exchange Commission with respect to any
employee benefit plan of the Company or result in the program losing its status
as a protected plan under said Rule 16b-3.
19. SHAREHOLDER APPROVAL.
This Program was adopted by the Board of Directors of the Company on
January 24, 1995. This Program and any Benefit granted thereunder shall be null
and void if shareholder approval is not obtained within twelve (12) months of
the adoption of the Program by the Board of Directors.
9
<PAGE>
AMENDMENT TO
TCF FINANCIAL 1995
INCENTIVE STOCK PROGRAM
WHEREAS, the TCF Financial 1995 Incentive Stock Program (the "Program") was
approved by the shareholders of TCF Financial Corporation on April 19, 1995; and
WHEREAS, the undersigned members of the Personnel Committee of TCF
Financial Corporation are authorized by Section 17 of the Program to adjust the
number of issued common shares under the Program, and adjust the maximum limit
on awards to any person in any year as stated in Paragraph 4 of the Program,
when a stock dividend is declared; and
WHEREAS, management and the Board of Directors has determined that it is in
the best interests of the Corporation to declare a stock dividend resulting in
one additional common share for each share of common stock currently
outstanding; and
NOW THEREFORE, the Company amends the Program, effective October 1, 1995 as
follows:
Paragraph 4 (TYPES OF BENEFITS) is amended to read as follows
Benefits under the Program may be granted in any one or a combination
or (a) Incentive Stock Options; (b) Non-qualified Stock Options; (c)
Stock Appreciation Rights; (d) Restricted Stock Awards; and (e)
Performance Units, all as described below and pursuant to the Plans
set forth in paragraphs 6-10 hereof. Notwithstanding the foregoing,
the Committee may not award more than 200,000 shares in the aggregate
in the form of Incentive Stock Options, Non-qualified Stock Options
and Stock Appreciation rights combined in any one calendar year to any
individual participant. Any Benefits awarded under the Program shall
be evidenced by a written agreement containing such terms and
conditions as the Committee may determine, including but not limited
to vesting of Benefits.
Paragraph 5 ( SHARES RESERVED UNDER THE PROGRAM.) is amended to read as
follows
There is hereby reserved for issuance under the Program, subject to
the adjustments under paragraph 17, an aggregate of five percent of
twice the amount of the Common Shares issued and outstanding (but
excluding treasury shares) as of the date of shareholder approval of
this Program. If there is a lapse, expiration, termination or
cancellation of any Benefit granted hereunder without the issuance of
Common Shares or
<PAGE>
payment of cash thereunder, the shares subject to or reserved for such
Benefit may again be used for new options, rights or awards of any sort
authorized under this Program; provided however, that in no event may the
number of Common Shares issued under this Program exceeded the total number
of shares reserved for issuance hereunder.
IN WITNESS WHEREOF, the Committee has executed this Amendment effective as
of the date first above written.
Dated: 10/24/95 /s/ DANIEL F. MAY
------------------ ----------------------------------------
Daniel F. May, Chair
Dated: 10/24/95 /s/ LUELLA G. GOLDBERG
------------------ ----------------------------------------
Luella G. Goldberg
Dated: 10/24/95 /s/ BRUCE G. ALLBRIGHT
------------------ ----------------------------------------
Bruce G. Allbright
Dated: 10/24/95 /s/ RALPH STRANGIS
------------------ ----------------------------------------
Ralph Strangis
<PAGE>
AMENDMENT TO SEVERANCE PAY AGREEMENT 10-10-95
This Amendment made effective as of the 24th day of October, 1995 to the
Severance Pay Agreement entered into effective as of July 1, 1990 by and between
TCF bank Minnesota fsb (formerly known as TCF Banking and Savings, F.A.) ("TCF
Bank"), TCF Financial Corporation ("TCF Financial") and Thomas Cusick
("Executive"), and previously amended on the 4th day of December, 1990.
WHEREAS, the parties desire to amend the Severance Pay Agreement to remove
TCF Bank Minnesota fsb as a party and to provide that TCF Financial's
obligations are not subject to the limitations previously stated in the
Agreement;
NOW, THEREFORE, the Severance Pay Agreement is hereby amended as follows,
effective the 24th day of October 1995:
1.
TCF Bank Minnesota fsb shall no longer be a party to the Agreement and any
and all references to TCF Bank Minnesota in the Agreement are hereby deleted or
deemed to be obligations of TCF Financial instead. The remaining parties to the
Agreement shall be Executive and TCF Financial.
2.
Paragraph 4 is amended and restated in its entirety to read as follows:
4. (LIMITATIONS). The Company's liability to Executive hereunder shall
not be subject to any limitations unless and to the extent that TCF Financial's
independent auditors determine that payments which would be considered
"parachute payments" under Section 280G of the Internal Revenue Code (the
"Code") would result in a reduction in Executive's net severance payments under
this Agreement (computed after the imposition of excise taxes due under Section
4999 of the Code but before the imposition of other taxes) as a result of the
imposition of excise tax under Section 4999 of the Code on amounts paid under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
ATTEST: TCF BANK MINNESOTA FSB
By: /s/ Diane Stockman By: /s/ Gregory J. Pulles
--------------------------- -----------------------------
Title: Vice President Title: Executive Vice President
TCF FINANCIAL CORPORATION
By: /s/ Diane Stockman By: /s/ Lynn A. Nagorske
----------------------------- ----------------------------
Title: Vice President Title: President
<PAGE>
EXECUTIVE
By: /s/ Diane Stockman By: /s/ Thomas A. Cusick
--------------------------- -------------------------
Title: Vice President Title: Vice Chairman
<PAGE>
AMENDMENT TO SEVERANCE PAY AGREEMENT 10-10-95
This Amendment made effective as of the 24th day of October, 1995 to the
Severance Pay Agreement entered into effective as of July 1, 1990 by and between
TCF bank Minnesota fsb (formerly known as TCF Banking and Savings, F.A.) ("TCF
Bank"), TCF Financial Corporation ("TCF Financial") and William Dove
("Executive"), and previously amended on the 4th day of December, 1990.
WHEREAS, the parties desire to amend the Severance Pay Agreement to remove
TCF Bank Minnesota fsb as a party and to provide that TCF Financial's
obligations are not subject to the limitations previously stated in the
Agreement;
NOW, THEREFORE, the Severance Pay Agreement is hereby amended as follows,
effective the 24th day of October 1995:
1.
TCF Bank Minnesota fsb shall no longer be a party to the Agreement and any
and all references to TCF Bank Minnesota in the Agreement are hereby deleted or
deemed to be obligations of TCF Financial instead. The remaining parties to the
Agreement shall be Executive and TCF Financial.
2.
Paragraph 4 is amended and restated in its entirety to read as follows:
4. (LIMITATIONS). The Company's liability to Executive hereunder shall
not be subject to any limitations unless and to the extent that TCF Financial's
independent auditors determine that payments which would be considered
"parachute payments" under Section 280G of the Internal Revenue Code (the
"Code") would result in a reduction in Executive's net severance payments under
this Agreement (computed after the imposition of excise taxes due under Section
4999 of the Code but before the imposition of other taxes) as a result of the
imposition of excise tax under Section 4999 of the Code on amounts paid under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
ATTEST: TCF BANK MINNESOTA FSB
By: /s/ Diane Stockman By: /s/ Thomas A. Cusick
----------------------- -------------------------
Title: Vice President Title: Chairman
TCF FINANCIAL CORPORATION
By: /s/ Diane Stockman By: /s/ Lynn A. Nagorske
----------------------- -------------------------
Title: Vice President Title: President
<PAGE>
EXECUTIVE
By: /s/ Diane Stockman By: /s/ William E. Dove
----------------------- -------------------------
Title: Vice President Title: Executive Vice President
<PAGE>
AMENDMENT TO SEVERANCE PAY AGREEMENT 10-10-95
This Amendment made effective as of the 24th day of October, 1995 to the
Severance Pay Agreement entered into effective as of July 1, 1990 by and between
TCF bank Minnesota fsb (formerly known as TCF Banking and Savings, F.A.) ("TCF
Bank"), TCF Financial Corporation ("TCF Financial") and Robert Evans
("Executive"), and previously amended on the 4th day of December, 1990.
WHEREAS, the parties desire to amend the Severance Pay Agreement to remove
TCF Bank Minnesota fsb as a party and to provide that TCF Financial's
obligations are not subject to the limitations previously stated in the
Agreement;
NOW, THEREFORE, the Severance Pay Agreement is hereby amended as follows,
effective the 24th day of October 1995:
1.
TCF Bank Minnesota fsb shall no longer be a party to the Agreement and any
and all references to TCF Bank Minnesota in the Agreement are hereby deleted or
deemed to be obligations of TCF Financial instead. The remaining parties to the
Agreement shall be Executive and TCF Financial.
2.
Paragraph 4 is amended and restated in its entirety to read as follows:
4. (LIMITATIONS). The Company's liability to Executive hereunder shall
not be subject to any limitations unless and to the extent that TCF Financial's
independent auditors determine that payments which would be considered
"parachute payments" under Section 280G of the Internal Revenue Code (the
"Code") would result in a reduction in Executive's net severance payments under
this Agreement (computed after the imposition of excise taxes due under Section
4999 of the Code but before the imposition of other taxes) as a result of the
imposition of excise tax under Section 4999 of the Code on amounts paid under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
ATTEST: TCF BANK MINNESOTA FSB
By: /s/ Diane Stockman By: /s/ Thomas A. Cusick
--------------------------- ----------------------------
Title: Vice President Title: Chairman
TCF FINANCIAL CORPORATION
By: /s/ Diane Stockman By: /s/ Lynn A. Nagorske
--------------------------- ----------------------------
Title: Vice President Title: President
<PAGE>
EXECUTIVE
By: /s/ Diane Stockman By: /s/ Robert E. Evans
--------------------------- ----------------------------
Title: Vice President Title: Vice Chairman
<PAGE>
AMENDMENT TO SEVERANCE PAY AGREEMENT 10-10-95
This Amendment made effective as of the 24th day of October, 1995 to the
Severance Pay Agreement entered into effective as of July 1, 1990 by and between
TCF bank Minnesota fsb (formerly known as TCF Banking and Savings, F.A.) ("TCF
Bank"), TCF Financial Corporation ("TCF Financial") and Lynn Nagorske
("Executive"), and previously amended on the 4th day of December, 1990.
WHEREAS, the parties desire to amend the Severance Pay Agreement to remove
TCF Bank Minnesota fsb as a party and to provide that TCF Financial's
obligations are not subject to the limitations previously stated in the
Agreement;
NOW, THEREFORE, the Severance Pay Agreement is hereby amended as follows,
effective the 24th day of October 1995:
1.
TCF Bank Minnesota fsb shall no longer be a party to the Agreement and any
and all references to TCF Bank Minnesota in the Agreement are hereby deleted or
deemed to be obligations of TCF Financial instead. The remaining parties to the
Agreement shall be Executive and TCF Financial.
2.
Paragraph 4 is amended and restated in its entirety to read as follows:
4. (LIMITATIONS). The Company's liability to Executive hereunder shall
not be subject to any limitations unless and to the extent that TCF Financial's
independent auditors determine that payments which would be considered
"parachute payments" under Section 280G of the Internal Revenue Code (the
"Code") would result in a reduction in Executive's net severance payments under
this Agreement (computed after the imposition of excise taxes due under Section
4999 of the Code but before the imposition of other taxes) as a result of the
imposition of excise tax under Section 4999 of the Code on amounts paid under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
ATTEST: TCF BANK MINNESOTA FSB
By: /s/ Diane Stockman By: /s/ Thomas A. Cusick
---------------------------- ----------------------------
Title: Vice President Title: Chairman
TCF FINANCIAL CORPORATION
By: /s/ Diane Stockman By: /s/ Gregory J. Pulles
---------------------------- ----------------------------
Title: Vice President Title: Vice Chairman
<PAGE>
EXECUTIVE
By: /s/ Diane Stockman By: /s/ Lynn A. Nagorske
---------------------------- ----------------------------
Title: Vice President Title: President
<PAGE>
AMENDMENT TO SEVERANCE PAY AGREEMENT 10-10-95
This Amendment made effective as of the 24th day of October, 1995 to the
Severance Pay Agreement entered into effective as of July 1, 1990 by and between
TCF bank Minnesota fsb (formerly known as TCF Banking and Savings, F.A.) ("TCF
Bank"), TCF Financial Corporation ("TCF Financial") and Gregory Pulles
("Executive"), and previously amended on the 4th day of December, 1990.
WHEREAS, the parties desire to amend the Severance Pay Agreement to remove
TCF Bank Minnesota fsb as a party and to provide that TCF Financial's
obligations are not subject to the limitations previously stated in the
Agreement;
NOW, THEREFORE, the Severance Pay Agreement is hereby amended as follows,
effective the 24th day of October 1995:
1.
TCF Bank Minnesota fsb shall no longer be a party to the Agreement and any
and all references to TCF Bank Minnesota in the Agreement are hereby deleted or
deemed to be obligations of TCF Financial instead. The remaining parties to the
Agreement shall be Executive and TCF Financial.
2.
Paragraph 4 is amended and restated in its entirety to read as follows:
4. (LIMITATIONS). The Company's liability to Executive hereunder shall
not be subject to any limitations unless and to the extent that TCF Financial's
independent auditors determine that payments which would be considered
"parachute payments" under Section 280G of the Internal Revenue Code (the
"Code") would result in a reduction in Executive's net severance payments under
this Agreement (computed after the imposition of excise taxes due under Section
4999 of the Code but before the imposition of other taxes) as a result of the
imposition of excise tax under Section 4999 of the Code on amounts paid under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
ATTEST: TCF BANK MINNESOTA FSB
By: /s/ Diane Stockman By: /s/ Thomas A. Cusick
--------------------------- ----------------------------
Title: Vice President Title: Chairman
TCF FINANCIAL CORPORATION
By: /s/ Diane Stockman By: /s/ Lynn A Nagorske
--------------------------- -----------------------------
Title: Vice President Title: President
<PAGE>
EXECUTIVE
By: /s/ Diane Stockman By: /s/ Gregory J. Pulles
--------------------------- -----------------------------
Title: Vice President Title: Vice Chairman
<PAGE>
AMENDMENT TO SEVERANCE PAY AGREEMENT 10-10-95
This Amendment made effective as of the 24th day of October, 1995 to the
Severance Pay Agreement entered into effective as of July 1, 1990 by and between
TCF bank Minnesota fsb (formerly known as TCF Banking and Savings, F.A.) ("TCF
Bank"), TCF Financial Corporation ("TCF Financial") and James Tuite
("Executive"), and previously amended on the 4th day of December, 1990.
WHEREAS, the parties desire to amend the Severance Pay Agreement to remove
TCF Bank Minnesota fsb as a party and to provide that TCF Financial's
obligations are not subject to the limitations previously stated in the
Agreement;
NOW, THEREFORE, the Severance Pay Agreement is hereby amended as follows,
effective the 24th day of October 1995:
1.
TCF Bank Minnesota fsb shall no longer be a party to the Agreement and any
and all references to TCF Bank Minnesota in the Agreement are hereby deleted or
deemed to be obligations of TCF Financial instead. The remaining parties to the
Agreement shall be Executive and TCF Financial.
2.
Paragraph 4 is amended and restated in its entirety to read as follows:
4. (LIMITATIONS). The Company's liability to Executive hereunder shall
not be subject to any limitations unless and to the extent that TCF Financial's
independent auditors determine that payments which would be considered
"parachute payments" under Section 280G of the Internal Revenue Code (the
"Code") would result in a reduction in Executive's net severance payments under
this Agreement (computed after the imposition of excise taxes due under Section
4999 of the Code but before the imposition of other taxes) as a result of the
imposition of excise tax under Section 4999 of the Code on amounts paid under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
ATTEST: TCF BANK MINNESOTA FSB
By: /s/ Diane Stockman By: /s/ Thomas A. Cusick
---------------------------- ---------------------------
Title: Vice President Title: Chairman
TCF FINANCIAL CORPORATION
By: /s/ Diane Stockman By: /s/ Lynn A Nagorske
---------------------------- ---------------------------
Title: Vice President Title: President
<PAGE>
EXECUTIVE
By: /s/ Diane Stockman By: /s/ James E. Tuite
---------------------------- ---------------------------
Title: Vice President Title: President TCF Bank MN
<PAGE>
AMENDMENT TO SEVERANCE PAY AGREEMENT 10-10-95
This Amendment made effective as of the 24th day of October, 1995 to the
Severance Pay Agreement entered into effective as of July 1, 1990 by and between
TCF bank Minnesota fsb (formerly known as TCF Banking and Savings, F.A.) ("TCF
Bank"), TCF Financial Corporation ("TCF Financial") and Barry Winslow
("Executive"), and previously amended on the 4th day of December, 1990.
WHEREAS, the parties desire to amend the Severance Pay Agreement to remove
TCF Bank Minnesota fsb as a party and to provide that TCF Financial's
obligations are not subject to the limitations previously stated in the
Agreement;
NOW, THEREFORE, the Severance Pay Agreement is hereby amended as follows,
effective the 24th day of October 1995:
1.
TCF Bank Minnesota fsb shall no longer be a party to the Agreement and any
and all references to TCF Bank Minnesota in the Agreement are hereby deleted or
deemed to be obligations of TCF Financial instead. The remaining parties to the
Agreement shall be Executive and TCF Financial.
2.
Paragraph 4 is amended and restated in its entirety to read as follows:
4. (LIMITATIONS). The Company's liability to Executive hereunder shall
not be subject to any limitations unless and to the extent that TCF Financial's
independent auditors determine that payments which would be considered
"parachute payments" under Section 280G of the Internal Revenue Code (the
"Code") would result in a reduction in Executive's net severance payments under
this Agreement (computed after the imposition of excise taxes due under Section
4999 of the Code but before the imposition of other taxes) as a result of the
imposition of excise tax under Section 4999 of the Code on amounts paid under
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
ATTEST: TCF BANK MINNESOTA FSB
By: /s/ Diane Stockman By: /s/ Thomas A. Cusick
-------------------------- ---------------------------
Title: Vice President Title: Chairman
TCF FINANCIAL CORPORATION
By: /s/ Diane Stockman By: /s/ Lynn A. Nagorske
-------------------------- ---------------------------
Title: Vice President Title: President
<PAGE>
EXECUTIVE
By: /s/ Diane Stockman By: /s/ Barry N. Winslow
-------------------------- ---------------------------
Title: Vice President Title: President/GLB
<PAGE>
TCF FINANCIAL CORPORATION
1995 MANAGEMENT INCENTIVE PLAN - EXECUTIVE
ACKNOWLEDGMENT
1. ELIGIBILITY - Each Participant shall be given a copy of this 1995
Management Incentive Plan for Executives (the "Plan") and required to sign
an acknowledgment of its terms. The participants in the Plan are those
approved by the Personnel/Affirmative Action Committee (the "Committee"):
the Chairman, Vice Chairs and President of TCF Financial, the CEO of each
subsidiary bank and the CEO and President of Great Lakes Bancorp.
2. All participants will be evaluated by the Chairman of TCF Financial (the
"Chairman") who will forward all recommendations to the Committee for
approval. The Committee evaluates the performance of the Chairman. The
Committee will be presented with the Chairman's report and recommendations
for all participants of the Plan in January of 1996 along with the
evaluation of achievement of the return on assets ("ROA") goals attached
hereto. The Committee will consider the ROA performance and shall also
evaluate all other matters it deems appropriate in its sole discretion
including but not limited to the recommendations of the Chairman.
3. The criteria for awards (subject to paragraph 5) is as follows:
a. The first criterion for disbursement under the Plan will be the
achievement of "Threshold Levels." These levels relate to the safety
and soundness of TCF's balance sheet. THESE LEVELS MUST BE
SUBSTANTIALLY MET, IN THE JUDGMENT OF THE COMMITTEE, FOR ANY PAYMENT
TO BE MADE. The threshold levels for 1995 are as follows:
(1) The "applicable Bank" has a macro rating of 1 or 2
(2) The "applicable Bank" continues to be classified as "well
capitalized"
(3) The "applicable Bank's" classified assets to core capital
and reserves is less than 100%
THE "APPLICABLE BANK," FOR EXECUTIVES OF TCF FINANCIAL, IS ALL
SUBSIDIARY BANKS. OTHERWISE IT IS THE BANK THAT EMPLOYS THE
EXECUTIVE.
b. The amount of incentive payable to a participant if the criteria in
paragraph 3a are met shall be determined by the achievement of ROA
financial goals on Exhibit A attached. ROA will be calculated on the
basis of after-tax earnings divided by average assets, adjusted in the
Committee's discretion to exclude extraordinary gains or losses,
merger or acquisition-related charges during the year and other
extraordinary events. The Committee has the final determination as to
the calculation of ROA used in calculating the percentage of bonus
payable. The bonus percentage payable shall be prorated between the
ROA goals and bonus percentages stated on Exhibit A, based on the
actual ROA determined by the Committee for the year.
c. Incentives will be paid in cash.
4. The Chairman has authority to make interpretations under this Plan and
determine the application of the criteria set forth in paragraph 3 to
participants in the Plan, subject to approval by the Committee. All
questions of interpretation should be directed to the Chairman, who is the
only person authorized to make a binding interpretation (subject to
Committee approval). Said Chairman shall make his interpretations solely
on the basis of his determination of what is in the best interest of TCF
Financial and the bank involved (if any), and he may differentiate between
participants and individual cases on whatever criteria he deems appropriate
(subject to Committee approval).
5. Individual awards need not be based upon the guidelines set forth in
paragraph 3 and the Committee may make such adjustments, deletions and
additions as it determines appropriate in its sole discretion, and may also
determine that no awards will be made in a particular year.
6. Incentive compensation will be paid on or about February 1 immediately
following approval of awards in January. Expenses under the Plan are
charged to TCF Financial or the subsidiary bank which is the executive's
employer, with approval of the appropriate Committee and the Board.
7. The Committee may amend this Plan from time to time as it deems
appropriate.
8. This Plan shall not be construed as a contract of employment, nor shall it
be considered a term of employment, nor as a binding contract to pay
awards.
9. Notwithstanding the foregoing, for a participant who is the Chief Executive
Officer of a subsidiary bank, any award determined hereunder must be
approved in advance by that bank's board of directors or personnel
committee on the basis of what is in the best interests of that bank and
its own financial condition.
10. This Plan is effective for service on or after January 1, 1995, and
supersedes and replaces the prior Management Incentive Compensation Plan
and any other prior incentive arrangements with respect to executives in
this Plan. The Plan may not be amended except in writing signed by TCF
Financial, the employer (if other than TCF Financial) and the executive.
ACKNOWLEDGMENT
I have received, read, and acknowledge the terms of the foregoing plan.
- -------------------------- ------------------------------------------
Date Signature
<PAGE>
TCF FINANCIAL CORPORATION
1996 MANAGEMENT INCENTIVE PLAN - EXECUTIVE
1. ELIGIBILITY - Each Participant shall be given a copy of this 1996
Management Incentive Plan for Executives (the "Plan") and required to sign an
acknowledgment of its terms. The participants in the Plan are those approved by
the Personnel/Affirmative Action Committee (the "Committee"): the Chairman,
Vice Chairs, President and Executive Vice Presidents of TCF Financial, and the
CEO of each subsidiary bank.
2. All participants will be initially evaluated by the Chairman of TCF
Financial (the "Chairman") who will forward all recommendations to the Committee
for approval. The Committee evaluates the performance of the Chairman. The
Committee will consider the Return on Average Assets ("ROA") performance and
shall also evaluate all other matters it deems appropriate in its sole
discretion, subject to limits imposed on such discretion under the Performance-
Based Plan. Evaluations will be performed pursuant to the terms of the TCF
Performance-Based Compensation Policy for Covered Executive Officers (the
"Performance-Based Plan") in the case of Covered Executive Officer (as defined
in that Plan).
3. The criteria for awards (subject to paragraph 4) is as follows:
a. The first criterion for disbursement under the Plan will be the
achievement of "Threshold Levels." These levels relate to the safety and
soundness of TCF's balance sheets. These levels must be substantially met, in
the judgment of the Committee, for any payment to be made, however the threshold
does not apply to executives who are subject to the Performance-Based Plan. The
threshold levels for 1996 are as follows: (1) The "applicable Bank" has a CAMEL
(or equivalent) rating of 1 or 2; (2) The "applicable Bank" continues to be
classified as "well capitalized"; and (3) The "applicable Bank's" classified
assets to core capital and reserves is less than 100%. THE "APPLICABLE BANK,"
FOR EXECUTIVES OF TCF FINANCIAL IS COMPRISED OF ALL SUBSIDIARY BANKS.
OTHERWISE, IT IS THE BANK THAT EMPLOYS THE EXECUTIVE. THE COMMITTEE MAY EXCLUDE
THE EFFECT OF ANY INSTITUTION ACQUIRED DURING THE FISCAL YEAR IN DETERMINING
WHETHER THE FOREGOING THRESHOLDS ARE MET.
b. The amount of incentive payable to a participant if the criteria in
paragraph 3a are met (or are inapplicable) shall be determined by the
achievement of ROA financial goals on Exhibit A attached. ROA will be
calculated as provided in the Performance-Based Plan rounded to the nearest one-
hundredth. The bonus percentage shall be calculated, in the case of ROA
achievement which falls between goals, by interpolation as follows: The amount
by which the ROA achievement exceeds the goal shall be divided by the amount
between the ROA goal exceeded and the next ROA goal. The result shall be stated
in the form of a percentage which shall be multiplied by the total percentage
points between ROA goals. The result shall be added to the bonus percentage
corresponding to the ROA goal that was exceeded.
4. The Committee may, in its discretion, reduce, defer or eliminate the amount
of the incentive determined under paragraph 3.b. of this Agreement for a Covered
Executive Officer in the Performance-Based Plan. In addition, for participants
who are not subject to the Performance-Based Plan, the Committee may in its
discretion increase the amount of the incentive calculated under paragraph 3.b.
of this Agreement. The Committee has authority to make interpretations under
this Plan and to approve the calculation under paragraph 3.b. Incentive
compensation will be paid in cash as soon as possible following approval of
awards by the Personnel Committee. Except for Covered Executive Officers, the
participant must be employed by TCF Financial (or the same subsidiary as
employed by on the date of this Acknowledgement) on the date the incentive is
paid in the same job position as the position for which the incentive was earned
in order to receive the incentive payment. However, where the participant has
transferred to another position within TCF, the Committee may in its discretion
determine to pay part, none, or all of the incentive based on any factors the
Committee considers to be relevant.
5. The Committee may amend this Plan from time to time as it deems
appropriate, except that no provision of the Performance-Based Plan may be
amended except in accordance with its terms. This Plan shall not be construed
as a contract of employment, nor shall it be considered a term of employment,
nor as a binding contract to pay awards. The undersigned acknowledges he/she is
employed "at will".
6. Notwithstanding the foregoing, for a participant who is the Chief Executive
Officer of a subsidiary bank, any award determined hereunder must be approved in
advance by that bank's board of directors or personnel committee on the basis of
what is in the best interests of that bank and its own financial condition. If
such individual is subject to the Performance-Based Plan, the subsidiary board
may not in its discretion approve any increase in the amount of the incentive.
The expense for an incentive paid by a subsidiary shall be charged to the
subsidiary.
7. This Plan is effective for service on or after January 1, 1996, and
supersedes and replaces the prior Management Incentive Compensation Plan and any
other prior incentive arrangements with respect to executives in this Plan. The
Plan may not be amended except in writing signed by TCF Financial, the employer
(if other than TCF Financial) and the executive.
ACKNOWLEDGMENT
I have received, read, and acknowledge the terms of the foregoing plan.
- ---------------------- -------------------------------------
Date Signature
<PAGE>
Amendment to Employment Agreement and
Restricted Stock Agreement
These Amendments, made this 18th day of December, 1995 by and among Great Lakes
Bancorp, A Federal Savings Bank, a federal savings bank ("the Bank"), TCF
Financial Corporation, a Delaware corporation, ("TCF") and Robert J. Delonis,
the "Employee".
WHEREAS, the parties entered into an employment agreement dated February 9,
1995 (the "Employment Agreement") under which Employee serves as Director, as
Chairman and as Chief Executive Officer of the Bank as well as a director of
TCF, and a restricted stock award agreement dated February 9, 1995 (the "Award
Agreement") under which Employee was awarded 33,333 shares of TCF Financial
common stock;
WHEREAS, the parties acknowledge that the scope of Employee's
responsibilities are changing since the Employment Agreement and Award Agreement
were signed and the parties wish to amend the Agreements in recognition of this;
NOW THEREFORE, in consideration of the terms and conditions in these
Amendments it is agreed as follows:
AMENDMENT TO EMPLOYMENT AGREEMENT
Except as specifically set forth in this Amendment, the terms of the
Employment Agreement remain in full force and effect.
1. Section 1 of the Employment Agreement is amended to read as follows in
full:
1. EMPLOYMENT. Effective December 18, 1995, the Employee is employed
as Chairman of the Bank and shall render administrative and management
services to the Bank such as are customarily performed by persons employed
in this capacity. The Employee shall continue to devote his best efforts
to the business of the Bank and its subsidiaries and affiliated companies,
however it is understood that the duties of Chairman will not require
substantially all of Employee's business time and Employee is also being
compensated in part for his expertise, availability and duties performed
outside the office. It is understood that many of Employee's duties will
be performed outside of normal business hours and that time spent in the
office will be on an "as needed" basis, which is expected to approximate
two (2) days per week. The duties of Chairman will include:
- directing meetings of the Board of Directors of the Bank and
its subsidiaries;
- preparing for, attending and participating in meetings of
Committees of which Employee is a member or Chairman from time to
time;
- representing the Bank and TCF in the community in general
civic and
<PAGE>
charitable activities;
- representing the Bank and TCF in industry trade organizations
and with the Federal Home Loan Bank of Indianapolis;
- representing the Bank and TCF in business development
opportunities;
- providing services, as requested, in merger and acquisition
discussions and analysis;
- providing services, as requested, in general business matters;
- testifying on behalf of the Bank or TCF, as requested, in
litigation arising from or related to Employee's employment;
- with the advance approval of TCF and the Board of Directors of
the Bank, service on boards of directors of other for profit and
not for profit entities.
It is understood that the duties of Employee at the time of this Amendment
also include service on the Board of Directors of TCF, but that by entering into
this Amendment the Employee waives any claim of right to be elected to the Board
of TCF on an ongoing basis under Section 5.25 of the acquisition agreement
between Great Lakes Bancorp and TCF (the "Acquisition Agreement") or otherwise.
On and after the date of this Amendment it shall be solely in the discretion of
the Board of TCF whether to renominate the Employee for an additional term or
terms on such Board when his current term expires in 1997.
2. Section 2 of the Employment Agreement is amended to add the
following sentence at the end thereof:
Compensation under this Agreement shall not be reduced by
any fees Employee earns from outside consulting or service
on outside boards.
3. Section 3 of the Employment Agreement is amended to delete stock
options, stock awards, stock purchases and cash or stock bonuses from
the list of future benefits to which Employee is entitled, but in all
other respects the terms and benefits of Section 3 shall remain in
effect. It is understood that this deletion does not impair
Employee's rights under his existing Award Agreement. It is
understood that Employee will be considered for a bonus under the
Management Incentive Plan for 1995 (payable in 1996) but not
thereafter.
4. Section 8(a)(2) of the Employment Agreement is amended to provide
that Employee is consenting to diminution of his prior duties as
Chairman and Chief Executive Officer by entering into this Amendment,
that Employee acknowledges this change in duties will not result in an
involuntary termination of employment and that from and after the date
<PAGE>
of this Amendment any future diminution or interference or material
change in Employee's duties shall be determined with reference to his
duties as Chairman as set forth in this Amendment. Without limiting
the foregoing, in the event that Employee is not renominated for
membership of the Board of TCF when his current term expires in 1997,
such action is also consented to and shall not be considered an
involuntary termination of employment or material diminution or
interference with Employee's duties under this Employment Agreement.
AMENDMENT TO RESTRICTED
STOCK AGREEMENT
Except as specifically set forth in this Amendment, the terms of the Award
Agreement remain in full force and effect.
1. Grantee acknowledges and consents to diminution of his duties from
Chairman and Chief Executive Officer to Chairman only pursuant to the
Amendment to his Employment Agreement dated, December 18, 1995, agrees
that such change in duties will not result in an involuntary
termination of employment, and agrees that the restrictions on the
Shares under the Award Agreement remain in full force and effect and
do not lapse as a result of this change in duties. Without limiting
the foregoing, in the event that Employee is not renominated for
membership of the Board of TCF when his current term expires in 1997,
such action is also consented to and shall not be considered an
involuntary termination of employment or material diminution or
interference with Employee's duties under this Employment Agreement.
**********************************************
Except as set forth herein, the terms and benefits of the Employment
Agreement and the Award Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused these Amendments to the
Employment Agreement and Award Agreement to be executed as of the date first
above written.
GREAT LAKES BANCORP
By: /s/ Barry N. Winslow
-----------------------------
Barry N. Winslow, President
<PAGE>
TCF FINANCIAL CORPORATION
By: /s/ Thomas A. Cusick
------------------------------
Thomas A. Cusick, Vice Chairman
EXECUTIVE
/s/ Robert J. Delonis
------------------------------
Robert J. Delonis
<PAGE>
TCF FINANCIAL CORPORATION
DIRECTOR RETIREMENT PLAN
Effective as of:
October 24, 1995
<PAGE>
DIRECTOR RETIREMENT PLAN
INTRODUCTION
This plan is a nonqualified unfunded retirement plan for the purpose of
providing benefits to certain directors of TCF Financial Corporation. This plan
will supersede any prior director retirement plan of TCF Financial Corporation
or TCF Bank Minnesota fsb.
Article 1. Definitions
When used in the Plan, the following terms shall have the following
meanings:
1.01 "Board of Directors" or "Board" means the Board of Directors of the
Company.
1.02 "Board Retainer" means the annual retainer compensation received by a
Director for serving on the Board and does not include any fee for attendance at
Board of Directors meetings or committee meetings, nor any stock or other
incentive awards.
1.03 A "Change of Control" shall be deemed to have occurred if:
(a) any "person" as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the
"beneficial owner" as defined in Rule 13d-3 under the Exchange Act,
directly or indirectly, of securities of the Company representing thirty
percent (30%) or more of the combined voting power of the Company's then
outstanding securities. For purposes of this clause (a), the term
"beneficial owner" does not include any employee benefit plan maintained by
the Company that invests in the Company's voting securities; or
(b) during any period of two (2) consecutive years (not including any
period prior to the date on which the Program was approved by the Company's
Board of Directors) there shall cease to be a majority of the Board
comprised as follows: individuals who at the beginning of such period
constitute the Board or new directors whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved; or
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other
2
<PAGE>
than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 70% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets; provided, however, that no
change in control will be deemed to have occurred if such merger,
consolidation, sale or disposition of assets, or liquidation is not
subsequently consummated.
1.04 "Committee" means the Administrative Committee appointed by the Board
of Directors to administer the Plan pursuant to Article 5.
1.05 "Company" means TCF Financial Corporation and does not include any
subsidiary of the Company.
1.06 "Director" means any person included in the membership of the Plan as
provided in Article 2.
1.07 "Effective Date" means April 25, 1995.
1.08 "Inside Director" means a Director who is an officer or employee of
the Company while such person is serving as an officer or employee.
1.09 "Plan" means the TCF Financial Corporation Director Retirement Plan,
as set forth herein and as amended from time to time. Benefits under this Plan
shall be provided only to Directors of the Company and not to Directors of any
subsidiary.
1.10 "Retirement" shall occur upon the resignation or removal of the
Director as a Director, including death, disability or the expiration of the
Director's term of office without re-election.
1.11 "Years of Service" means a 12-month period beginning with the month in
which such Director attends or attended his or her first meeting as a Director
and ending with the end of the 12th month thereafter, with subsequent Years of
Service determined in a similar fashion until the last month in which the
Director is a member of the Board of Directors; provided, however, that (i) in
the case of a Change of Control, "Years of Service" shall include the period
through the expiration of the term for which the Director was elected,
notwithstanding prior resignation or removal and (ii) in the case of death or
disability, "Years of Service" shall include the period through the expiration
of the term for which the Director was elected. "Years of Service" include the
3
<PAGE>
period that a Director served on the Board of Directors prior to the adoption of
the Plan.
Article 2. Membership
2.01 Every Director of the Company, other than Inside Directors, with five
or more years of service as a Director of the Company shall become a member of
the Plan. Inside Directors shall not become eligible to participate in the Plan
until they cease to be officers or employees of the Company, and thereafter
shall be credited with Years of Service only for periods during which they were
not Inside Directors.
2.02 A Director's period of service shall not include any service as a
Director with other banks or companies merged with or acquired by the Company
prior to the time such Director became a Director of the Company and shall not
include any service as a Director of any subsidiary of the Company, except that
service as a Director of TCF Bank Minnesota fsb prior to 1990 shall be included
in the period of service for the purpose of computing Years of Service, provided
that service on only one such Board at any time shall be used in calculating the
length of a Director's period of service (i.e., there shall be no "double
counting" where a Director simultaneously served as a Director of both the
Company and TCF Bank Minnesota fsb).
2.03 A benefit shall be payable under the Plan only upon the Director's
Retirement.
Article 3. Amount and Payment of Benefits
3.01 The amount, if any, of the annual benefit payable to or on account of
a Director pursuant to the Plan shall equal the applicable percentage (as
contained in the table below) of the greater of (i) the Board Retainer in effect
for his or her last month of service on the Board of the Company or (ii) after a
Change of Control, the highest Board Retainer in effect during the 24 months
preceding the Change of Control. No adjustment shall be made to the retirement
benefit in the event of subsequent changes in the amount of the Board Retainer.
The applicable percentage shall be as follows and shall be based on the
Director's completed Years of Service (with no rounding up) computed in
accordance with Articles 1 and 2.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Director's Years of Service Percentage of Board Retainer
- ----------------------------------------------------------------
<S> <C>
5 years 50%
----------------------------------------------------------------
6 years 60%
----------------------------------------------------------------
7 years 70%
- ----------------------------------------------------------------
8 years 80%
----------------------------------------------------------------
9 years 90%
----------------------------------------------------------------
10 years or more 100%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
3.02 The retirement benefit shall be payable for a number of quarters equal
to the number of quarters in the Director's Years of Service.
3.03 Upon a Director's death, any remaining retirement benefit shall be
paid to the Director's spouse, if living, and if no spouse is living then to the
Director's estate. Any remaining benefit payable to a Director's spouse will be
paid to the estate of such spouse upon the death of the spouse. Payments shall
be made quarterly for the same period and in the same amount as would have been
made to the Director; provided that the Committee may, in its discretion, pay
the entire balance due in a single lump sum.
3.04 Upon Retirement following a Change of Control, the Director (including
Directors who have retired, their spouses or successors) may elect to receive
the full amount due for the entire period for which payments are to be made in a
lump sum without reduction for present value.
Article 4. Source and Method of Payments
4.01 All payments of benefits under the Plan shall be paid from, and shall
only be a general claim upon, the general assets of the Company. No Director
shall have any right, title or interest to any of the Company's assets.
4.02 All benefits under the Plan shall be paid in quarterly installments
within 15 days of the end of each calendar quarter, subject to payment of the
full amount of such benefits as a lump sum under the circumstances described in
Article 3 above.
5
<PAGE>
Article 5. Administration of the Plan
5.01 The Board of Directors has delegated to the Committee general
authority over and responsibility for the administration of the Plan. The
Committee's interpretations and constructions of the Plan and its actions
thereunder shall be binding and conclusive on all persons for all purposes.
5.02 The Committee shall consist of the Chairman, the President and the
Secretary of the Company; provided that in the case of a Change of Control, the
Committee shall consist of those persons who served as the Committee immediately
preceding the Change of Control or such persons as they shall designate.
Article 6. Amendment and Termination
6.01 Except for benefits earned for Directors with five Years or more of
Service, including service credited under Section 1.11 in the event of a Change
of Control, (which may not be reduced or modified adversely as to the amount
earned) and benefits payable to retired Directors or their spouses or
beneficiaries, the Board of Directors may amend, suspend or terminate, in whole
or in part, the Plan or its participants without consent of the Committee, any
Director, beneficiary or other person and without any liability to any active
Director with less than five Years of Service who may be a participant in the
Plan. No change or amendment may be made which is effected within twelve months
prior to or after a Change of Control which would adversely affect the right of
any Director or Director's spouse or beneficiaries to benefits accrued prior to
such Change of Control.
Article 7. General Provisions
7.01 The Plan shall be binding upon and inure to the benefit of the Company
and its successors and assigns and the Directors, and the successors, assigns,
spouses, designees and estates of the Directors. The Plan shall also be binding
upon and inure to the benefit of any successor company or organization
succeeding to substantially all of the assets and business of the Company, but
nothing in the Plan shall preclude the Company from merging or consolidating
into or with, or transferring all or substantially all of its assets to, another
company which assumes the Plan and all obligations of the Company hereunder.
7.02 If the Committee shall determine that any person to whom any amount is
or was payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment, or any part
thereof, due to such person or his estate (unless a prior claim therefor has
been made by a duly appointed legal representative), may, if the Committee is so
inclined, be paid to such person's spouse, child or other relative, an
institution maintaining or having custody of such person, or any
6
<PAGE>
other person deemed by the Committee to be a proper recipient on behalf of such
person otherwise entitled to payment. Any such payment shall be in complete
discharge of the liability of the Plan and the Company therefor.
7.03 Prior to a Change of Control, in its absolute discretion, the
Committee may disqualify any Director from participation in the Plan or
continuing to receive payments pursuant to the Plan, but only by a unanimous
vote of the other Directors as a result of the commission of a crime by such
disqualified Director or adjudication of a regulatory violation by such
disqualified Director affecting adversely the Company.
7.04 As used in the Plan, the masculine gender shall be deemed to refer to
the feminine, and the singular person shall be deemed to refer to the plural,
whenever appropriate.
7.05 The Plan shall be construed according to the laws of the State of
Minnesota in effect from time to time.
7.06 The Company shall bear all costs of the Plan, including, in the case
of service of any Committee member who is not a full-time employee of the
Company, a reasonable fee for such service and all costs and expenses of such
Committee member, including attorney's fees.
7.07 The Company indemnifies and holds harmless the Committee and each of
its members from any liability resulting from service on the Committee, except
liability arising from willful misconduct. The Company shall pay all legal
expenses incurred by the Committee, including expenses to defend any claim
against any member of the Committee to the fullest extent permitted by law.
7.08 If any Director is required to incur any expense to enforce the
Director's rights hereunder, the Company shall reimburse all expenses of such
enforcement, including reasonable attorney's fees.
7
<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)
<TABLE>
<CAPTION>
Year Ended December 31,
Computation of Earnings Per Common Share -----------------------------------------
for Statements of Operations: 1995 1994 1993
- ---------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Income before extraordinary items $ 61,651 $ 70,183 $ 55,328
Less: Dividends on preferred stock 678 2,710 2,769
----------- ----------- -----------
Income applicable to common stock before extraordinary items 60,973 67,473 52,559
Extraordinary items (963) - (157)
----------- ----------- -----------
Income applicable to common stock $ 60,010 $ 67,473 $ 52,402
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common and common equivalent
shares outstanding:
Weighted average common shares outstanding 35,155,410 33,479,246 33,348,000
Dilutive effect of stock option plans and common
stock warrants after application of treasury
stock method 530,558 1,047,356 801,928
----------- ----------- -----------
35,685,968 34,526,602 34,149,928
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share:
Income before extraordinary items $ 1.71 $ 1.95 $ 1.53
Extraordinary items (.03) - -
----------- ----------- -----------
Net income $ 1.68 $ 1.95 $ 1.53
----------- ----------- -----------
----------- ----------- -----------
Computation of Fully Diluted Earnings
Per Common Share (1):
- -------------------------------------
Income before extraordinary items $ 61,651 $ 70,183 $ 55,328
Add: Interest expense on 7 1/4% convertible
subordinated debentures 387 433 447
Less: Dividends on preferred stock 678 2,710 2,769
----------- ----------- -----------
Income applicable to common stock before extraordinary items 61,360 67,906 53,006
Extraordinary items (963) - (157)
----------- ----------- -----------
Income applicable to common stock $ 60,397 $ 67,906 $ 52,849
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 35,155,410 33,479,246 33,348,000
Dilutive effect of stock option plans and common
stock warrants after application of treasury
stock method 599,582 1,285,578 859,504
Dilutive effect from assumed conversion of 7 1/4%
convertible subordinated debentures 504,661 582,508 587,910
----------- ----------- -----------
36,259,653 35,347,332 34,795,414
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share:
Income before extraordinary items $ 1.70 $ 1.92 $ 1.52
Extraordinary items (.03) - -
----------- ----------- -----------
Net income $ 1.67 $ 1.92 $ 1.52
----------- ----------- -----------
----------- ----------- -----------
- ------------------------------------------------
</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%.
<PAGE>
EXHIBIT 13
DESCRIPTION OF BUSINESS
TCF Financial Corporation is a stock savings bank holding company with more than
$7 billion in assets and a reputation for innovative, convenient banking
services and products. Customers appreciate TCF's longer weekday, Saturday and
holiday banking hours, accessible branch and ATM locations, prompt consumer loan
approvals, and 24 hour phone service. Its bank subsidiaries operate in
Minnesota, Illinois and Wisconsin as TCF Bank, and in Michigan and Ohio as Great
Lakes Bancorp. Other TCF affiliates include mortgage banking, consumer finance,
title insurance, annuity, and mutual fund sales companies. TCF's common stock
is listed on the New York Stock Exchange under the symbol TCB.
TABLE OF CONTENTS
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . 40
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 46
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . 71
Selected Quarterly Financial Data. . . . . . . . . . . . . . . . . . . . . . 72
Other Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
<PAGE>
FINANCIAL REVIEW
The financial review presents management's discussion and analysis of the
consolidated financial condition and results of operations of TCF Financial
Corporation ("TCF" or the "Company"). This review should be read in
conjunction with the consolidated financial statements and other financial
data beginning on page 40.
On February 8, 1995, TCF completed its acquisition of Great Lakes
Bancorp, A Federal Savings Bank ("Great Lakes"), a Michigan-based savings
bank with $2.8 billion in assets, $1.6 billion in deposits, 39 offices in
Michigan and five offices in western Ohio. In connection with the
acquisition, TCF issued approximately 9.7 million shares of its common stock
for all of the outstanding common shares of Great Lakes. In addition, each
outstanding share of Great Lakes preferred stock was exchanged for one share
of TCF preferred stock with substantially identical terms. TCF also assumed
the obligation to issue common stock upon the exercise or conversion of the
outstanding warrants to purchase Great Lakes common stock, the outstanding
employee and director options to purchase Great Lakes common stock, and the
outstanding 7 1/4% Convertible Subordinated Debentures due 2011 of Great
Lakes. In connection with the acquisition, an after-tax merger-related
charge of $32.8 million was incurred during the 1995 first quarter. See
"Results of Operations - Performance Summary."
As a result of the acquisition, Great Lakes merged into TCF's existing
Michigan-based wholly owned savings bank subsidiary, TCF Bank Michigan fsb
("TCF Michigan"). The resulting savings bank is operated as a direct
subsidiary of TCF and retained the Great Lakes name and headquarters in Ann
Arbor, Michigan. The resulting savings bank operates 54 offices in Michigan
and five offices in western Ohio.
The consolidated financial statements of TCF give effect to the
acquisition, which has been accounted for as a pooling-of-interests
combination. Accordingly, TCF's consolidated financial statements for periods
prior to the combination have been restated to include the accounts and the
results of operations of Great Lakes for all periods presented, except for
dividends declared per share. There were no material intercompany
transactions prior to the acquisition.
Further detail on the business combination is provided in Note 2 of
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY -- TCF reported net income of $60.7 million for 1995,
compared with $70.2 million for 1994 and $55.2 million for 1993. Net income
available to common shareholders for 1995, 1994 and 1993 was $60 million,
$67.5 million and $52.4 million, respectively. Net income per common share
was $1.68 for 1995, compared with $1.95 for 1994 and $1.53 for 1993. Return
on average assets was .82% in 1995, compared with .93% in 1994 and .73% in
1993. Return on average common equity was 12.71% in 1995, compared with
15.95% in 1994 and 13.95% in 1993. The per-share amounts for 1994 and 1993
have been restated giving retroactive recognition to TCF's November 30, 1995
two-for-one stock split. See "Financial Condition - Stockholders' Equity."
Income for 1995, excluding the $32.8 million in after-tax merger-related
charges, totaled $93.5 million, or $2.60 per common share, a 33.3% increase
from $70.2 million, or $1.95 per common share, for 1994. Income for 1993,
excluding $7.9 million in after-tax merger-related charges incurred in
connection with TCF's acquisition of Republic Capital Group, Inc. ("RCG"),
totaled $63.1 million, or $1.77 per common share. On the same basis, return
on average assets was a record 1.27% for 1995, compared with .93% in 1994 and
.83% in 1993 and return on average common equity was a record 19.66% in 1995,
compared with 15.95% in 1994 and 16.05% in 1993.
TCF's 1995 results included certain merger-related charges incurred in
connection with TCF's acquisition of Great Lakes, which is described in Note
2 of Notes to Consolidated Financial Statements. The following table
summarizes the major components of the merger-related charges, which were
previously disclosed in TCF's prospectus relating to the acquisition:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ----------------------------------------------------------------------------
<S> <C>
Loss on sale of securities available for sale $ 310
Loss on sale of mortgage-backed securities 21,037
Loss on prepayment of FHLB advances 1,541(1)
Interest-rate exchange contract termination costs 4,423
Provision for credit losses 5,000
Merger-related expenses:
Equipment charges 13,933
Severance and employee benefits 4,721
Professional fees 2,215
Other 864
-------------------------------------------------------------------------
Total merger-related expenses 21,733
----------------------------------------------------------------------
Total pretax merger-related charges $54,044
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(1) REFLECTED IN THE CONSOLIDATED STATEMENTS OF OPERATIONS AS AN EXTRAORDINARY
ITEM, NET OF TAX BENEFIT OF $578.
On an after-tax basis, these merger-related charges totaled $32.8
million, or 92 cents per common share for 1995.
During 1995, Great Lakes sold $232.2 million of collateralized mortgage
obligations from its held-to-maturity portfolio at a pretax loss of $21
million. In addition, Great Lakes sold $17.3 million of securities available
for sale at a pretax loss of $310,000. The combined weighted average yield
on the assets sold was 6.30%. The collateralized mortgage obligations and
securities available for sale were sold in order to reduce Great Lakes'
interest-rate and credit risk to levels consistent with TCF's existing
interest-rate risk position and credit risk policy. In addition to these
asset sales, Great Lakes prepaid Federal Home Loan
23
<PAGE>
Bank ("FHLB") advances, paid down wholesale borrowings and terminated
interest-rate exchange contracts during 1995. Great Lakes prepaid $112.3
million of FHLB advances at a pretax loss of $1.5 million during 1995. This
amount, net of a $578,000 income tax benefit, was recorded as an
extraordinary item in the Consolidated Statements of Operations. The FHLB
advances had a weighted average cost of 9.03% and a weighted average life of
one year. Interest-rate exchange contracts with notional principal amounts
totaling $544.5 million were terminated by Great Lakes at a pretax loss of
$4.4 million. These actions were taken in order to reduce Great Lakes' level
of higher-cost wholesale borrowings and to reduce interest-rate risk.
Great Lakes recorded $5 million in provisions for credit losses in 1995
to conform its credit loss reserve practices and methods to those of TCF and
to allow for the accelerated disposition of its remaining problem assets.
In connection with its acquisition of Great Lakes, TCF committed to
restructure certain existing business activities of Great Lakes and to
integrate Great Lakes' data processing system into TCF's. These actions were
also designed to reduce staff by consolidating certain functions such as data
processing, investments and certain other back office operations. Subsequent
to its merger with TCF, Great Lakes recognized a pretax charge of $21.7
million in 1995 for these restructuring and merger-related expenses.
The 1995 results of operations show continued improvement in TCF's core
operating earnings. TCF's net interest income was a record $319.2 million
and net interest margin was a record 4.61% for 1995, representing increases
of 14.3% and 16.4%, respectively, over 1994 results. Non-interest income,
excluding the gain on sale of branches and losses from merger-related asset
sales at Great Lakes, increased $7.8 million, or 6.2%, to $133 million for
1995, compared with $125.2 million for 1994. Operating expenses
(non-interest expense excluding the provision for real estate losses and 1995
merger-related charges) totaled $289.4 million for 1995, up 6% from $273
million for 1994. Provisions for credit and real estate losses totaled $17
million in 1995, compared with $14.8 million in 1994 and $45.4 million in
1993. The 1995 provision for credit losses includes $5 million in Great
Lakes merger-related provisions. Included in the provisions for credit and
real estate losses in 1993 are $7.7 million in merger-related provisions
related to TCF's acquisition of RCG.
TCF's net interest income of $279.2 million and net interest margin of
3.96% for 1994 increased 6.9% and 7.3%, respectively, over 1993 results.
Non-interest income, excluding losses on sales of mortgage-backed securities,
totaled $125.2 million for 1994, compared with $139.6 million for 1993.
Operating expenses (non-interest expense excluding the provision for real
estate losses and 1993 merger-related expenses) totaled $273 million for
1994, up 6.1% from $257.2 million for 1993.
TCF's net interest income of $261.2 million and net interest margin of
3.69% for 1993 increased 5.6% and 7.6%, respectively, over 1992 results.
Non-interest income, excluding gains or losses on sales of branches,
investments and mortgage-backed securities, increased 16.8% over 1992 to
$139.6 million. Operating expenses increased 6.1% over 1992 to $257.2 million.
NET INTEREST INCOME -- A significant component of TCF's earnings is net
interest income, which is the difference between interest earned on loans,
mortgage-backed securities held to maturity, investments, securities
available for sale and other interest-earning assets (interest income), and
interest paid on deposits and borrowings (interest expense). This amount,
when divided by average interest-earning assets, is referred to as the net
interest margin, expressed as a percentage. Net interest income and net
interest margin are affected by changes in interest rates, the volume and the
mix of interest-earning assets and interest-bearing liabilities, and the
level of non-performing assets. The arithmetic difference between the yield
on interest-earning assets and the cost of interest-bearing liabilities
expressed as a percentage is referred to as the net interest rate spread.
Net interest income was a record $319.2 million for the year ended
December 31, 1995, up from $279.2 million in 1994 and $261.2 million in 1993.
This represents an increase of 14.3% in 1995, following increases of 6.9%
in 1994 and 5.6% in 1993. Total average interest-earning assets decreased
1.9% in 1995, .4% in 1994 and 1.8% in 1993. The net interest margin for 1995
was a record 4.61%, compared with 3.96% in 1994 and 3.69% in 1993. In
addition, TCF's net interest-rate spread was 4.16% in 1995, compared with
3.65% and 3.44% in 1994 and 1993, respectively.
[GRAPH] NET INTEREST MARGIN
(PERCENT)
24 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
The following table presents TCF's average balance sheets, interest and
dividends earned or paid, and the related yields and rates on major
categories of TCF's interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ------------------------------- -------------------------------
INTEREST INTEREST INTEREST
YIELDS YIELDS YIELDS
AVERAGE AND AVERAGE AND AVERAGE AND
(DOLLARS IN THOUSANDS) BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities available for sale $ 56,935 $ 4,021 7.06% $ 231,066 $ 13,325 5.77% $ 79,153 $ 5,197 6.57%
- ------------------------------------------------------- ---------- -------- ---------- --------
Loans held for sale 226,922 18,253 8.04 243,819 16,917 6.94 339,029 24,200 7.14
- ------------------------------------------------------- ---------- -------- ---------- --------
Mortgage-backed securities held
to maturity 1,275,073 91,037 7.14 1,568,593 108,669 6.93 1,867,594 132,113 7.07
- ------------------------------------------------------- ---------- -------- ---------- --------
Loans:
Residential real estate 2,690,667 211,128 7.85 2,458,003 184,949 7.52 2,046,005 166,393 8.13
Commercial real estate 980,074 87,764 8.95 1,006,911 85,884 8.53 1,126,643 99,310 8.81
Commercial business 186,928 17,568 9.40 182,900 15,370 8.40 210,369 14,437 6.86
Consumer 1,417,189 171,973 12.13 1,155,557 116,892 10.12 1,085,832 100,758 9.28
----------------------------------------------------- --------------------- ---------------------
Total loans (2) 5,274,858 488,433 9.26 4,803,371 403,095 8.39 4,468,849 380,898 8.52
--------------------------------------------------- --------------------- ---------------------
Investments:
Interest-bearing deposits with
banks 6,842 426 6.23 24,418 1,020 4.18 30,428 1,038 3.41
Federal funds sold 8,484 506 5.96 95,238 3,670 3.85 76,584 2,449 3.20
U.S. Government and other
marketable securities held
to maturity 3,595 200 5.56 3,614 271 7.50 136,111 6,234 4.58
FHLB stock 64,757 4,814 7.43 82,951 5,515 6.65 81,300 6,516 8.01
----------------------------------------------------- --------------------- ---------------------
Total investments 83,678 5,946 7.11 206,221 10,476 5.08 324,423 16,237 5.00
--------------------------------------------------- --------------------- ---------------------
Total interest-earning assets 6,917,466 607,690 8.78 7,053,070 552,482 7.83 7,079,048 558,645 7.89
----------------------------- ----------------- ---------------- ----------------
Other assets (3) 451,907 480,382 509,617
- --------------------------------------------- ---------- ----------
Total assets $7,369,373 $7,533,452 $7,588,665
------------------------------------------- ---------- ----------
------------------------------------------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits $ 507,550 $ 433,465 $ 405,924
- --------------------------------------------- ---------- ----------
Interest-bearing deposits:
Checking 529,329 6,606 1.25 572,591 8,205 1.43 536,368 8,355 1.56
Passbook and statement 855,492 18,507 2.16 974,944 19,292 1.98 958,351 23,079 2.41
Money market 649,189 21,878 3.37 701,317 18,834 2.69 746,362 20,227 2.71
Certificates 2,657,859 146,253 5.50 2,768,839 136,848 4.94 2,936,374 156,952 5.35
----------------------------------------------------- --------------------- ---------------------
Total interest-bearing
deposits 4,691,869 193,244 4.12 5,017,691 183,179 3.65 5,177,455 208,613 4.03
--------------------------------------------------- --------------------- ---------------------
Borrowings:
Securities sold under
repurchase agreements 591,367 35,753 6.05 443,972 25,107 5.66 469,450 23,952 5.10
FHLB advances 860,948 50,729 5.89 975,937 56,587 5.80 921,158 55,453 6.02
Subordinated debt 46,429 4,986 10.74 50,676 5,603 11.06 58,718 6,732 11.46
Collateralized obligations 41,586 2,880 6.93 42,588 2,442 5.73 44,825 2,256 5.03
Other borrowings 13,486 900 6.67 8,971 412 4.59 8,141 443 5.44
----------------------------------------------------- --------------------- ---------------------
Total borrowings 1,553,816 95,248 6.13 1,522,144 90,151 5.92 1,502,292 88,836 5.91
--------------------------------------------------- --------------------- ---------------------
Total interest-bearing
liabilities (4) 6,245,685 288,492 4.62 6,539,835 273,330 4.18 6,679,747 297,449 4.45
----------------------------- ----------------- ---------------- ----------------
Other liabilities (3) 130,375 112,042 102,393
- --------------------------------------------- ---------- ----------
Total liabilities 6,883,610 7,085,342 7,188,064
------------------------------------------- ---------- ----------
Stockholders' equity: (3)
Preferred equity 13,472 25,019 25,019
Common equity 472,291 423,091 375,582
------------------------------------------- ---------- ----------
Total stockholders' equity 485,763 448,110 400,601
------------------------------------------- ---------- ----------
Total liabilities and
stockholders' equity $7,369,373 $7,533,452 $7,588,665
------------------------------------------- ---------- ----------
------------------------------------------- ---------- ----------
Net interest income $319,198 $279,152 $261,196
- ------------------------------------------------------- -------- --------
- ------------------------------------------------------- -------- --------
Net interest-rate spread 4.16% 3.65% 3.44%
- ---------------------------------------------------------------- ---- ----
- ---------------------------------------------------------------- ---- ----
Net interest margin 4.61% 3.96% 3.69%
- ---------------------------------------------------------------- ---- ----
- ---------------------------------------------------------------- ---- ----
</TABLE>
(1) TAX-EXEMPT INCOME WAS NOT SIGNIFICANT AND THUS HAS NOT BEEN PRESENTED ON
A TAX EQUIVALENT BASIS. TAX-EXEMPT INCOME OF $511,000, $439,000 AND
$482,000 WAS RECOGNIZED DURING THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993, RESPECTIVELY.
(2) AVERAGE BALANCE OF LOANS INCLUDES NON-ACCRUAL LOANS, AND IS PRESENTED NET
OF UNEARNED INCOME.
(3) AVERAGE BALANCE IS BASED UPON MONTH-END BALANCES.
(4) INCLUDES $681,000, $3.2 MILLION AND $3.8 MILLION OF INTEREST EXPENSE ON
INTEREST-RATE EXCHANGE AND CAP AGREEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993, RESPECTIVELY.
25
<PAGE>
The following table presents the components of the changes in net
interest income by volume and rate:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
VERSUS SAME PERIOD IN 1994 VERSUS SAME PERIOD IN 1993
------------------------------------- ----------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------------- ----------------------------------
(IN THOUSANDS) VOLUME(1) RATE(1) TOTAL VOLUME(1) RATE(1) TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE $(11,773) $ 2,469 $ (9,304) $ 8,834 $ (706) $ 8,128
- ---------------------------------------------------------------------------------------------------------------------
LOANS HELD FOR SALE (1,226) 2,562 1,336 (6,623) (660) (7,283)
- ---------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
HELD TO MATURITY (20,844) 3,212 (17,632) (20,863) (2,581) (23,444)
- ---------------------------------------------------------------------------------------------------------------------
LOANS:
Residential real estate 17,887 8,292 26,179 31,704 (13,148) 18,556
Commercial real estate (2,310) 4,190 1,880 (10,335) (3,091) (13,426)
Commercial business 343 1,855 2,198 (2,040) 2,973 933
Consumer 29,341 25,740 55,081 6,695 9,439 16,134
- ---------------------------------------------------------------------------------------------------------------------
Total loans 45,261 40,077 85,338 26,024 (3,827) 22,197
-------------------------------------------------------------------------------------------------------------------
INVESTMENTS:
Interest-bearing deposits with banks (949) 355 (594) (227) 209 (18)
Federal funds sold (4,485) 1,321 (3,164) 666 555 1,221
U.S. Government and other marketable
securities held to maturity (1) (70) (71) (8,406) 2,443 (5,963)
FHLB stock (1,300) 599 (701) 129 (1,130) (1,001)
- ---------------------------------------------------------------------------------------------------------------------
Total investments (6,735) 2,205 (4,530) (7,838) 2,077 (5,761)
-------------------------------------------------------------------------------------------------------------------
Total interest income 4,683 50,525 55,208 (466) (5,697) (6,163)
-----------------------------------------------------------------------------------------------------------------
DEPOSITS:
Checking (600) (999) (1,599) 557 (707) (150)
Passbook and statement (2,465) 1,680 (785) 394 (4,181) (3,787)
Money market (1,475) 4,519 3,044 (1,241) (152) (1,393)
Certificates (5,643) 15,048 9,405 (8,580) (11,524) (20,104)
- ---------------------------------------------------------------------------------------------------------------------
Total deposits (10,183) 20,248 10,065 (8,870) (16,564) (25,434)
-------------------------------------------------------------------------------------------------------------------
BORROWINGS:
Securities sold under repurchase
agreements 8,817 1,829 10,646 (1,357) 2,512 1,155
FHLB advances (6,728) 870 (5,858) 3,213 (2,079) 1,134
Subordinated debt (459) (158) (617) (900) (229) (1,129)
Collateralized obligations (59) 497 438 (117) 303 186
Other borrowings 256 232 488 42 (73) (31)
- ---------------------------------------------------------------------------------------------------------------------
Total borrowings 1,827 3,270 5,097 881 434 1,315
-------------------------------------------------------------------------------------------------------------------
Total interest expense (8,356) 23,518 15,162 (7,989) (16,130) (24,119)
-----------------------------------------------------------------------------------------------------------------
Net interest income $ 13,039 $27,007 $ 40,046 $ 7,523 $ 10,433 $ 17,956
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) CHANGES ATTRIBUTABLE TO THE COMBINED IMPACT OF VOLUME AND RATE HAVE BEEN
ALLOCATED PROPORTIONATELY TO THE CHANGE DUE TO VOLUME AND THE CHANGE DUE TO
RATE.
In 1995, TCF's net interest income, net interest margin and
interest-rate spread increased primarily due to increased yields and growth
of consumer loans, the favorable impact of the Great Lakes merger-related
restructuring activities, the November 30, 1995 redemption of $34.5 million
of 10% subordinated capital notes, lower average levels of non-performing
assets, and increased capital. Net interest income increased $40 million, or
14.3%, even though total average interest-earning assets decreased by $135.6
million, or 1.9% from 1994 levels. TCF's net interest income improved by $13
million due to volume changes and by $27 million due to rate changes. The
favorable impact of growth in higher-yielding consumer loans was partially
offset by the negative impact of a higher cost of funds and decreased volumes
in mortgage-backed securities held to maturity and securities available for
sale. Interest income increased $55.2 million in 1995, reflecting an
increase of $50.5 million due to higher yields on interest-earning assets.
Interest expense increased $15.2 million in 1995, reflecting a $23.5 million
increase due to a higher cost of funds. The increase in net interest income
due to the favorable impact of rate changes reflects in part the
26 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
benefit from TCF's changing asset/liability mix and the placement of greater
emphasis on higher-yielding consumer loans and less emphasis on
mortgage-backed securities held to maturity and securities available for
sale. If variable index rates (e.g., prime) were to decline, TCF may
experience compression of its net interest margin depending on the timing and
amount of any reductions, as it is likely that interest rates paid on retail
deposits will not decline as quickly, or to the same extent, as the decline
in the yield on interest- rate-sensitive assets such as home equity loans.
In addition, competition for checking, savings and money market deposits, an
important source of lower cost funds for TCF, has intensified among
depository and other financial institutions. As a result of this
competition, TCF has experienced an increase in the rates paid on its
deposits. TCF may experience compression in its net interest margin if the
rates paid on deposits increase. 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 "Financial Condition - Deposits" and "Financial
Condition - Asset/Liability Management - Interest-Rate Risk."
In 1994, TCF's net interest income, net interest margin and
interest-rate spread increased primarily due to increased yields and growth
of consumer loans, lower average levels of non-performing assets, a lower
cost of funds and the retention of earnings. Net interest income increased
$18 million, or 6.9%, even though total average interest-earning assets
decreased by $26 million, or .4% from 1993 levels. TCF's net interest income
improved by $7.5 million due to volume changes and by $10.4 million due to
rate changes. The favorable impact of the lower cost of funds and growth in
lower interest cost deposits and higher-yielding consumer and residential
real estate loans was partially offset by the negative impact of decreased
volumes in commercial real estate loans, loans held for sale and
mortgage-backed securities held to maturity. Interest income decreased $6.2
million in 1994 reflecting a decrease of $5.7 million due to lower yields on
interest-earning assets. Interest expense decreased $24.1 million in 1994,
of which $16.1 million was due to a lower cost of funds. The increase in net
interest income due to the favorable impact of rate changes reflects in part
the benefit from TCF's changing asset/liability mix. TCF also benefitted
from increases in both short- and long-term market interest rates as its
interest-rate-sensitive assets tied to a variable index rate (e.g., prime)
repriced at a faster rate than its retail deposits in 1994.
In 1993, the net interest income, net interest margin and interest-rate
spread increased primarily due to a lower cost of funds, growth in lower
interest-cost deposits, lower average levels of non-performing assets, the
retention of earnings and the favorable impact of TCF's March 1993 redemption
of $28.8 million of 12 5/8% subordinated capital notes. Net interest income
increased by $13.9 million, or 5.6%, even though total average
interest-earning assets decreased by $131 million, or 1.8%. The favorable
impact of the lower cost of funds and increased loans held for sale and
mortgage-backed securities volumes was partially offset by the downward
repricing of assets tied to a variable index rate, the negative impact of the
significant increase in loan prepayment activity due to declining market
interest rates, and higher liquidity levels resulting from the August 1993
acquisition from the Resolution Trust Corporation of $220.8 million of
insured deposits by TCF Michigan. Interest income decreased by $71.8
million, or 11.4%, reflecting a decrease of $63.1 million due to lower yields
on interest-earning assets. Interest expense decreased $85.7 million, or
22.4%, of which $62.9 million was due to a lower cost of funds. TCF's net
interest income was positively impacted by $14 million due to net volume
changes.
The following table sets forth the spread between TCF's interest-earning
assets and interest-bearing liabilities at December 31, 1995 and 1994. The
net interest-rate spreads below represent the differences between the yield
on interest-earning assets and the cost of interest-bearing liabilities at
those dates:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Weighted average yield:
Loans 9.48% 8.82%
Loans held for sale 7.89 7.50
Mortgage-backed securities held to maturity - 6.95
Investments 7.67 6.36
Securities available for sale 7.13 6.58
Total interest-earning assets 8.99 8.24
----------------------------------------------------------------------
Weighted average cost:
Deposits (1) (2) 4.08 3.90
FHLB advances (2) 5.89 6.22
Other borrowings (2) 6.17 7.12
Total interest-bearing liabilities 4.54 4.61
----------------------------------------------------------------------
Net interest-rate spread 4.45% 3.63%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(1) EXCLUDES NON-INTEREST BEARING DEPOSITS.
(2) INCLUDES THE EFFECT OF INTEREST-RATE EXCHANGE AND CAP AGREEMENTS.
The net interest-rate spread increased 82 basis points to 4.45% at December
31, 1995 from 3.63% at December 31, 1994. The 66 basis point increase in the
loan portfolio yield to 9.48% at December 31, 1995 reflects growth in
higher-yielding consumer loans and originations of other residential and
commercial loans at higher rates, partially offset by an increase in
non-accrual loans. The commercial base lending rate at TCF was 8.50% at
December 31, 1995, unchanged from December 31, 1994. The 39 basis point
increase in the loans held-for-sale portfolio yield to 7.89% at December 31,
1995 reflects the origination of residential and education loans at higher
rates. The lack of a mortgage-backed securities held-to-maturity portfolio
at December 31, 1995 reflects TCF's reclassification of its portfolio to
securities available for sale. See "Financial Condition - Securities
Available for Sale." The 131 basis point increase in the investments
portfolio yield to 7.67% at December 31, 1995 reflects a decrease in
lower-yielding interest-bearing deposits and higher yields on FHLB stock.
The 55 basis point increase in the securities available-for-sale portfolio
yield to 7.13% at December 31, 1995 is primarily a result of the previously
mentioned
27
<PAGE>
reclassification of mortgage-backed securities held to maturity to securities
available for sale. The weighted average cost of deposits, excluding
non-interest bearing deposits, increased 18 basis points to 4.08% at December
31, 1995 due to higher market interest rates and increased competition among
depository and other financial institutions. The decrease in the weighted
average cost of FHLB advances to 5.89% at December 31, 1995 reflects the
previously mentioned prepayment of $112.3 million of higher-rate FHLB
advances by Great Lakes and lower short-term market interest rates. The
weighted average cost of other borrowings decreased 95 basis points to 6.17%
at December 31, 1995. This decrease reflects the previously mentioned
termination of $544.5 million in notional principal amounts of interest-rate
exchange contracts by Great Lakes and TCF's redemption of $34.5 million of
10% subordinated capital notes, and lower short-term market interest rates.
TCF's net interest-rate spread at December 31, 1995 may not be indicative of
net interest-rate spreads in future periods.
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 branches and the losses
from merger-related asset sales at Great Lakes, non-interest income increased
$7.8 million, or 6.2%, during 1995 to $133 million, reflecting increases in
fee and service charge revenues, gains on sales of loans held for sale and
data processing revenue. These increases were partially offset by decreases
in commissions on sales of annuities and gains on sales of loan servicing.
The following table presents the components of non-interest income:
<TABLE>
<CAPTION>
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
--------------------------------- ------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993 1995/94 1994/93
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fee and service charge revenues $ 89,712 $ 83,744 $ 80,157 7.1% 4.5%
Data processing revenue 10,568 8,988 8,120 17.6 10.7
Commissions on sales of annuities 8,557 11,310 10,054 (24.3) 12.5
Title insurance revenues 11,509 10,274 15,229 12.0 (32.5)
Gain on sale of loans held for sale, net 3,735 2,124 10,059 75.8 (78.9)
Gain on sale of securities available for sale, net 120 981 10,182 (87.8) (90.4)
Gain on sale of loan servicing, net 1,535 2,353 137 (34.8) 1,617.5
Other 7,284 5,445 5,067 33.8 7.5
- ---------------------------------------------------------------------------------------
133,020 125,219 139,005 6.2 (9.9)
Gain on sale of branches, net 1,103 -- -- 100.0 --
Merger-related charges:
Loss on sale of mortgage-backed securities, net (21,037) -- -- N.M. --
Loss on sale of securities available for sale, net (310) -- -- N.M. --
-------------------------------------------------------------------------------------
Total non-interest income $112,776 $125,219 $139,005 (9.9) (9.9)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
N.M. NOT MEANINGFUL.
Fee and service charge revenues increased $6 million in 1995 and $3.6
million in 1994 primarily as a result of expanded retail and mortgage banking
activities. Included in fee and service charge revenues are fees of $15.1
million, $14.5 million and $13.6 million received for the servicing of loans
owned by others during 1995, 1994 and 1993, respectively. The increase in
servicing fees during 1995 and 1994 reflect an increase in the size of TCF's
servicing portfolio resulting from loan originations and purchases of
mortgage servicing rights. At December 31, 1995, 1994 and 1993, TCF was
servicing real estate loans for others with aggregate unpaid principal
balances of $4.5 billion, $4.4 billion and $4.1 billion, respectively.
Data processing revenue increased $1.6 million, or 17.6%, in 1995 and
$868,000, or 10.7%, in 1994. These increases reflect TCF's efforts to
provide electronic banking transaction services through its automated teller
machine ("ATM") network. TCF expanded its network of ATM's to 757 at
December 31, 1995 by installing 69 ATM's during 1995. The Company
anticipates installing additional ATM's during 1996.
Commissions on sales of annuities decreased $2.8 million to $8.6 million
in 1995, following an increase of $1.3 million to $11.3 million in 1994.
Sales of annuities may fluctuate from period to period, and future sales
levels will depend upon continued favorable tax treatment, the level of
interest rates, general economic conditions and investor preferences.
28 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
[GRAPH] SOURCES OF NON-INTEREST INCOME FOR 1995*
(IN MILLIONS OF DOLLARS)
Title insurance revenues increased $1.2 million in 1995 to $11.5
million, following a decrease of $5 million in 1994 to $10.3 million. Title
insurance revenues for 1995 were positively affected by increases in
residential real estate loan originations and refinancing activity. 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 increased $1.6 million in 1995
following a decrease of $7.9 million in 1994. TCF adopted Statement of
Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights," on a prospective basis effective April 1, 1995. As a
result, $4.1 million of originated mortgage servicing rights, net of
amortization, were capitalized in 1995. See Note 1 of Notes to Consolidated
Financial Statements for additional information. Gains on sales of
securities available for sale, excluding merger-related sales, totaled
$120,000 in 1995, a decrease of $861,000 from the $981,000 recognized in
1994. Gains or losses on sales of loans held for sale and securities
available for sale may fluctuate significantly from period to period due to
changes in interest rates and volumes, and results in any period related to
these transactions may not be indicative of results which will be obtained in
future periods. See "Financial Condition - Loans Held for Sale" and
"Financial Condition - Securities Available for Sale."
Gains on sales of third-party loan servicing rights totaled $1.5 million
in 1995, compared with $2.4 million in 1994. These gains were recognized on
the sale of third-party servicing rights on approximately $146.3 million and
$169 million of loans, respectively. TCF periodically sells loan servicing
rights depending on market conditions. TCF's third-party residential loan
servicing portfolio totaled $4.5 billion at December 31, 1995, compared with
$4.4 billion at December 31, 1994.
Other non-interest income increased $1.8 million in 1995 to $7.3
million, and $378,000 in 1994 to $5.4 million. The increases in 1995 and
1994 were primarily due to increased commissions earned on sales of insurance
and mutual fund products.
During 1995, TCF Bank Minnesota fsb ("TCF Minnesota") recognized a $1.1
million net gain on the sale of three branches located outside its primary
metropolitan retail markets.
During 1995, Great Lakes sold $176.1 million of private issuer
collateralized mortgage obligations and $56.1 million of FNMA and FHLMC
collateralized mortgage obligations from its held-to-maturity portfolio. The
sales were completed to reduce Great Lakes' interest-rate and credit risk to
levels consistent with TCF's existing interest-rate risk position and credit
risk policy. The fair values of the collateralized mortgage obligations at
the time of sale were $211.2 million. As a result, a pretax loss of $21
million was recorded on these sales during 1995.
Also in 1995, Great Lakes sold $17.3 million of mortgage-backed
securities, private issuer collateralized mortgage obligations, corporate
securities and structured notes from its available-for-sale portfolio at a
pretax loss of $310,000. These sales were also completed as part of TCF's
strategy to reduce Great Lakes' interest-rate and credit risk to levels
consistent with those of TCF.
NON-INTEREST EXPENSE -- Non-interest expense, excluding the provision for
real estate losses and merger-related charges, increased $16.4 million, or
6%, in 1995, and $15.8 million, or 6.1%, in 1994, as compared with the
respective prior years. The following table presents the components of
non-interest expense:
<TABLE>
<CAPTION>
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
-------------------------------------- -----------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993 1995/94 1994/93
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Compensation and employee benefits $139,548 $129,794 $116,374 7.5% 11.5%
Occupancy and equipment, net 50,554 48,217 46,133 4.8 4.5
Advertising and promotions 16,651 14,119 13,175 17.9 7.2
Federal deposit insurance premiums
and assessments 13,540 14,779 13,968 (8.4) 5.8
Amortization of goodwill and
other intangibles 3,163 3,282 2,981 (3.6) 10.1
Other 65,917 62,771 64,525 5.0 (2.7)
- -------------------------------------------------------------------------------
289,373 272,962 257,156 6.0 6.1
Provision for real estate losses 1,804 4,022 10,308(1) (55.1) (61.0)
Merger-related charges:
Merger-related expenses 21,733 -- 5,494 100.0 (100.0)
Cancellation cost on early termination
of interest-rate exchange contracts 4,423 -- -- 100.0 --
----------------------------------------------------------------------------
Total non-interest expense $317,333 $276,984 $272,958 14.6 1.5
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES $700 OF MERGER-RELATED PROVISIONS.
29
<PAGE>
Compensation and employee benefits, representing 44% and 46.9% of total
non-interest expense in 1995 and 1994, respectively, increased $9.8 million,
or 7.5%, in 1995, and $13.4 million, or 11.5%, in 1994. The 1995 increase
was primarily due to the expansion of consumer lending, consumer finance
operations and other retail banking activities. As the restructuring of
Great Lakes' operations was not completed until the third quarter of 1995,
TCF did not experience the full benefit of the expense reduction in 1995.
These increases were offset by compensation and benefit cost savings
associated with the reduction in residential mortgage originations.
Residential mortgage originations at TCF were $989.7 million in 1995, down
from $1.5 billion in 1994. The 1994 increase was largely due to compensation
and benefit costs associated with TCF's expanded consumer finance activities,
TCF's initial expansion in the state of Michigan and a special contribution
of $1.9 million made by Great Lakes to its Employee Stock Ownership Plan.
These increases were offset by compensation and benefit cost savings
associated with the reduction in residential mortgage originations and title
company operations. Residential mortgage originations at TCF were $1.5
billion in 1994, down from $3 billion in 1993.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 defines a fair value based method
of accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to retain the accounting under APB Opinion No. 25 must make pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting under SFAS No. 123 had been applied. The
accounting requirements of SFAS No. 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995, though they
may be adopted upon issuance of SFAS No. 123. Management has not yet
determined what effect, if any, this pronouncement will have on TCF's
financial condition or results of operations.
Occupancy and equipment expenses increased $2.3 million in 1995 and $2.1
million in 1994. The increase in 1995 was a result of expanded consumer
finance activities, which included the opening of 24 new consumer finance
offices. The 1994 increase was also largely due to expanded consumer finance
activities, including the opening of 27 new consumer finance offices, and
costs associated with TCF's initial expansion in the state of Michigan.
Advertising and promotion expenses increased $2.5 million in 1995 and
$944,000 in 1994. The increases in 1995 and 1994 reflect the increase in
direct mail and other marketing expenses relating to the promotion of TCF's
consumer lending and deposit products.
Federal deposit insurance premiums and assessments totaled $13.5 million
for 1995, a decrease of $1.2 million from 1994. The decrease in 1995 was
primarily due to lower deposit levels and a decrease in the deposit insurance
premium rates of Great Lakes and TCF Minnesota's wholly owned savings bank
subsidiaries, TCF Bank Wisconsin fsb ("TCF Wisconsin") and TCF Bank Illinois
fsb ("TCF Illinois"), subsequent to their acquisition by TCF. Pending
federal legislation to recapitalize the Savings Association Insurance Fund
("SAIF") would entail charging savings institutions a one-time special
assessment. The proposed assessment, estimated to range from .80% to .82% of
total insured deposits, or approximately $42.7 million to $43.8 million
pretax and $26.7 million to $27.4 million after-tax for TCF, would be tax
deductible for federal and state income tax purposes and would be in addition
to TCF's annual deposit insurance premium. Deposit insurance premium rates
would likely decline following such a charge.
Amortization of goodwill and other intangibles decreased $119,000 to
$3.2 million in 1995, following an increase of $301,000 to $3.3 million in
1994. For acquisitions initiated or completed prior to September 30, 1982,
goodwill is being amortized over 25 years on a straight-line basis. For
acquisitions initiated or completed subsequent to September 30, 1982,
goodwill is being amortized by the level-yield method based upon the
outstanding balances, and over the estimated remaining lives, of the
long-term assets acquired. This amortization method, referred to as
"lock-step," is required by generally accepted accounting principles and
results in a declining rate of amortization. TCF periodically re-evaluates
the periods of amortization to determine whether current conditions warrant
revised estimates of useful lives.
Other non-interest expense increased $3.1 million, or 5%, in 1995 and
decreased $1.8 million, or 2.7%, in 1994. The increase in 1995 reflects
fourth quarter severance payments related to Great Lakes totaling $2.7
million and an increase of $1.5 million in telecommunications expense
resulting from TCF's expansion of its banking operations, partially offset by
a decrease of $1.2 million in loan expense due to lower residential mortgage
origination levels in 1995.
The provision for real estate losses decreased $2.2 million, or 55.1%,
to $1.8 million in 1995, following a decrease of $6.3 million, or 61%, to $4
million in 1994. Included in the provision for real estate losses in 1993
are $700,000 in merger-related provisions related to TCF's acquisition of
RCG. The amounts provided for real estate losses in each of the three years
were considered prudent by management in light of all factors affecting
reserve adequacy. See "Financial Condition - Allowances for Loan and Real
Estate Losses and Industrial Revenue Bond Reserves" for further detail on the
provision for real estate losses.
30 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
Included in merger-related expenses for 1995 are $13.9 million of
equipment charges which reflect costs associated with the integration of
Great Lakes' data processing system into TCF's and the write-off of certain
redundant data processing equipment and software. In 1995, $13.4 million of
redundant equipment was written off. In addition, an accrual of $500,000 was
established for data processing contract cancellation costs, $468,000 of
which was paid in 1995. The data processing integration was completed in
July 1995.
Merger-related expenses for 1995 include $4.7 million of employment
contract, severance and employee benefit costs reflecting the consolidation
of certain functions such as data processing, investments and certain other
back office operations. A reduction of approximately 200 employees in the
combined work force occurred in 1995 as a result of the consolidation of
these functions. The severance benefit arrangement was communicated to all
employees affected by the consolidation of certain functions, and generally
provided for a minimum of one month of severance up to a maximum of seven
months depending upon years of service and job classification. In addition,
staying bonuses with higher levels of employee benefits were offered to
certain individuals in addition to the severance benefits. Approximately
$3.6 million of severance and employee benefit costs were paid in 1995.
During 1995, approximately $2.2 million of merger-related expenses for
professional services, including investment advisor, legal and accounting
services, and $864,000 of other expenses were incurred by Great Lakes as a
direct result of the merger.
In 1995, Great Lakes terminated $544.5 million of high-cost
interest-rate exchange contracts at a pretax loss of $4.4 million. The
contracts were terminated in connection with the asset sales and paydown of
wholesale borrowings as part of the merger-related restructuring activities.
Upon completion of the termination actions, Great Lakes is no longer a party
to any interest-rate exchange contracts.
During 1993, TCF recorded $5.5 million of merger-related expenses
associated with the RCG merger. These expenses consisted primarily of $2.7
million for severance expense, $830,000 associated with the write-off of
premises and equipment rendered redundant or obsolete as a result of the
merger and $2 million in other expenses.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 applies to all entities and to long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and to long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 does not apply to financial instruments, long-term
customer relationships of a financial institution (for example, deposit base
intangibles and credit card holder intangibles), mortgage and other servicing
rights, deferred policy acquisition costs, or deferred tax assets. Under the
provisions of SFAS No. 121, an entity shall review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 applies to financial statements issued for fiscal
years beginning after December 15, 1995, with earlier application encouraged.
Management has not yet determined what effect, if any, this pronouncement
will have on TCF's financial condition or results of operations.
INCOME TAXES -- TCF recorded income tax expense of $37.8 million in 1995,
compared with $46.4 million in 1994 and $36.8 million in 1993. Income tax
expense represented 38% of income before income tax expense and extraordinary
items during 1995, compared with 40% for both 1994 and 1993.
Further detail on income taxes is provided in Note 14 of Notes to
Consolidated Financial Statements.
FINANCIAL CONDITION
INVESTMENTS -- Total investments decreased $218.8 million in 1995 to $64.3
million at December 31, 1995. Interest-bearing deposits with banks decreased
$193.2 million during 1995 to $533,000 at December 31, 1995. FHLB stock
decreased $18.8 million in 1995 to $60.1 million at December 31, 1995. In
addition, Federal funds sold decreased $6.9 million in 1995. The proceeds
from these maturities were generally used to repay borrowings. See
"Borrowings." TCF had no non-investment grade debt securities (junk bonds)
and there were no open trading account or investment option positions as of
December 31, 1995.
SECURITIES AVAILABLE FOR SALE -- Securities available for sale are carried
at fair value with the unrealized holding gains or losses, net of deferred
income taxes, reported as a separate component of stockholders' equity.
Securities available for sale increased $1.1 billion during 1995 to $1.2
billion at December 31, 1995. In November 1995, the FASB issued a Special
Report entitled "A Guide to Implementation of Statement No. 115 on Accounting
for Certain Investments in Debt and Equity Securities." In conjunction with
the issuance of the Guide, the FASB provided entities with a one- time
opportunity to reassess the classification of their held-to-maturity debt
securities without calling into question the entities' intent to hold to
maturity their remaining portfolio of such securities. During the 1995
fourth quarter, TCF reassessed the balance sheet classifications of its
mortgage-backed securities. As a result, TCF reclassified its remaining $1.1
billion in mortgage-backed securities from "held to maturity" to "available
for sale" effective December 31, 1995. This reclassification will allow
increased future asset/liability management flexibility. Unrealized gains on
securities available for sale increased by $12.8 million as a result of this
reclassification. TCF has no current plans to dispose of these securities.
At December 31, 1995, TCF's securities available for sale portfolio
included $124.9 million and $1.1 billion of adjustable-rate and fixed-rate
mortgage-backed securities, respectively, and $1.1 million and $17.5 million
of adjustable-rate and fixed-rate collateralized mortgage obligations,
respectively. Securities available for sale totaled $138.4 million at
December 31, 1994, an increase of $128.4 million from $10 million at December
31, 1993. The increase reflects TCF's adoption of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity
31
<PAGE>
Securities," effective January 1, 1994. As permitted by SFAS No. 115, TCF
reclassified $95.2 million of its debt securities from U.S. Government and
other marketable securities and $294.6 million of its mortgage-backed
securities to securities available for sale on January 1, 1994.
LOANS HELD FOR SALE -- Residential real estate and education loans held for
sale are carried at the lower of cost or market. Loans held for sale
increased $40.9 million during 1995, totaling $242.4 million at December 31,
1995. The change in 1995 reflects increases of $34.3 million in residential
real estate loans held for sale and $7.6 million in education loans held for
sale. The increase in education loans held for sale reflects management's
intention to hold a larger portfolio of these loans due to the higher yields
received as compared with alternative short-term investments. Under a
forward commitment agreement with the Student Loan Marketing Association
("SLMA"), TCF can sell the education loans to SLMA once they are fully
disbursed, but must sell the loans to SLMA before they go into repayment
status. Loans held for sale totaled $201.5 million at December 31, 1994, a
decrease of $243.3 million from $444.8 million at December 31, 1993.
MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- At December 31, 1995, TCF had
no mortgage-backed securities held to maturity, down from $1.6 billion at
December 31, 1994. As previously mentioned, TCF reclassified its remaining
$1.1 billion mortgage-backed securities portfolio from held to maturity to
securities available for sale effective December 31, 1995 in conjunction with
a one-time reassessment opportunity provided to all entities by the FASB.
The decrease in mortgage-backed securities also reflects Great Lakes'
previously described sale of $232.2 million of collateralized mortgage
obligations and transfer of $38.4 million of private issuer mortgage-backed
securities and collateralized mortgage obligations from its held-to-maturity
portfolio to its securities available-for-sale portfolio. The sales and
transfers are consistent with the strategy to reduce Great Lakes'
interest-rate and credit risk to levels consistent with those of TCF.
LOANS -- The following table sets forth information about loans held in TCF's
portfolio, excluding loans held for sale:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate $2,618,725 $2,662,707 $2,305,844 $1,961,739 $1,992,544
Consumer 1,593,439 1,299,458 1,080,499 1,099,823 1,152,432
Commercial real estate 970,763 997,632 1,091,084 1,250,969 1,399,347
Commercial business 167,663 190,975 214,774 236,142 324,258
Deferred fees and unearned discounts
and finance charges, net (73,489) (32,391) (26,634) (31,691) (41,627)
- -------------------------------------------------------------------------------------------------------------
Total loans $5,277,101 $5,118,381 $4,665,567 $4,516,982 $4,826,954
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Residential real estate loans totaled $2.6 billion at December 31, 1995,
a decrease of $44 million from December 31, 1994. This decrease reflects an
increase in loan repayment activity as a result of lower market interest
rates in 1995, partially offset by the origination and retention of $407.2
million of residential real estate loans. At December 31, 1995, TCF's
residential real estate loan portfolio was comprised of $1.5 billion of
fixed-rate loans and $1.1 billion of adjustable-rate loans.
Consumer loans totaled $1.6 billion at December 31, 1995, an increase of
$294 million from December 31, 1994. This change was primarily due to a
$118.5 million increase in TCF's home equity loan portfolio, a $172.5 million
increase in automobile, marine and recreational vehicle loans and a $10.4
million increase in credit card loans. The growth in home equity loans and
automobile, marine and recreational vehicle loans reflects TCF's expanded
consumer lending and consumer finance operations.
TCF continues to expand its consumer lending and consumer finance
operations. During 1995, the Company opened 24 new consumer finance offices,
most of which were in areas outside its traditional market locations. As of
December 31, 1995, TCF had 70 such offices in 16 states. As a result of this
expansion, TCF's consumer finance loan portfolio totaled $374.4 million at
December 31, 1995, compared with $201 million at December 31, 1994. TCF
anticipates opening four additional consumer finance offices during the first
half of 1996. The Company intends to concentrate on increasing the
outstanding loan balances of these existing offices and improving the
profitability of its consumer finance subsidiaries before opening any
additional consumer finance offices in the second half of 1996 or thereafter.
The following table summarizes TCF's consumer finance loan portfolio:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
(IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Home equity $154,790 $128,266
Automobile, marine and recreational vehicle 207,848 60,623
Other consumer finance 11,756 12,088
- ------------------------------------------------------------------------------
Total consumer finance loans $374,394 $200,977
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
Included in the consumer finance loans at December 31, 1995 are $163.6
million of sub-prime automobile, marine and recreational vehicle loans which
carry a higher level of credit risk and higher interest rates. The term
sub-prime reflects the Company's categorization of
32 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
borrowers and bears no relationship to the prime rate of interest or persons
who are able to borrow at that rate. There can be no assurance that the
Company's categorization of borrowers as sub-prime is the same as that
utilized by other lenders. Loans classified by TCF 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 effectively served by traditional lending
sources. See "Non-Performing Assets."
Consumer loan growth in recent years reflects TCF's emphasis on
expanding its portfolio of these higher-yielding, shorter-term loans,
including home equity lines of credit. At December 31, 1995, TCF's average
home equity line of credit was approximately $35,000 and the average loan
balance outstanding was approximately $19,000, or 54% of the available line.
Commercial real estate loans decreased $26.9 million in 1995 to $970.8
million at December 31, 1995. Commercial business loans decreased $23.3
million to $167.7 million at December 31, 1995. TCF is seeking to expand its
commercial real estate and commercial business lending activity to borrowers
located in its primary markets of Minnesota, Illinois, Wisconsin, Michigan
and other Midwestern states in an attempt to maintain the size of these
lending portfolios and, where feasible under local economic conditions,
achieve some growth in these lending categories over time. These loans
generally have larger individual balances and a substantially greater
inherent risk of loss. The risk of loss is difficult to quantify and is
subject to fluctuations in real estate values. At December 31, 1995,
approximately 92% of TCF's commercial real estate loans outstanding were
secured by properties located in its primary markets. The average individual
balance of commercial real estate loans was $578,000 at December 31, 1995.
Apartment loans comprised $406 million, or 41.8%, of total commercial real
estate loans outstanding at December 31, 1995. The average individual
balance of commercial business loans was $229,000 at December 31, 1995.
[GRAPH] CONSUMER FINANCE LOANS AT PERIOD-END
(IN MILLIONS OF DOLLARS)
Included in performing loans at December 31, 1995 are commercial real
estate and commercial business loans aggregating $1.6 million with terms that
have been modified in troubled debt restructurings, compared with $4.3
million of such loans at December 31, 1994.
The results of hotel and motel operations are susceptible to changes in
prevailing economic conditions. Included in commercial real estate loans at
December 31, 1995 are $84.9 million of loans secured by hotel or motel
properties. Seven loans comprise $41.5 million, or 48.9%, of the total hotel
and motel portfolio. Of the total hotel and motel portfolio balance, four
loans totaling $16.5 million are included in loans subject to management
concern and three loans totaling $870,000 are included in non-accrual loans.
TCF continues to closely monitor the performance of these loans and
properties.
ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND
RESERVES -- Credit risk is the risk of loss from a customer default. TCF
has in place a process to identify and manage its credit risks. The process
includes initial credit review and approval, periodic monitoring to measure
compliance with credit agreements and internal credit policies,
identification of problem loans and special procedures for collection of
problem loans.
On an ongoing basis, TCF's loan and real estate portfolios are carefully
reviewed and thoroughly analyzed as to credit risk, performance, collateral
value and quality. The 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 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. In this
analysis, management considers factors including, but not limited to, general
economic and market conditions, geographic location, composition and
appraisals of the real estate holdings and property conditions. The carrying
values of foreclosed real estate are based on appraisals, prepared by
certified appraisers, whenever possible. TCF reviews each external
commercial real estate appraisal it receives for accuracy, completeness and
reasonableness of assumptions used. The allowance for real estate losses is
established to reduce the carrying value of real estate to fair value less
disposition costs. Estimates of costs to complete or ready a project for
sale, costs of disposal and costs to carry real estate until estimated
disposition are considered in establishing the initial recorded investment in
real estate. A renewed weakness in commercial real estate markets may result
in further 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.
33
<PAGE>
Prior to being acquired by TCF in 1993, RCG had entered into agreements
guaranteeing certain industrial development and housing revenue bonds issued
by municipalities to finance commercial and multi-family real estate owned by
third parties. In the event a third-party borrower defaults on principal or
interest payments on the bonds, TCF, as acquiring entity, is required to
either fund the amount in default or acquire the then outstanding bonds. TCF
may foreclose on the underlying real estate to recover amounts in default.
The balance of such financial guarantees at December 31, 1995 was $13.5
million. Management has considered these guarantees in its review of the
adequacy of the industrial revenue bond reserves.
While TCF's investments in commercial real estate loans, commercial
business loans and related properties acquired through foreclosure or by
other means have significantly decreased in recent years, such loans and
investments have larger individual balances and a substantially greater
inherent risk of loss. The risk of loss on such loans and properties is
difficult to quantify and is subject to fluctuations in real estate values.
In addition, concerns remain over the future course of the economy and
particularly the related impact on the real estate values associated with
these loans and properties.
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.
The provisions for credit and real estate losses included in the
consolidated statements of operations totaled $17 million in 1995, compared
with $14.8 million in 1994 and $45.4 million in 1993. Included in the
provision for credit losses in 1995 and 1993 are $5 million and $7 million,
respectively, of merger-related provisions. Included in the provision for
real estate losses in 1993 are $700,000 of merger-related provisions. The
merger-related provisions were established to conform Great Lakes' and RCG's
credit loss reserve practices and methods to those of TCF and to allow for
the accelerated disposition of Great Lakes' and RCG's remaining problem
assets.
At December 31, 1995, the allowances for loan and real estate losses and
industrial revenue bond reserves totaled $69.2 million, compared with $61.7
million at December 31, 1994. Net loan, real estate and industrial revenue
bond charge-offs were $9.5 million in 1995 compared with $12.7 million in
1994. As indicated by the significant reduction in loss provisions
(excluding the merger-related provisions) and net charge-offs during 1995,
TCF has experienced continued improvement in credit quality. The unallocated
portion of TCF's allowance for loan losses totaled $17.8 million at December
31, 1995, compared with $15.5 million at December 31, 1994.
A summary of the allowance for loan losses and industrial revenue bond
reserves and selected statistics follows:
<TABLE>
<CAPTION>
ALLOWANCE INDUSTRIAL
FOR LOAN REVENUE
(IN THOUSANDS) LOSSES BOND RESERVES TOTAL
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $47,834 $1,463 $49,297
Adjustments for pooling-of-interests (56) 225 169
Provision for losses 33,392 1,726 35,118
Charge-offs (32,794) (725) (33,519)
Recoveries 6,068 -- 6,068
---------------------------------------------------------------------------------
Net charge-offs (26,726) (725) (27,451)
------------------------------------------------------------------------------
Balance, December 31, 1993 54,444 2,689 57,133
Provision for losses 10,802 -- 10,802
Charge-offs (15,994) -- (15,994)
Recoveries 7,091 70 7,161
---------------------------------------------------------------------------------
Net charge-offs (8,903) 70 (8,833)
------------------------------------------------------------------------------
Balance, December 31, 1994 56,343 2,759 59,102
Provision for losses 16,131 (919) 15,212
Charge-offs (14,770) (158) (14,928)
Recoveries 7,991 278 8,269
---------------------------------------------------------------------------------
Net charge-offs (6,779) 120 (6,659)
------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $65,695 $1,960 $67,655
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Ratio of net loan charge-offs to
average loans outstanding (1) .13% .19% .60%
Year-end allowance for loan losses as a
percentage of year-end gross loan
balances (1) 1.23 1.09 1.16
</TABLE>
(1) EXCLUDING LOANS HELD FOR SALE.
A summary of the allowance for real estate losses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $2,576 $2,439 $ 3,411
Adjustments for pooling-of-interests - - (513)
Provision for losses 1,804 4,022 10,308
Charge-offs (2,854) (3,885) (10,767)
----------------------------------------------------------------------------------
Balance at end of year $1,526 $2,576 $ 2,439
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
Real estate acquired through foreclosure is carried at the lower of cost
or fair value minus estimated costs to sell the properties. Fair value
represents the amount that would be received in a current sale between a
willing buyer and a willing seller, that is, other than in a forced or
liquidation sale.
34 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
Real estate charge-offs in 1993 reflect $4.2 million in charge-offs of
TCF's investment in New York City cooperative apartment units, and sales of
commercial real estate properties at less than previously estimated fair
values. TCF had no remaining investment in the cooperative units (excluding
loans to purchasers of cooperative units and loans to the cooperative
apartment corporations secured by underlying real estate) at December 31,
1995.
NON-PERFORMING ASSETS -- Non-performing assets (principally non-accrual loans
and real estate acquired through foreclosure) totaled $70.7 million at
December 31, 1995, up $13.1 million, or 22.8%, from the December 31, 1994
total of $57.6 million. The increase in non-performing assets reflects
increases of $4.9 million in non-accrual loans and $4 million in real estate
and other assets associated with TCF's consumer finance subsidiaries, and the
previously mentioned accelerated disposition of Great Lakes' remaining
problem assets. At December 31, 1995, 12 commercial real estate loans or
properties comprised $26.9 million, or 38.1%, of total non-performing assets.
These loans or properties had been written down by $6 million as of year-end
1995. Properties acquired are being actively marketed. Approximately 80% of
non-performing assets consist of, or are secured by, real estate. At
December 31, 1995, TCF's real estate and other non-performing assets of $26.4
million included commercial real estate of $11.4 million. 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.
Non-performing assets are summarized in the following table:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans (1):
Residential real estate $ 7,045 $ 7,211 $ 9,705 $ 12,747 $ 14,716
Commercial real estate 22,255 18,452 52,463 42,321 76,010
Commercial business 7,541 5,972 24,770 22,642 22,677
Consumer 7,487 2,127 1,322 1,997 3,149
------------------------------------------------------------------------------------------------------
44,328 33,762 88,260 79,707 116,552
Real estate and other assets 26,402 23,849 25,062 50,472 57,651
- --------------------------------------------------------------------------------------------------------
Total non-performing assets $70,730 $57,611 $113,322 $130,179 $174,203
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Non-performing assets as a
percentage of net loans 1.36% 1.14% 2.46% 2.91% 3.65%
Non-performing assets as a
percentage of total assets .98 .73 1.49 1.67 2.22
</TABLE>
(1) INCLUDED IN TOTAL LOANS IN THE CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION.
The following table sets forth information regarding TCF's delinquent
loan portfolio, excluding non-accrual loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1995 1994
---------------------- ----------------------
PERCENTAGE PERCENTAGE
PRINCIPAL OF GROSS PRINCIPAL OF GROSS
(DOLLARS IN THOUSANDS) BALANCES LOANS BALANCES LOANS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans delinquent for:
30-59 days $32,519 .62% $14,212 .28%
60-89 days 8,159 .15 6,269 .12
90 days or more 678 .01 2,369 .05
----------------------------------------------------------------------------------
Total $41,356 .78% $22,850 .45%
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
TCF had accruing loans 90 days or more past due totaling $761,000 at
December 31, 1995, compared with $2.4 million at December 31, 1994. These
loans are in the process of collection and management believes they are
adequately secured. The over 30-day delinquency rate on TCF's loans
(excluding non-accrual loans) was .78% of gross loans outstanding at December
31, 1995, compared with .45% at year-end 1994. The increase in the over
30-day delinquency rate is primarily due to an increase in consumer loan
delinquencies. 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 non-accrual loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1995 1994
---------------------- ----------------------
PERCENTAGE PERCENTAGE
PRINCIPAL OF GROSS PRINCIPAL OF GROSS
(DOLLARS IN THOUSANDS) BALANCES LOANS BALANCES LOANS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer:
Savings bank lending $11,110 .96% $ 5,365 .50%
Consumer finance lending 16,188 3.77 4,322 2.01
------------------------------------------- -------
27,298 1.72 9,687 .75
Residential real estate 12,056 .46 8,626 .32
Commercial real estate 1,411 .15 3,460 .35
Commercial business 591 .37 1,077 .58
------------------------------------------- -------
Total $41,356 .78 $22,850 .45
------------------------------------------- -------
------------------------------------------- -------
</TABLE>
35
<PAGE>
[GRAPH] NON-PERFORMING ASSETS
(IN MILLIONS OF DOLLARS)
TCF's over 30-day delinquency rate on gross consumer loans was 1.72% at
December 31, 1995, up from .75% at year-end 1994. 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 3.77% at December 31,
1995, compared with 2.01% at December 31, 1994. Management expects the over
30-day consumer loan delinquency rate to increase as the consumer finance
loan portfolio seasons. 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 offices are generally less stringent
than those historically adhered to by TCF's savings bank 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 $56.5 million outstanding at
December 31, 1995 for which management has concerns regarding the ability of
the borrowers to meet existing repayment terms. This amount consists of
loans that were classified for regulatory purposes as substandard, doubtful
or loss, or were to borrowers that currently are experiencing financial
difficulties or that management believes may experience financial
difficulties in the future. This compares with $74.2 million of such loans
at December 31, 1994. Although these loans are secured by commercial real
estate or 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.
Effective January 1, 1995, TCF adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
SFAS No. 114 requires that impaired loans be measured at the present value of
expected future cash flows discounted at the loan's initial effective
interest rate. The fair value of the collateral of an impaired
collateral-dependent loan or an observable market price, if one exists, may
be used as an alternative to discounting. If the measure of the impaired
loan is less than the recorded investment in the loan, impairment is to be
recognized through the allowance for loan losses. A loan is considered
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS No. 118 amends SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest income on
impaired loans and to clarify disclosure requirements. The adoption of SFAS
No. 114 and SFAS No. 118 did not impact TCF's results of operations for 1995
or any prior period. In accordance with SFAS No. 114 and SFAS No. 118, prior
period financial statements have not been restated to reflect the change in
accounting method. Additional information on TCF's adoption of SFAS No. 114
and SFAS No. 118 is provided in Note 1 of Notes to Consolidated Financial
Statements.
LIQUIDITY MANAGEMENT -- TCF manages its liquidity position to ensure that the
funding needs of depositors and borrowers are met promptly and in a
cost-effective manner. Asset liquidity arises from the ability to convert
assets to cash as well as from the maturity of assets. Liability liquidity
results from the ability of TCF to attract a diversity of funding sources to
meet funding requirements promptly. TCF's wholly owned savings bank
subsidiaries are required by federal regulations to maintain a monthly
average minimum asset liquidity ratio of 5%. These subsidiaries have
maintained average monthly liquidity ratios in excess of this requirement.
Deposits are the primary source of TCF's funds for use in lending and
for other general business purposes. In addition to deposits, TCF derives
funds primarily from loan repayments, advances from the FHLB and proceeds
from reverse repurchase borrowing agreements. Deposit inflows and outflows
are significantly influenced by general interest rates, money market
conditions, competition for funds and other factors. Although TCF's levels
of deposits have recently stabilized, its deposit inflows and outflows have
been affected by these factors and may continue to be affected in future
periods. Borrowings may be used to compensate for reductions in normal
sources of funds, such as deposit inflows at less than projected levels, net
deposit outflows or to support expanded activities. Historically, TCF has
borrowed primarily from the FHLB, from institutional sources under reverse
repurchase agreements and, to a lesser extent, from other sources. See
"Borrowings."
Cash and due from banks increased $9.4 million during the year ended
December 31, 1995 to $233.6 million. Cash of $97.4 million was provided by
operating activities as proceeds from sales of loans held for sale of $653
million and net income of $60.7 million were partially offset by originations
and purchases of loans held for sale of $706.2 million. Cash of $548.2
million was provided by investing activities reflecting principal collections
on loans and mortgage-backed securities of $1.6 billion and maturities of
securities available for sale of $128.2 million. In addition, proceeds from
sales of mortgage-backed securities and securities available for sale totaled
$301.3 million. These cash inflows were partially offset by loan
originations of $1.6 billion. Cash of $636.3 million was used by financing
activities primarily due to net cash outflows of $155.4 million on deposits
and $440.7 million on
36 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
FHLB advances, reverse repurchase agreements and federal funds purchased, and
TCF's July 3, 1995 redemption of its $27.1 million of preferred stock.
Cash and due from banks increased $25.9 million during the year ended
December 31, 1994 to $224.3 million. Cash of $339.9 million was provided by
operating activities, reflecting cash proceeds from sales of loans held for
sale of $1.1 billion and cash outflows for originations and purchases of
loans held for sale of $843.9 million. Cash of $460.4 million was used by
investing activities reflecting loan originations of $1.7 billion, and
purchases of mortgage-backed securities and securities available for sale of
$1.2 billion. These cash outflows were partially offset by principal
collections on loans and mortgage-backed securities of $1.6 billion and
proceeds from the sales and maturities of securities available for sale of
$891.9 million. Cash of $146.4 million was provided by financing activities
primarily due to net cash outflows on FHLB advances and reverse repurchase
agreements, partially offset by outflows on deposits and repurchases of
common stock of $17.5 million.
Potential sources of liquidity for TCF Financial Corporation (parent
company only) include cash dividends from TCF Minnesota and Great Lakes,
TCF's wholly owned savings bank subsidiaries, cash flows from other direct
subsidiaries, issuance of equity securities to employee benefit plans and
interest income. TCF Minnesota's and Great Lakes' ability to pay dividends
or make other capital distributions to TCF is restricted by regulation and
may require regulatory approval. Retained earnings at December 31, 1995
includes approximately $100.9 million for which no provision for federal
income tax has been made. This amount represents earnings appropriated to
bad debt reserves and deducted for federal income tax purposes and is not
available for payment of cash dividends or other distributions to
shareholders. Payments or distributions of these appropriated earnings could
invoke a tax liability for TCF based on the amount of earnings removed and
current tax rates.
At December 31, 1995, in addition to TCF Minnesota and Great Lakes, TCF
Financial Corporation directly owned four insurance agency subsidiaries
engaging in the sale of single premium tax-deferred annuities. Dividends
from these subsidiaries to TCF were $2.8 million and $4.6 million for the
years ended December 31, 1995 and 1994, respectively. Future dividends from
these subsidiaries are dependent upon continued favorable tax treatment for
single premium annuities, and legislative proposals have sought to limit or
eliminate these tax benefits. Cash flows received by TCF Financial
Corporation on the exercise of stock options under the Stock Option and
Incentive Plan of TCF Financial and common stock warrants were $12.5 million
and $272,000 for the years ended December 31, 1995 and 1994, respectively.
[GRAPH] NUMBER OF CHECKING ACCOUNTS
(IN THOUSANDS)
DEPOSITS -- Deposits totaled $5.2 billion at December 31, 1995, down $208.2
million from December 31, 1994. The decrease in deposits reflects a
significant planned runoff of Great Lakes' brokered deposits and the
previously described sale of three branches. Lower interest-cost checking,
savings and money market deposits totaled $2.6 billion, down $57.2 million
from year-end 1994, and comprised 49.3% of total deposits at December 31,
1995. 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, increased to 3.60% at
December 31, 1995 from 3.53% at December 31, 1994, reflecting higher market
rates and an increase in competition among depository and other financial
institutions.
BORROWINGS -- Borrowings are used primarily to fund the purchases of
investments and securities available for sale. These borrowings totaled $1.4
billion as of December 31, 1995, down $443.6 million from $1.9 billion at
year-end 1994. The decrease was primarily due to a $461.1 million decrease
in FHLB advances, including the previously mentioned prepayment of $112.3
million of higher-rate FHLB advances as part of the merger-related activities
at Great Lakes. As part of its strategy to reduce interest-rate risk, TCF
extended the maturities on $85 million of borrowings, converted $68 million
of variable-rate FHLB advances to long-term fixed-rate FHLB advances,
exercised its right of redemption on $82 million of higher cost fixed-rate
FHLB advances, and repaid short-term borrowings. See "Asset/Liability
Management - Interest-Rate Risk." The weighted average rate on borrowings
decreased to 5.98% at December 31, 1995, from 6.29% at December 31,1994.
On November 30, 1995, TCF exercised its right of redemption on its $34.5
million of 10% Subordinated Capital Notes due 2002. The notes were redeemed
at par plus accrued interest to the date of redemption. The funding for this
redemption came from an increased bank line of credit.
STOCKHOLDERS' EQUITY -- Stockholders' equity at December 31, 1995 was $527.7
million, or 7.3% of total assets, up from $475.5 million, or 6.1% of total
assets, at December 31, 1994. The increase in stockholders' equity is
primarily due to net income of $60.7 million for the year ended December 31,
1995, the receipt of $17.4 million on the exercise of stock options and
common stock warrants and an increase of $12.9 million in unrealized gains on
securities available for sale. The common stock warrants, which were assumed
in connection with the acquisition of Great Lakes, expired on July 1, 1995.
These increases were partially offset by payments of $21.6 million in
dividends on TCF's common and preferred stock, and TCF's July 3, 1995
redemption of its 2.7 million shares of preferred stock at $10 per share. As
previously mentioned, TCF issued the preferred stock in exchange for Great
Lakes preferred stock.
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. TCF has 137,158 shares remaining unpurchased from its initial 5%
stock repurchase program, authorized by the Board in January 1994, which the
Company expects to repur-
37
<PAGE>
chase before initiating the new program. The repurchased shares will be used
primarily for employee benefit plans.
On October 16, 1995, the Board declared a two-for-one stock split in the
form of a 100% common stock dividend payable November 30, 1995 to
stockholders of record as of November 10, 1995. The stock split increased
TCF's outstanding common shares from 17.8 million to 35.6 million shares.
Stockholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from additional
paid-in capital to common stock the par value of the additional shares
arising from the stock split. In addition, all references to number of
shares, per-share amounts and market prices of the Company's common stock
have been restated giving retroactive recognition to the stock split.
On January 23, 1996, TCF declared a quarterly dividend of 15.625 cents
per common share, payable on February 29, 1996 to stockholders of record as
of February 9, 1996.
REGULATORY CAPITAL REQUIREMENTS -- The following tables set forth the
tangible, core and risk-based capital levels and applicable percentages of
adjusted assets, together with the excess over the minimum capital
requirements for TCF Minnesota and Great Lakes at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
TCF MINNESOTA:
AT DECEMBER 31,
-----------------------------------------------------
1995 1994
----------------------- ----------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tangible capital $333,254 7.03% $292,825 5.81%
Tangible capital requirement 71,076 1.50 75,634 1.50
- --------------------------------------------------------------------------------------------------
Excess $262,178 5.53% $217,191 4.31%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Core capital $334,586 7.06% $320,673 6.34
Core capital requirement 142,193 3.00 151,704 3.00
- --------------------------------------------------------------------------------------------------
Excess $192,393 4.06% $168,969 3.34%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Risk-based capital $370,892 12.78% $350,096 12.01%
Risk-based capital requirement 232,224 8.00 233,292 8.00
- --------------------------------------------------------------------------------------------------
Excess $138,668 4.78% $116,804 4.01%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GREAT LAKES:
AT DECEMBER 31,
-----------------------------------------------------
1995 1994
----------------------- ----------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tangible capital $171,126 6.81% $148,482 5.35%
Tangible capital requirement 37,667 1.50 41,626 1.50
- --------------------------------------------------------------------------------------------------
Excess $133,459 5.31% $106,856 3.85%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Core capital $182,268 7.23% $148,482 5.35%
Core capital requirement 75,669 3.00 83,252 3.00
- --------------------------------------------------------------------------------------------------
Excess $106,599 4.23% $ 65,230 2.35%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Risk-based capital $215,132 13.63% $181,594 11.08%
Risk-based capital requirement 126,293 8.00 131,140 8.00
- --------------------------------------------------------------------------------------------------
Excess $ 88,839 5.63% $ 50,454 3.08%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, TCF's savings bank subsidiaries, TCF Minnesota,
Great Lakes, TCF Wisconsin and TCF Illinois, exceeded their fully phased-in
capital requirements and believe they would be considered "well-capitalized"
under guidelines established pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991.
ASSET/LIABILITY MANAGEMENT -- INTEREST-RATE RISK -- TCF's results of
operations are dependent to a large degree on its net interest income, which
is the difference between interest income and interest expense. Like most
financial institutions, TCF's interest income and cost of funds are
significantly affected by general economic conditions and by policies of
regulatory authorities. The mismatch between maturities and interest-rate
sensitivities of assets and liabilities results in interest-rate risk.
Although the measure is subject to a number of assumptions and is only one of
a number of measurements, management believes the interest-rate gap
(difference between interest-earning assets and interest-bearing liabilities
repricing within a given period) is an important indication of TCF's exposure
to interest-rate risk and the related volatility of net interest income in a
changing interest rate environment. In addition to the interest-rate gap
analysis, management also utilizes a simulation model to measure and manage
TCF's interest-rate risk.
38 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
For an institution with a negative interest-rate gap for a given period,
the amount of its interest-bearing liabilities maturing or otherwise
repricing within such period exceeds the amount of interest-earning assets
repricing within the same period. In a rising interest-rate environment,
institutions with negative interest- rate gaps will generally experience more
immediate increases in the cost of their liabilities than in the yield on
their assets. Conversely, the yield on assets of institutions with negative
interest-rate gaps will generally decrease more slowly than the cost of their
funds in a falling interest rate environment.
As a result of the Great Lakes acquisition, TCF's exposure to rising and
falling interest rates has increased slightly. TCF's strategy is to reduce
this interest-rate risk over time by continuing to emphasize growth in core
deposits and higher yielding home equity and other consumer loans, and by
extending the maturities on borrowings when market conditions permit.
Consistent with this strategy, TCF has extended the maturities on $85 million
of borrowings and converted $68 million of variable-rate FHLB advances to
long-term fixed-rate FHLB advances since the acquisition of Great Lakes. In
addition, the Company sold $45.6 million of long-term fixed-rate securities
available for sale and paid down short-term borrowings. TCF's one-year
adjusted interest-rate gap reflects these transactions and was a negative
$189.5 million, or (3)% of total assets, at December 31, 1995, compared with
$511.6 million, or (7)% of total assets, at December 31, 1994.
TCF's Asset/Liability Management Committee manages TCF's interest-rate
risk based on interest rate expectations and other factors. The amounts in
the maturity/rate sensitivity table below represent management's estimates
and assumptions. Also, the amounts could be significantly affected by
external factors such as prepayment rates other than those assumed, early
withdrawals of deposits, changes in the correlation of various
interest-bearing instruments and competition. Decisions by management to
purchase or sell assets, or retire debt could change the maturity/repricing
and spread relationships.
The following table summarizes TCF's interest-rate gap position at
December 31, 1995:
<TABLE>
<CAPTION>
MATURITY/RATE SENSITIVITY
----------------------------------------------------------
(DOLLARS IN THOUSANDS) WITHIN 1 YEAR 1-3 YEARS 3+ YEARS TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans held for sale $ 242,413 $ -- $ -- $ 242,413
Securities available for sale 336,271 353,000 512,219 1,201,490
Real estate loans (1) 1,508,362 1,023,957 1,042,649 3,574,968
Other loans (1) 1,506,118 138,222 57,793 1,702,133
Investments (2) 64,345 -- -- 64,345
-------------------------------------------------------------------------------------------
3,657,509 1,515,179 1,612,661 6,785,349
- ---------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits (3) 2,786,515 895,765 1,509,272 5,191,552
Federal Home Loan Bank advances 609,339 218,014 66,234 893,587
Other borrowings 456,161 76,143 2,033 534,337
Subordinated debt - 6,248 7,272 13,520
-------------------------------------------------------------------------------------------
3,852,015 1,196,170 1,584,811 6,632,996
- ---------------------------------------------------------------------------------------------
Interest-earning assets over (under)
interest-bearing liabilities (194,506) 319,009 27,850 152,353
Impact of interest-rate exchange
and cap agreements 5,000 (5,000) -- --
- ---------------------------------------------------------------------------------------------
Adjusted gap $ (189,506) $ 314,009 $ 27,850 $ 152,353
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Adjusted cumulative gap $ (189,506) $ 124,503 $ 152,353 $ 152,353
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Adjusted cumulative gap as a
percentage of total assets:
At December 31, 1995 (3)% 2 % 2% 2%
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
At December 31, 1994 (7)% (6)% 1% 1%
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
(1) BASED UPON CONTRACTUAL MATURITY, REPRICING DATE, IF APPLICABLE, SCHEDULED
REPAYMENTS OF PRINCIPAL AND PROJECTED PREPAYMENTS OF PRINCIPAL BASED UPON
EXPERIENCE.
(2) INCLUDES INTEREST-BEARING DEPOSITS WITH BANKS, FEDERAL FUNDS SOLD, U.S.
GOVERNMENT AND OTHER MARKETABLE SECURITIES HELD TO MATURITY AND FHLB STOCK.
(3) INCLUDES NON-INTEREST BEARING DEPOSITS. MONEY MARKET ACCOUNTS AND 14% OF
CHECKING ACCOUNTS ARE INCLUDED IN AMOUNTS REPRICING WITHIN ONE YEAR. IN
ADDITION, 23% AND 29% OF PASSBOOK AND STATEMENT ACCOUNTS ARE INCLUDED IN
THE "WITHIN 1 YEAR" AND "1-3 YEARS" CATEGORIES, RESPECTIVELY. ALL
REMAINING PASSBOOK AND STATEMENT AND CHECKING ACCOUNTS ARE ASSUMED TO
MATURE IN THE "3+ YEARS" CATEGORY. WHILE MANAGEMENT BELIEVES THESE
ASSUMPTIONS ARE WELL BASED, NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON
DEPOSIT IN CHECKING, PASSBOOK AND STATEMENT ACCOUNTS WILL NOT SIGNIFICANTLY
DECREASE OR BE REPRICED IN THE EVENT OF A GENERAL RISE IN INTEREST RATES.
AT DECEMBER 31, 1994, 11% OF CHECKING ACCOUNTS WERE INCLUDED IN AMOUNTS
REPRICING WITHIN ONE YEAR, AND 51% AND 34% OF PASSBOOK AND STATEMENT
ACCOUNTS WERE INCLUDED IN THE "WITHIN 1 YEAR" AND "1-3 YEARS" CATEGORIES,
RESPECTIVELY.
39
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 233,619 $ 224,266
Interest-bearing deposits with banks 533 193,751
Federal funds sold -- 6,900
U.S. Government and other marketable securities held to
maturity (fair value of $3,716 and $3,526) 3,716 3,528
Federal Home Loan Bank stock, at cost 60,096 78,925
Securities available for sale (amortized cost of $1,182,240
and $140,074) 1,201,490 138,430
Loans held for sale 242,413 201,511
Mortgage-backed securities held to maturity (fair
value of $1,512,606 in 1994) -- 1,601,200
Loans:
Residential real estate 2,618,725 2,662,707
Commercial real estate 970,763 997,632
Commercial business 167,663 190,975
Consumer 1,593,439 1,299,458
Unearned discounts and deferred fees (73,489) (32,391)
-------------------------------------------------------------------------------------------
Total loans 5,277,101 5,118,381
Allowance for loan losses (65,695) (56,343)
----------------------------------------------------------------------------------------
Net loans 5,211,406 5,062,038
Premises and equipment 120,763 136,158
Real estate:
Total real estate 24,466 23,922
Allowance for real estate losses (1,526) (2,576)
-------------------------------------------------------------------------------------------
Net real estate 22,940 21,346
Accrued interest receivable 49,120 46,465
Due from brokers 6,767 27,379
Goodwill 11,503 13,355
Deposit base intangibles 12,918 14,662
Mortgage servicing rights 16,286 12,247
Other assets 46,341 63,427
- ----------------------------------------------------------------------------------------------
$7,239,911 $7,845,588
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $1,103,272 $1,031,039
Passbook and statement 841,115 940,459
Money market 616,667 646,732
Certificates 2,630,498 2,781,488
-------------------------------------------------------------------------------------------
Total deposits 5,191,552 5,399,718
----------------------------------------------------------------------------------------
Securities sold under repurchase agreements 438,426 429,469
Federal Home Loan Bank advances 893,587 1,354,663
Subordinated debt 13,520 50,676
Collateralized obligations 41,391 42,035
Other borrowings 54,520 8,152
- ----------------------------------------------------------------------------------------------
Total borrowings 1,441,444 1,884,995
-----------------------------------------------------------------------------------------
Accrued interest payable 14,905 20,043
Accrued expenses and other liabilities 64,335 65,363
- ----------------------------------------------------------------------------------------------
Total liabilities 6,712,236 7,370,119
-----------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share, 30,000,000
shares authorized; 2,710,000 shares issued and
outstanding in 1994 -- 27
Common stock, par value $.01 per share, 70,000,000 shares
authorized; 35,604,531 and 34,172,346 shares issued 356 342
Additional paid-in capital 243,122 251,174
Unamortized deferred compensation (11,195) (6,986)
Retained earnings, subject to certain restrictions 283,821 244,779
Loan to Executive Deferred Compensation Plan (131) (195)
Employee Stock Ownership Plan debt -- (1,500)
Unrealized gain (loss) on securities available for sale, net 11,702 (1,160)
Treasury stock, at cost, 645,760 shares in 1994 -- (11,012)
--------------------------------------------------------------------------------------------
Total stockholders' equity 527,675 475,469
-----------------------------------------------------------------------------------------
$7,239,911 $7,845,588
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
40 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $488,433 $403,095 $380,898
Interest on loans held for sale 18,253 16,917 24,200
Interest on mortgage-backed securities held to maturity 91,037 108,669 132,113
Interest on investments 5,946 10,476 16,237
Interest on securities available for sale 4,021 13,325 5,197
- ----------------------------------------------------------------------------------------------
Total interest income 607,690 552,482 558,645
-------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 193,244 183,179 208,613
Interest on borrowings 95,248 90,151 88,836
- ----------------------------------------------------------------------------------------------
Total interest expense 288,492 273,330 297,449
-------------------------------------------------------------------------------------------
Net interest income 319,198 279,152 261,196
Provision for credit losses 15,212 10,802 35,118
- ----------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 303,986 268,350 226,078
-------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Fee and service charge revenues 89,712 83,744 80,157
Data processing revenue 10,568 8,988 8,120
Commissions on sales of annuities 8,557 11,310 10,054
Title insurance revenues 11,509 10,274 15,229
Gain on sale of loans held for sale, net 3,735 2,124 10,059
Loss on sale of mortgage-backed securities, net (21,037) -- --
Gain (loss) on sale of securities available for sale, net (190) 981 10,182
Gain on sale of loan servicing, net 1,535 2,353 137
Gain on sale of branches, net 1,103 -- --
Other 7,284 5,445 5,067
- ----------------------------------------------------------------------------------------------
Total non-interest income 112,776 125,219 139,005
-------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and employee benefits 139,548 129,794 116,374
Occupancy and equipment, net 50,554 48,217 46,133
Advertising and promotions 16,651 14,119 13,175
Federal deposit insurance premiums and assessments 13,540 14,779 13,968
Amortization of goodwill and other intangibles 3,163 3,282 2,981
Provision for real estate losses 1,804 4,022 10,308
Merger-related expenses 21,733 -- 5,494
Cancellation cost on early termination of interest-rate
exchange contracts 4,423 -- --
Other 65,917 62,771 64,525
- ----------------------------------------------------------------------------------------------
Total non-interest expense 317,333 276,984 272,958
-------------------------------------------------------------------------------------------
Income before income tax expense and extraordinary items 99,429 116,585 92,125
Income tax expense 37,778 46,402 36,797
- ----------------------------------------------------------------------------------------------
Income before extraordinary items 61,651 70,183 55,328
EXTRAORDINARY ITEMS:
Penalties on early repayment of subordinated capital notes,
net of tax benefit of $100 -- -- (157)
Penalties on early repayment of FHLB advances, net of
tax benefit of $578 (963) -- --
- ----------------------------------------------------------------------------------------------
Net income 60,688 70,183 55,171
Dividends on preferred stock 678 2,710 2,769
- ----------------------------------------------------------------------------------------------
Net income available to common shareholders $60,010 $ 67,473 $ 52,402
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
PER COMMON SHARE:
Income before extraordinary items $ 1.71 $ 1.95 $ 1.53
Extraordinary items (.03) -- --
- ----------------------------------------------------------------------------------------------
Net income $ 1.68 $ 1.95 $ 1.53
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Dividends declared $ .59375 $ .50 $ .34375
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
41
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 60,688 $ 70,183 $ 55,171
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 18,165 17,884 16,316
Amortization of goodwill and other intangibles 3,163 3,282 2,981
Amortization of fees, discounts and premiums (2,028) (1,768) (6,399)
Proceeds from sales of loans held for sale 652,964 1,065,818 2,039,372
Principal collected on loans held for sale 12,100 9,508 18,373
Originations and purchases of loans held for sale (706,243) (843,925) (2,188,178)
Net decrease in other assets and liabilities, and accrued interest 9,251 4,738 28,952
Provisions for credit and real estate losses 17,016 14,824 45,426
(Gain) loss on sale of securities available for sale, net 190 (981) (10,182)
Loss on sale of mortgage-backed securities, net 21,037 -- --
Gain on sale of branches, net (1,103) -- --
Gain on sale of loan servicing, net (1,535) (2,353) (137)
Penalties on early repayment of borrowings 1,541 -- 257
Cancellation cost on early termination of interest-rate
exchange contracts 4,423 -- --
Write-off of equipment 13,435 -- --
Other, net (5,673) 2,694 (3,312)
--------------------------------------------------------------------------------------------------------
Total adjustments 36,703 269,721 (56,531)
------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 97,391 339,904 (1,360)
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of mortgage-backed securities 211,117 -- --
Principal collected on mortgage-backed securities 180,112 408,988 605,244
Purchases of mortgage-backed securities -- (544,447) (573,025)
Principal collected on loans 1,392,384 1,220,688 1,318,222
Loan originations (1,583,915) (1,727,471) (1,552,104)
Net (increase) decrease in interest-bearing deposits with banks 193,218 (183,238) 116,218
Proceeds from sales of securities available for sale 90,218 177,996 282,361
Proceeds from maturities of securities available for sale 128,167 713,876 48,900
Purchases of securities available for sale (45,805) (651,039) --
Proceeds from maturities of U.S. Government and other
marketable securities -- 667 1,209,411
Purchases of U.S. Government and other marketable securities -- -- (1,178,338)
Proceeds from redemption of FHLB stock 24,119 10,000 1,121
Purchases of term federal funds sold -- (76,000) (80,800)
Proceeds from maturities of term federal funds sold -- 91,000 115,800
Net (increase) decrease in short-term federal funds sold 6,900 83,641 (39,500)
Proceeds from sales of real estate 19,043 28,233 56,378
Payments for acquisition and improvement of real estate (3,003) (2,291) (3,591)
Proceeds from sales of loan servicing 1,750 2,807 137
Purchases of premises and equipment (19,329) (18,116) (20,214)
Acquisitions of deposits, net of cash acquired 5,752 -- 154,257
Sale of deposits, net of cash paid (57,007) -- --
Other, net 4,495 4,356 (7,184)
- -----------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 548,216 (460,350) 453,293
--------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUED ON FOLLOWING PAGE.
42 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits $ (155,401) $ (296,210) $ (225,713)
Proceeds from securities sold under repurchase
agreements and federal funds purchased 10,473,013 4,804,505 4,199,674
Payments on securities sold under repurchase
agreements and federal funds purchased (10,451,056) (4,738,927) (4,285,794)
Payments on subordinated debt (34,500) -- (38,193)
Proceeds from FHLB advances 1,839,390 2,060,663 1,328,291
Payments on FHLB advances (2,302,007) (1,651,492) (1,411,518)
Payments for termination of interest-rate exchange contracts (4,581) -- --
Proceeds from other borrowings 65,285 -- 5,000
Payments on collateralized obligations and other borrowings (30,978) (3,399) (9,612)
Proceeds from exercise of stock warrants and stock options 15,309 4,032 2,081
Repurchases of common stock (824) (17,524) --
Payments for redemption of preferred stock (27,100) -- --
Other, net (22,804) (15,260) (12,774)
- -----------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (636,254) 146,388 (448,558)
--------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 9,353 25,942 3,375
RCG cash flows for six months ended December 31, 1992 -- -- 13,807
Cash and due from banks at beginning of year 224,266 198,324 181,142
- -----------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 233,619 $ 224,266 $ 198,324
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings $ 291,724 $ 274,815 $ 297,879
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Income taxes $ 23,806 $ 43,250 $ 30,926
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Transfer of loans to real estate and other assets $ 28,015 $ 49,727 $ 54,051
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Transfer of U.S. Government and other marketable
securities to securities available for sale $ -- $ 95,166 $ 33,258
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Transfer of mortgage-backed securities to securities
available for sale $ 1,187,394 $ 294,611 $ --
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
43
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF
(DOLLARS IN THOUSANDS) COMMON SHARES ISSUED PREFERRED STOCK
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1992, as originally reported 24,213,230 $ --
Adjustments for pooling-of-interests 7,555,480 27
- --------------------------------------------------------------------------------------------------------
Balance, December 31, 1992, as restated 31,768,710 27
RCG activity for six months ended December 31, 1992:
Net income -- --
Dividends on common stock -- --
Exercise of stock options 86,152 --
Payments on Employee Stock Ownership Plan debt -- --
Pooled operations for year ended December 31, 1993:
Net income -- --
Dividends on preferred stock 185,436 --
Dividends on common stock 639,940 --
Issuance of shares of restricted stock 42,000 --
Issuance of shares to Dividend Reinvestment Plan 11,030 --
Issuance of shares under Officers' Stock Performance
Investment Plan 59,922 --
Repurchase and cancellation of shares (928) --
Grant of shares of restricted stock to outside directors 19,830 --
Cancellation of shares of restricted stock (1,000) --
Amortization of deferred compensation -- --
Exercise of stock options 483,384 --
Exercise of stock warrants 2,628 --
Payments on Loan to Executive Deferred Compensation Plan -- --
Payments on Employee Stock Ownership Plan debt -- --
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 33,297,104 27
Cumulative effect of change in accounting for securities
available for sale at January 1, 1994, net of tax -- --
Net income -- --
Dividends on preferred stock -- --
Dividends on common stock 348,822 --
Purchase of 1,070,000 shares to be held in treasury -- --
Issuance of 378,400 shares of restricted stock, of which 366,400
shares were from treasury 12,000 --
Grant of 57,000 shares of restricted stock to outside directors
from treasury -- --
Issuance of 840 shares to employee benefit plans from treasury -- --
Issuance of shares to Dividend Reinvestment Plan 8,060 --
Issuance of shares under Officers' Stock Performance
Investment Plan 46,090 --
Cancellation of shares of restricted stock (3,000) --
Amortization of deferred compensation -- --
Exercise of stock options 218,222 --
Exercise of stock warrants 245,048 --
Payments on Loan to Executive Deferred Compensation Plan -- --
Payments on Employee Stock Ownership Plan debt -- --
Change in unrealized gain (loss) on securities
available for sale, net -- --
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,1994 34,172,346 27
Net income -- --
Dividends on preferred stock -- --
Dividends on common stock -- --
Purchase of 32,400 shares to be held in treasury -- --
Issuance of 308,400 shares of restricted stock, of
which 304,400 shares were from treasury 4,000 --
Grant of 45,000 shares of restricted stock to outside directors -- --
Issuance of 373,760 shares from treasury to effect merger with
Great Lakes (373,760) --
Issuance of shares to Dividend Reinvestment Plan 600 --
Redemption of preferred stock -- (27)
Repurchase and cancellation of shares (2,676) --
Cancellation of shares of restricted stock (9,089) --
Amortization of deferred compensation -- --
Exercise of stock options 392,012 --
Exercise of stock warrants 1,265,280 --
Issuance of common stock on conversion of convertible debentures 155,818 --
Payments on Loan to Executive Deferred Compensation Plan -- --
Payments on Employee Stock Ownership Plan debt -- --
Change in unrealized gain (loss) on securities available for
sale, net -- --
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 35,604,531 $ --
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
44 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
<TABLE>
<CAPTION>
LOAN TO UNREALIZED
EXECUTIVE GAIN
UNAMOR- DEFERRED (LOSS) ON
TIZED COMPEN- SECURITIES
ADDITIONAL DEFERRED SATION AVAILABLE
COMMON PAID-IN COMPEN- RETAINED PLAN AND FOR SALE, TREASURY
(DOLLARS IN THOUSANDS) STOCK CAPITAL SATION EARNINGS ESOP DEBT NET STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992,
as originally reported $242 $146,769 $ (1,159) $116,569 $ (636) $ -- $ -- $261,785
Adjustments for pooling-
of-interests 76 76,047 -- 41,960 (4,400) -- -- 113,710
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992,
as restated 318 222,816 (1,159) 158,529 (5,036) -- -- 375,495
RCG activity for six months
ended December 31, 1992:
Net income -- -- -- 946 -- -- -- 946
Dividends on common stock -- -- -- (525) -- -- -- (525)
Exercise of stock options 1 222 -- -- -- -- -- 223
Payments on Employee Stock
Ownership Plan debt -- -- -- -- 32 -- -- 32
Pooled operations for year
ended December 31, 1993:
Net income -- -- -- 55,171 -- -- -- 55,171
Dividends on preferred stock 2 2,088 -- (2,769) -- -- -- (679)
Dividends on common stock 6 8,056 -- (16,521) -- -- -- (8,459)
Issuance of shares of
restricted stock -- 689 (689) -- -- -- -- --
Issuance of shares to
Dividend Reinvestment Plan -- 129 -- -- -- -- -- 129
Issuance of shares under
Officers' Stock Performance
Investment Plan 1 971 (322) -- -- -- -- 650
Repurchase and cancellation
of shares -- (15) -- -- -- -- -- (15)
Grant of shares of restricted
stock to outside directors -- 188 (237) -- -- -- -- (49)
Cancellation of shares of
restricted stock -- (9) (2) -- -- -- -- (11)
Amortization of deferred
compensation -- -- 1,137 -- -- -- -- 1,137
Exercise of stock options 5 3,231 -- -- -- -- -- 3,236
Exercise of stock warrants -- 28 -- -- -- -- -- 28
Payments on Loan to Executive
Deferred Compensation Plan -- -- -- -- 253 -- -- 253
Payments on Employee Stock
Ownership Plan debt -- -- -- -- 503 -- -- 503
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 333 238,394 (1,272) 194,831 (4,248) -- -- 428,065
Cumulative effect of change
in accounting for
securities available for
sale at January 1, 1994,
net of tax -- -- -- -- -- 3,276 -- 3,276
Net income -- -- -- 70,183 -- -- -- 70,183
Dividends on preferred stock -- -- -- (2,710) -- -- -- (2,710)
Dividends on common stock 4 5,264 -- (17,525) -- -- -- (12,257)
Purchase of 1,070,000 shares
to be held in treasury -- -- -- -- -- -- (17,524) (17,524)
Issuance of 378,400 shares
of restricted stock, of
which 366,400 shares were
from treasury -- 2,007 (7,541) -- -- -- 5,550 16
Grant of 57,000 shares of
restricted stock to
outside directors from
treasury -- 117 (1,065) -- -- -- 948 --
Issuance of 840 shares to
employee benefit plans
from treasury -- 4 -- -- -- -- 14 18
Issuance of shares to
Dividend Reinvestment Plan -- 122 -- -- -- -- -- 122
Issuance of shares under
Officers' Stock Performance
Investment Plan 1 704 -- -- -- -- -- 705
Cancellation of shares of
restricted stock -- (56) 40 -- -- -- -- (16)
Amortization of deferred
compensation -- -- 2,852 -- -- -- -- 2,852
Exercise of stock options 2 2,131 -- -- -- -- -- 2,133
Exercise of stock warrants 2 2,487 -- -- -- -- -- 2,489
Payments on Loan to Executive
Deferred Compensation Plan -- -- -- -- 153 -- -- 153
Payments on Employee Stock
Ownership Plan debt -- -- -- -- 2,400 -- -- 2,400
Change in unrealized gain
(loss) on securities
available for sale, net -- -- -- -- -- (4,436) -- (4,436)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,1994 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 -- 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 (4) (6,370) -- -- -- -- 6,374 --
Issuance of shares to
Dividend Reinvestment Plan -- 11 -- -- -- -- -- 11
Redemption of preferred stock -- (27,073) -- -- -- -- -- (27,100)
Repurchase and cancellation
of shares -- (52) -- -- -- -- -- (52)
Cancellation of shares of
restricted stock -- (175) 175 -- -- -- -- --
Amortization of deferred
compensation -- -- 7,675 -- -- -- -- 7,675
Exercise of stock options 4 4,700 -- -- -- -- -- 4,704
Exercise of stock warrants 12 12,718 -- -- -- -- -- 12,730
Issuance of common stock on
conversion of convertible
debentures 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 $356 $243,122 $(11,195) $283,821 $ (131) $11,702 $ -- $527,675
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of TCF Financial Corporation and its wholly owned subsidiaries. TCF
Financial Corporation ("TCF" or the "Company") is a holding company engaged
primarily in retail community banking and consumer finance lending through
its wholly owned subsidiaries, TCF Bank Minnesota fsb ("TCF Minnesota") and
Great Lakes Bancorp, A Federal Savings Bank ("Great Lakes"). TCF Bank
Illinois fsb ("TCF Illinois") and TCF Bank Wisconsin fsb ("TCF Wisconsin")
are wholly owned subsidiaries of TCF Minnesota. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior years' financial statements to
conform to the current year presentation. For consolidated statements of
cash flows purposes, cash and cash equivalents include cash and due from
banks.
CHANGE IN METHOD OF ACCOUNTING FOR MORTGAGE SERVICING RIGHTS -- In May 1995,
the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights." Under the provisions of SFAS No. 122, entities are
required to recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired. An entity that either
purchases or originates mortgage loans and subsequently sells or securitizes
the mortgage loans and retains the mortgage servicing rights is required to
allocate the total cost of the mortgage loans to the mortgage servicing
rights and the mortgage loans (without the mortgage servicing rights) based
on their relative fair values. SFAS No. 122 also requires that capitalized
mortgage servicing rights be assessed for impairment based on the fair value
of those rights. TCF adopted SFAS No. 122 on a prospective basis effective
April 1, 1995 and capitalized $4.1 million of originated mortgage servicing
rights, net of amortization, in 1995. In accordance with SFAS No. 122, prior
period financial statements have not been restated to reflect the change in
accounting method.
CHANGE IN METHOD OF ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN --
Effective January 1, 1995, TCF adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114
requires that impaired loans be measured at the present value of expected
future cash flows discounted at the loan's initial effective interest rate.
The fair value of the collateral of an impaired collateral-dependent loan or
an observable market price, if one exists, may be used as an alternative to
discounting. If the measure of the impaired loan is less than the recorded
investment in the loan, impairment is to be recognized through the allowance
for loan losses. A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 118 amends SFAS No. 114 to allow a creditor to use
existing methods for recognizing interest income on impaired loans and to
clarify disclosure requirements. The adoption of SFAS No. 114 and SFAS No.
118 did not impact TCF's results of operations for 1995 or any prior period.
In accordance with SFAS No. 114 and SFAS No. 118, prior period financial
statements have not been restated to reflect the change in accounting method.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- Investments
and mortgage-backed securities classified as held to maturity are carried at
cost, adjusted for amortization of premiums or accretion of discounts using
methods which approximate a level yield.
SECURITIES AVAILABLE FOR SALE -- Investments and mortgage-backed securities
classified as available for sale are carried at fair value with the
unrealized holding gains or losses, net of deferred income taxes, reported as
a separate component of stockholders' equity. Cost of securities sold is
determined on a specific identification basis and gains or losses on sales of
securities available for sale are recognized at trade dates.
LOANS HELD FOR SALE -- Residential real estate and education loans held for
sale are carried at the lower of cost or market determined on an aggregate
basis. Cost of loans sold is determined on a specific identification basis
and gains or losses on sales of loans held for sale are recognized at
settlement dates. Net fees and costs associated with originating and
acquiring loans held for sale are deferred and are included in the basis for
determining the gain or loss on sales of loans held for sale.
LOANS -- Net fees and costs associated with originating and acquiring loans
are deferred and amortized over the lives of the loans. Net fees and costs
associated with loan commitments are deferred in other assets or other
liabilities until the loan is advanced. Discounts and premiums on loans
purchased, net deferred fees and unearned discounts and finance charges,
which are considered yield adjustments, are amortized using methods which
approximate a level yield over the estimated remaining lives of the loans.
The 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 levels of
non-performing assets, net charge-offs, geographic location and prevailing
economic conditions. The allowance for loan losses is established for known
or anticipated problem loans, as well as for loans which are not currently
known to require specific allowances.
46 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
Loans are charged off to the extent they are deemed to be uncollectible. The
adequacy of the allowance for loan losses is highly dependent upon
management's estimates of variables affecting valuation, appraisals of
collateral, evaluations of performance and status, and the amounts and timing
of future cash flows expected to be received on impaired loans. Such
estimates, appraisals, evaluations and cash flows may be subject to frequent
adjustments due to changing economic prospects of borrowers or properties,
and it is possible that ultimate losses may vary from current estimates.
These estimates are reviewed periodically and adjustments, if necessary, are
reported in the provision for credit losses in the periods in which they
become known.
Interest income is accrued on loan balances outstanding. Loans,
including those that are considered to be impaired under the criteria
established by SFAS No. 114 and SFAS No. 118, are reviewed regularly by
management and are placed on non-accrual status when the collection of
interest or principal is more than 90 days past due, unless the loan is
adequately secured and in the process of collection. When a loan is placed
on non-accrual status, unless collection of all principal and interest is
considered to be assured, uncollected interest accrued in prior years is
charged off against the allowance for loan losses. Interest accrued in the
current year is reversed. Interest payments received on non-accrual loans
are generally applied to principal unless the remaining loan principal
balance has been determined to be fully collectible.
Cost of loans sold is determined on a specific identification basis and
gains or losses on sales of loans are recognized at trade dates.
PREMISES AND EQUIPMENT -- Premises and equipment are carried at cost and are
depreciated or amortized on a straight-line basis over their estimated useful
lives.
REAL ESTATE -- Real estate in judgment, real estate acquired through
foreclosure and in-substance foreclosures are recorded at the lower of cost
or fair value minus estimated costs to sell at the date of transfer to real
estate. If the fair value of an asset minus the estimated costs to sell
should decline to less than the carrying amount of the asset, the deficiency
is recognized through the allowance for real estate losses. In-substance
foreclosures consist of loans for which TCF has taken possession of the
collateral although formal foreclosure proceedings have not taken place.
Real estate held for development is carried at the lower of cost or net
realizable value. Properties under development are subject to capitalization
of interest during the development period. No interest was capitalized
during the three years ended December 31, 1995.
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. In this
analysis, management considers factors including, but not limited to, general
economic and market conditions, geographic location, composition and
appraisals of the real estate holdings and property conditions. The
allowance for real estate losses is established to reduce the carrying value
of real estate to fair value less disposition costs. The adequacy of the
allowance for real estate losses is highly dependent upon management's
estimates of variables affecting valuation, appraisals of real estate and
evaluations of performance and status. Such estimates, appraisals and
evaluations may be subject to frequent adjustments due to changing economic
prospects of borrowers or properties and it is possible that ultimate losses
may vary from current estimates. These estimates are reviewed periodically
and adjustments, if necessary, are reported in the provision for real estate
losses in the periods in which they become known.
MORTGAGE SERVICING RIGHTS -- Mortgage servicing rights are acquired by
purchasing or originating mortgage loans and selling those loans with
servicing rights retained, or by purchasing the servicing rights separately.
The cost of mortgage loans purchased or originated is allocated to mortgage
servicing rights and mortgage loans (without the mortgage servicing rights)
based on their relative fair values. The costs allocated to mortgage
servicing rights are capitalized and amortized in proportion to, and over the
period of, estimated net servicing income. TCF periodically evaluates its
capitalized mortgage servicing rights for impairment. Loan type and note
rate are the predominant risk characteristics of the underlying loans used to
stratify capitalized mortgage servicing rights for purposes of measuring
impairment. Any impairment is recognized through a valuation allowance.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES -- TCF participates in joint
ventures that are engaged in the leasing of personal property, the
origination of residential real estate loans, and real estate activities that
are not permissible for national banks. These investments are accounted for
using the equity method of accounting. In addition, TCF has a 3%
participation in a joint venture that underwrites credit life insurance
policies. This investment is accounted for using the cost method of
accounting.
INTANGIBLE ASSETS -- Goodwill resulting from acquisitions initiated or
completed prior to September 30, 1982 is amortized over 25 years on a
straight-line basis. For acquisitions initiated or completed after September
30, 1982, goodwill is amortized by the level-yield method based upon the
outstanding balances, and over the estimated remaining lives, of the
long-term assets acquired. Deposit base intangibles are amortized over 10
years on a straight-line basis.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS -- TCF enters into sales of
securities under repurchase agreements (reverse repurchase agreements). Such
agreements are treated as financings, and the obligations to repurchase
securities sold are reflected as liabilities in the Consolidated Statements
of Financial Condition. The securities underlying the agreements remain in
the asset accounts in the Consolidated Statements of Financial Condition.
ADVERTISING AND PROMOTIONS -- Expenditures for advertising costs are expensed
as incurred.
47
<PAGE>
FINANCIAL INSTRUMENTS -- Premiums, discounts and fees associated with
interest-rate exchange contracts and interest-rate cap agreements are
accreted into income or amortized to expense on a straight-line basis over
the lives of the contracts. The net interest received or paid on these
contracts is reflected in the interest expense related to the hedged
obligations. For interest-rate exchange contracts that have been modified,
interest income or expense is recorded at the original contract rate until
the original maturity. Gains and losses resulting from the cancellation of
interest-rate exchange contracts are deferred and amortized over the
remaining contractual lives, or are recognized in the current period if the
related asset or liability positions are closed.
INCOME TAXES -- Income taxes are accounted for using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS PER COMMON SHARE -- The weighted average number of common and common
equivalent shares outstanding used to compute earnings per common share were
35,685,968, 34,526,602 and 34,149,928 for the years ended December 31, 1995,
1994 and 1993, respectively. The number of shares and per-share amounts have
been restated giving retroactive recognition to TCF's November 30, 1995
two-for-one stock split. See Note 15 for additional information concerning
the stock split.
(2) BUSINESS COMBINATIONS AND ACQUISITIONS
GREAT LAKES BANCORP, A FEDERAL SAVINGS BANK -- On February 8, 1995, TCF
completed its acquisition of Great Lakes, a Michigan-based savings bank with
$2.8 billion in assets, $1.6 billion in deposits, 39 offices in Michigan and
five offices in western Ohio. In connection with the acquisition, TCF issued
approximately 9.7 million shares of its common stock for all of the
outstanding common shares of Great Lakes. In addition, each outstanding
share of Great Lakes preferred stock was exchanged for one share of TCF
preferred stock with substantially identical terms. TCF also assumed the
obligation to issue common stock upon the exercise or conversion of the
outstanding warrants to purchase Great Lakes common stock, the outstanding
employee and director options to purchase Great Lakes common stock, and the
outstanding 7 1/4% Convertible Subordinated Debentures due 2011 of Great
Lakes. In connection with the acquisition, an after-tax merger-related
charge of $32.8 million was incurred during the 1995 first quarter.
The following table summarizes the major components of the
merger-related charges, which were previously disclosed in TCF's prospectus
relating to the acquisition:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------------------------------
<S> <C>
Loss on sale of securities available for sale $ 310
Loss on sale of mortgage-backed securities 21,037
Loss on prepayment of FHLB advances 1,541(1)
Interest-rate exchange contract termination costs 4,423
Provision for credit losses 5,000
Merger-related expenses:
Equipment charges 13,933
Severance and employee benefits 4,721
Professional fees 2,215
Other 864
--------------------------------------------------------------------------
Total merger-related expenses 21,733
------------------------------------------------------------------------
Total pretax merger-related charges $54,044
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(1) REFLECTED IN THE CONSOLIDATED STATEMENTS OF OPERATIONS AS AN
EXTRAORDINARY ITEM, NET OF TAX BENEFIT OF $578.
During 1995, Great Lakes sold $232.2 million of collateralized mortgage
obligations from its held-to-maturity portfolio at a pretax loss of $21
million. In addition, Great Lakes sold $17.3 million of securities available
for sale at a pretax loss of $310,000. The combined weighted average yield
on the assets sold was 6.30%. The collateralized mortgage obligations and
securities available for sale were sold in order to reduce Great Lakes'
interest-rate and credit risk to levels consistent with TCF's existing
interest-rate risk position and credit risk policy. In addition to these
asset sales, Great Lakes prepaid Federal Home Loan Bank ("FHLB") advances,
paid down wholesale borrowings and terminated interest-rate exchange
contracts during 1995. Great Lakes prepaid $112.3 million of 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 in the Consolidated Statements
of Operations. The FHLB advances had a weighted average cost of 9.03% and a
weighted average life of one year. Interest-rate exchange contracts with
notional principal amounts totaling $544.5 million were terminated by Great
Lakes at a pretax loss of $4.4 million. These actions were taken in order to
reduce Great Lakes' level of higher-cost wholesale borrowings and to reduce
interest-rate risk.
Great Lakes recorded $5 million in provisions for credit losses in 1995
to conform its credit loss reserve practices and methods to those of TCF and
to allow for the accelerated disposition of its remaining problem assets.
In connection with its acquisition of Great Lakes, TCF committed to
restructure certain existing business activities of Great Lakes and to
integrate Great Lakes' data processing system into TCF's. These actions were
also designed to reduce staff by consolidating certain functions such as data
processing, investments and certain other back office operations. Subsequent
to its merger with TCF, Great Lakes recognized a pretax charge of $21.7
million for these restructuring and merger-related expenses.
48 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
As a result of the acquisition, Great Lakes merged into TCF's existing
Michigan-based wholly owned savings bank subsidiary, TCF Bank Michigan fsb
("TCF Michigan"). The resulting savings bank is operated as a direct
subsidiary of TCF and retained the Great Lakes name and headquarters in Ann
Arbor, Michigan. The resulting savings bank operates 54 offices in Michigan
and five offices in western Ohio.
The consolidated financial statements of TCF give effect to the
acquisition, which has been accounted for as a pooling-of-interests
combination. Accordingly, TCF's consolidated financial statements for
periods prior to the combination have been restated to include the accounts
and the results of operations of Great Lakes for all periods presented,
except for dividends declared per share. There were no material intercompany
transactions prior to the acquisition.
The significant accounting and reporting policies of TCF and Great Lakes
differed in certain respects. As required in a pooling-of-interests
combination, the restated consolidated financial statements for periods prior
to the combination reflect certain adjustments to conform Great Lakes'
accounting methods to those of TCF. These adjustments retroactively restate,
for all periods presented, Great Lakes' method of adoption of SFAS No. 72,
"Accounting for Certain Acquisitions of Banking or Thrift Institutions," SFAS
No. 109, "Accounting for Income Taxes," and SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," to conform to TCF's
method of adoption of these same statements.
Great Lakes originally adopted SFAS No. 72 effective on January 1, 1993,
giving retroactive effect to business combinations that were initiated or
completed subsequent to September 30, 1982. Great Lakes' historical results
for 1993 included a cumulative effect of change in accounting principle
related to the adoption of SFAS No. 72. TCF adopted SFAS No. 72 in 1983 on a
prospective basis for business combinations initiated or completed after
September 30, 1982. Great Lakes originally adopted SFAS No. 109 on January
1, 1992 on a prospective basis. Great Lakes' historical results for 1992
included a cumulative effect of change in accounting principle related to the
adoption of SFAS NO. 109. TCF adopted SFAS No. 109 during 1992 and, as
permitted, applied the provisions retroactively to January 1, 1981. TCF's
results of operations and related financial statements for periods since
January 1, 1981 were restated as a result. The adjustments to conform Great
Lakes' method of adoption of SFAS No. 72 and SFAS No. 109 to those of TCF
increased net income for the year ended December 31, 1993 by $45.4 million.
Great Lakes adopted SFAS No. 115 effective December 31, 1993 on a prospective
basis whereas TCF adopted SFAS No. 115 effective January 1, 1994 on a
prospective basis. The adjustments to conform Great Lakes' method of
adoption of SFAS No. 115 to that of TCF decreased stockholders' equity at
December 31, 1993 by $1.9 million.
Certain operating financial data previously reported by TCF and Great
Lakes on a separate basis and the combined amounts are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
TCF $357,641 $357,601
Great Lakes 194,841 201,044
---------------------------------------------------------------------------
Combined $552,482 $558,645
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net interest income:
TCF $205,129 $184,424
Great Lakes 74,023 76,772
---------------------------------------------------------------------------
Combined $279,152 $261,196
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Non-interest income:
TCF $117,294 $119,615
Great Lakes 7,925 19,390
---------------------------------------------------------------------------
Combined $125,219 $139,005
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Non-interest expense:
TCF $213,634 $213,152
Great Lakes 63,350 64,283
Adjustments to conform accounting methods -- (4,477)
- ------------------------------------------------------------------------------
Combined $276,984 $272,958
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net income (loss):
TCF $ 57,363 $ 37,971
Great Lakes 12,820 (28,200)
Adjustments to conform accounting methods -- 45,400
---------------------------------------------------------------------------
Combined $ 70,183 $ 55,171
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net income (loss) per common share:
TCF $ 2.32 $ 1.52
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Great Lakes $ 1.50 $ (4.90)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Combined $ 1.95 $ 1.53
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
REPUBLIC CAPITAL GROUP, INC. -- On April 21, 1993, TCF issued approximately
4.4 million shares of its common stock for all of the outstanding common
stock of Republic Capital Group, Inc. ("RCG"), a Milwaukee-based thrift
holding company with approximately $1 billion in assets. As a result of the
merger, TCF acquired RCG's two wholly owned subsidiaries, Republic Capital
Bank, F.S.B. (now TCF Wisconsin), and Peerless Federal Savings Bank (now TCF
Illinois). Both TCF Wisconsin and TCF Illinois are wholly owned subsidiaries
of TCF Minnesota. Subsequent to the merger, TCF Minnesota's Illinois
Division was merged into TCF Illinois. The consolidated financial statements
of TCF give effect to the merger, which has been accounted for as a
pooling-of-interests combination. Accordingly, TCF's consolidated financial
statements for periods prior to the combination have been restated to include
the accounts and the results of operations of RCG for all periods presented,
except for dividends declared per share. Prior to the merger, RCG's fiscal
year ended June 30. RCG's results of operations for the six months ended
December 31, 1992 are reflected as an adjustment
49
<PAGE>
to stockholders' equity as of January 1, 1993 to adjust for the effect of
excluding RCG's results of operations for the six months ended December 31,
1992 from the Consolidated Statements of Operations and Consolidated
Statements of Cash Flows.
ACQUISITIONS ACCOUNTED FOR AS PURCHASES -- On August 27, 1993, TCF Michigan,
a newly formed subsidiary of TCF Minnesota, acquired from the Resolution
Trust Corporation ("RTC") $220.8 million of insured deposits and 15 branch
offices of First Federal Savings and Loan Association, Pontiac, Michigan, for
which TCF Michigan received approximately $129.1 million in cash and $79.6
million in short-term investments. TCF has accounted for this acquisition
using the purchase method of accounting. TCF Michigan paid the RTC a premium
of approximately $14.6 million which has been classified as deposit base
intangibles in the accompanying Consolidated Statements of Financial
Condition. As previously described, Great Lakes was merged into TCF Michigan
on February 8, 1995. The resulting savings bank is operated as a direct
subsidiary of TCF and retained the Great Lakes name.
The amortization and accretion of discounts, premiums, goodwill and
deposit base intangibles related to TCF's acquisition of certain associations
and deposits which were accounted for as purchases decreased TCF's income
before taxes and extraordinary items by $2.2 million and $1.3 million for
1995 and 1994, respectively, and increased TCF's income before taxes and
extraordinary items by $228,000 for 1993. The unamortized discount related
to acquired loans was $3.1 million and $4 million at December 31, 1995 and
1994, respectively.
(3) INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994
-------------------------------------------- ------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks $ 533 $ -- $ -- $ 533 $193,751 $ -- $ -- $193,751
Federal funds sold -- -- -- -- 6,900 -- -- 6,900
U.S. Government and other marketable
securities held to maturity:
U.S. Government and agency obligations 50 -- -- 50 50 -- (2) 48
Commercial paper 3,666 -- -- 3,666 3,478 -- -- 3,478
-----------------------------------------------------------------------------------------------------------------------------
3,716 -- -- 3,716 3,528 -- (2) 3,526
Federal Home Loan Bank stock, at cost 60,096 -- -- 60,096 78,925 -- -- 78,925
- ---------------------------------------------------------------------------------------------------------------------------------
$64,345 $ -- $ -- $64,345 $283,104 $ -- $(2) $283,102
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average yield 7.67% 6.36%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value and fair value of investments at December 31, 1995,
by contractual maturity, are shown below:
<TABLE>
<CAPTION>
CARRYING FAIR
(IN THOUSANDS) VALUE VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 4,249 $ 4,249
No stated maturity 60,096 60,096
- -------------------------------------------------------------------------------
$64,345 $64,345
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Interest and dividend income on investments consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-bearing deposits with banks $ 426 $ 1,020 $ 1,038
Federal funds sold 506 3,670 2,449
U.S. Government and other marketable securities
held to maturity 200 271 6,234
Federal Home Loan Bank stock 4,814 5,515 6,516
- -------------------------------------------------------------------------------
$5,946 $10,476 $16,237
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Accrued interest receivable on investments totaled $20,000 and $52,000
at December 31, 1995 and 1994, respectively.
There were no sales of U.S. Government and other marketable securities
held to maturity during 1995, 1994 or 1993.
50 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
(4) SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------------
1995 1994
------------------------------------------------ --------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and other
marketable securities:
U.S. Government and
agency obligations $ 1,001 $ 4 $ -- $ 1,005 $ 54,462 $ 6 $ (170) $ 54,298
Corporate bonds -- -- -- -- 15,202 -- (284) 14,918
Commercial paper -- -- -- -- 14,955 -- (112) 14,843
Marketable equity securities 3 54 -- 57 3 27 -- 30
----------------------------------------------------------------------------------------------------------------------------
1,004 58 -- 1,062 84,622 33 (566) 84,089
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
FHLMC 356,021 5,753 (1,143) 360,631 24,074 -- (695) 23,379
FNMA 643,572 13,105 (1,109) 655,568 4,632 -- (287) 4,345
GNMA 134,550 4,243 (70) 138,723 3,036 -- (34) 3,002
Private issuer 28,148 77 (1,322) 26,903 14,099 17 (145) 13,971
Collateralized mortgage
obligations 18,945 -- (342) 18,603 9,611 128 (95) 9,644
----------------------------------------------------------------------------------------------------------------------------
1,181,236 23,178 (3,986) 1,200,428 55,452 145 (1,256) 54,341
- -------------------------------------------------------------------------------------------------------------------------------
$1,182,240 $23,236 $(3,986) $1,201,490 $140,074 $178 $(1,822) $138,430
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average yield 7.13% 6.58%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of securities available for sale at
December 31, 1995, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
AMORTIZED FAIR
(IN THOUSANDS) COST VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,001 $ 1,005
Mortgage-backed securities 1,181,236 1,200,428
Marketable equity securities 3 57
- --------------------------------------------------------------------------------
$1,182,240 $1,201,490
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Included in securities available for sale at December 31, 1995 are $63.7
million of first mortgage loans which TCF has pooled and formed FNMA
mortgage-backed securities. TCF has retained the credit risk on these
securities. Accrued interest receivable on securities available for sale was
$7.8 million and $845,000 at December 31, 1995 and 1994, respectively.
Proceeds from sales of securities available for sale totaled $90.2
million, $178 million and $282.4 million during 1995, 1994 and 1993,
respectively. Gross gains of $400,000, $3.1 million and $11.5 million and
gross losses of $590,000, $2.1 million and $1.4 million were recognized
during 1995, 1994 and 1993, respectively.
(5) LOANS HELD FOR SALE
Loans held for sale consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate $ 80,089 $ 45,744
Education 163,168 155,524
- -------------------------------------------------------------------------------
243,257 201,268
Less:
Deferred loan costs, net (564) (489)
Unearned discounts, net 1,408 246
----------------------------------------------------------------------------
$242,413 $201,511
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Accrued interest receivable on loans held for sale was $8.3 million and
$5.7 million at December 31, 1995 and 1994, respectively.
51
<PAGE>
(6) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1995 1994
------------------ -----------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) VALUE VALUE VALUE VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ -- $ -- $ 414,656 $ 396,475
FNMA -- -- 734,437 699,995
GNMA -- -- 154,513 152,928
Private issuer -- -- 31,261 30,765
----------------------------------------------------------------------------
-- -- 1,334,867 1,280,163
- -------------------------------------------------------------------------------
Collateralized mortgage
obligations:
FHLMC/FNMA/GNMA -- -- 84,347 75,007
Private issuer -- -- 177,409 157,436
----------------------------------------------------------------------------
-- -- 261,756 232,443
Net premiums -- -- 4,577 --
- -------------------------------------------------------------------------------
$ -- $ -- $1,601,200 $1,512,606
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
In November 1995, the FASB issued a Special Report entitled "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities." In conjunction with the issuance of the Guide,
the FASB provided entities with a one-time opportunity to reassess the
classification of their held-to-maturity debt securities without calling into
question the entities' intent to hold to maturity their remaining portfolio
of such securities. During the 1995 fourth quarter, TCF reassessed the
balance sheet classifications of its mortgage-backed securities. As a
result, TCF reclassified its remaining $1.1 billion in mortgage-backed
securities from "held to maturity" to "available for sale" effective December
31, 1995. This reclassification will allow increased future asset/liability
management flexibility. Unrealized gains on securities available for sale,
reported net of taxes as a separate component of stockholders' equity,
increased by $12.8 million as a result of this reclassification. TCF has no
current plans to dispose of these securities.
Accrued interest receivable on mortgage-backed securities held to
maturity totaled $10.2 million at December 31, 1994.
As previously described in Note 2, Great Lakes sold $232.2 million of
collateralized mortgage obligations from its held-to-maturity portfolio
during 1995. Proceeds from the sale of the collateralized mortgage
obligations totaled $211.1 million. Gross losses of $21 million and gross
gains of $8,000 were recognized in 1995. Great Lakes also transferred $38.4
million of private issuer mortgage-backed securities and collateralized
mortgage obligations from its held-to-maturity portfolio to its securities
available-for-sale portfolio in 1995. The fair value of the private issuer
mortgage-backed securities and collateralized mortgage obligations at the
time of the transfer was $36.5 million. As a result of the transfers, a $1.2
million unrealized loss was recorded as a separate component of stockholders'
equity, net of deferred taxes of $673,000. The sales and transfers are
consistent with the 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.
At December 31, 1994, TCF's mortgage-backed securities held-to-maturity
portfolio had gross unrealized gains of $3.6 million and gross unrealized
losses of $92.2 million. There were no sales of mortgage-backed securities
held to maturity during 1994 or 1993.
(7) LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
(IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Residential real estate $2,618,725 $2,662,707
- ----------------------------------------------------------------------------
Commercial real estate:
Apartments 405,975 432,114
Other permanent 504,861 526,773
Construction and development 59,927 38,745
-------------------------------------------------------------------------
970,763 997,632
- ----------------------------------------------------------------------------
Total real estate 3,589,488 3,660,339
---------------------------------------------------------------------
Commercial business 167,663 190,975
- ----------------------------------------------------------------------------
Consumer:
Home equity 1,112,996 994,472
Automobile, marine and recreational vehicle 323,074 150,565
Credit card 45,123 34,698
Loans secured by deposits 10,034 9,685
Other secured 18,364 15,935
Unsecured 83,848 94,103
-------------------------------------------------------------------------
1,593,439 1,299,458
- ----------------------------------------------------------------------------
5,350,590 5,150,772
Less:
Unearned discounts on loans purchased 3,126 4,103
Deferred loan fees, net 8,390 11,456
Unearned discounts and finance charges, net 61,973 16,832
-------------------------------------------------------------------------
$5,277,101 $5,118,381
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
Accrued interest receivable on loans was $33 million and $29.7 million at
December 31, 1995 and 1994, respectively.
At December 31, 1995, the recorded investment in loans that are
considered to be impaired under the criteria established by SFAS No. 114 and
SFAS No. 118 was $29.8 million. All of these loans were on non-accrual
status. Included in this amount are $29.3 million of impaired loans for
which the related allowance for credit losses is $5.8 million and $500,000 of
impaired loans that, as a result of write-downs, do not have a specific
allowance for credit losses. The average recorded investment in impaired
loans during the year ended December 31, 1995 was $28 million. For the year
ended December 31, 1995, TCF recognized interest income on impaired loans of
$293,000, all of which was recognized using the cash basis method of income
recognition.
52 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
At December 31, 1995, 1994 and 1993, loans on non-accrual status totaled
$44.3 million, $33.8 million and $88.3 million, respectively. Had the loans
performed in accordance with their original terms throughout 1995, TCF would
have recorded gross interest income of $5.5 million for these loans.
Interest income of $1.9 million has been recorded on these loans for the year
ended December 31, 1995.
Included in loans at December 31, 1995 and 1994, are commercial real
estate and commercial business loans aggregating $1.6 million and $4.3
million, respectively, with terms that have been modified in troubled debt
restructurings. Had the loans performed in accordance with their original
terms throughout 1995, TCF would have recorded gross interest income of
$249,000 for these loans. Interest income of $136,000 has been recorded on
these loans for the year ended December 31, 1995. There were no material
commitments to lend additional funds to customers whose loans were classified
as restructured or non-accrual at December 31, 1995.
Included in commercial real estate loans at December 31, 1995 and 1994,
are $49.9 million and $52.2 million, respectively, of loans to facilitate the
sale of real estate accounted for by the installment method. The installment
method of accounting was applied because the borrower's initial and
continuing investment was not adequate for full accrual profit recognition.
Included in loans at December 31, 1995 and 1994, are consumer finance
loans totaling $374.4 million and $201 million, respectively. TCF is rapidly
expanding its consumer finance operations and opened 24 new consumer finance
offices in 1995, most of which were in areas outside its traditional market
locations. As of December 31, 1995, TCF had 70 such offices in 16 states.
The underwriting criteria for loans originated by TCF's consumer finance
offices are generally less stringent than those historically adhered to by
TCF and, as a result, these loans have a higher level of credit risk. TCF
generally requires collateral for such loans consisting primarily of
residential properties, automobiles, boats and recreational vehicles.
At December 31, 1995, 1994 and 1993, TCF was servicing real estate
loans for others with aggregate unpaid principal balances of approximately
$4.5 billion, $4.4 billion and $4.1 billion, respectively. During 1995,
1994 and 1993, TCF sold servicing rights on $146.3 million, $169 million and
$44 million of loans serviced for others at net gains of $1.5 million,
$2.4 million and $137,000, respectively.
(8) ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND
RESERVES
Following is a summary of the allowances for loan and real estate losses and
industrial revenue bond reserves:
<TABLE>
<CAPTION>
INDUSTRIAL ALLOWANCE
ALLOWANCE REVENUE FOR REAL
FOR LOAN BOND ESTATE
(IN THOUSANDS) LOSSES RESERVES TOTAL LOSSES TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $47,834 $1,463 $49,297 $ 3,411 $ 52,708
Adjustments for pooling-of-interests (56) 225 169 (513) (344)
Provision for losses 33,392 1,726 35,118 10,308 45,426
Charge-offs (32,794) (725) (33,519) (10,767) (44,286)
Recoveries 6,068 - 6,068 - 6,068
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 54,444 2,689 57,133 2,439 59,572
Provision for losses 10,802 - 10,802 4,022 14,824
Charge-offs (15,994) - (15,994) (3,885) (19,879)
Recoveries 7,091 70 7,161 - 7,161
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 56,343 2,759 59,102 2,576 61,678
Provision for losses 16,131 (919) 15,212 1,804 17,016
Charge-offs (14,770) (158) (14,928) (2,854) (17,782)
Recoveries 7,991 278 8,269 - 8,269
- ----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $65,695 $1,960 $67,655 $ 1,526 $ 69,181
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
Prior to being acquired by TCF, RCG had entered into agreements
guaranteeing certain industrial development and housing revenue bonds issued
by municipalities to finance commercial and multi-family real estate owned by
third parties. In the event a third-party borrower defaults on principal or
interest payments on the bonds, TCF, as the acquiring entity, is required to
either fund the amount in default or acquire the then outstanding bonds. TCF
may foreclose on the underlying real estate to recover amounts in default.
The balance of such financial guarantees totaled $13.5 million and $18.6
million at December 31, 1995 and 1994, respectively. The provision for
credit losses on industrial revenue bond financial guarantees for the year
ended December 31, 1995 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.
(9) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
(IN THOUSANDS) 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Land $ 23,339 $ 22,799
Office buildings 99,567 99,415
Leasehold improvements 16,738 15,517
Furniture and equipment 97,756 118,360
- ---------------------------------------------------------------------
237,400 256,091
Less accumulated depreciation and
amortization 116,637 119,933
- ---------------------------------------------------------------------
$120,763 $136,158
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
TCF leases certain premises and equipment under operating leases. Net
lease expense was $13.6 million, $12.3 million and $12 million in 1995, 1994
and 1993, respectively.
At December 31, 1995, the total annual minimum lease commitments for
operating leases were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------------------------------
<S> <C>
1996 $11,241
1997 9,437
1998 7,999
1999 5,946
2000 4,104
Thereafter 10,758
- -----------------------------------------------------------------------------
$49,485
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(10) REAL ESTATE
Real estate is summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Real estate held for development $ 713 $ 625
In-substance foreclosures -- 1,570
Real estate in judgment, subject to redemption 8,313 4,410
Real estate acquired through foreclosure 15,440 17,317
- -------------------------------------------------------------------------------
$24,466 $23,922
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The net costs of operation of real estate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sales $(2,311) $(3,444) $(1,482)
Provision for losses 1,804 4,022 10,308
Net operations (152) 1,843 3,029
- -------------------------------------------------------------------------------
$ (659) $ 2,421 $11,855
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(11) MORTGAGE SERVICING RIGHTS
Mortgage servicing rights are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year, net $12,247 $12,381 $15,180
Adjustments for pooling-of-interests -- -- (565)
Mortgage servicing rights capitalized 7,904 3,516 5,026
Amortization (3,805) (3,394) (3,633)
Sale of servicing (60) (256) --
Valuation adjustments due to
accelerated prepayments -- -- (3,627)
----------------------------------------------------------------------------
Balance at end of year, net $16,286 $12,247 $12,381
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The valuation allowance for mortgage servicing rights is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,394 $2,451 $ 857
Provisions -- -- 3,627
Charge-offs -- (1,057) (2,033)
----------------------------------------------------------------------------
Balance at end of year $1,394 $1,394 $2,451
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
54 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
(12) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------
1995 1994
------------------------------------ ------------------------------------
WEIGHTED WEIGHTED
AVERAGE % OF AVERAGE % OF
(DOLLARS IN THOUSANDS) RATE AMOUNT TOTAL RATE AMOUNT TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Checking:
Non-interest bearing 0.00% $ 573,004 11.0% 0.00% $ 456,867 8.5%
Interest bearing 1.06 530,268 10.2 1.41 574,172 10.6
----------------------- -----------------------
.51 1,103,272 21.2 .78 1,031,039 19.1
----------------------- -----------------------
Passbook and statement 1.88 841,115 16.2 2.13 940,459 17.4
Money market 3.12 616,667 11.9 3.26 646,732 12.0
Certificates:
6 months and less 5.05 335,247 6.5 3.96 252,464 4.7
over 6 to 18 months 5.59 1,195,206 23.0 4.71 1,087,011 20.1
over 18 to 30 months 5.43 364,573 7.0 4.60 394,828 7.3
over 30 months 5.90 559,084 10.8 6.08 764,616 14.2
Negotiable rate 5.50 176,388 3.4 5.38 282,569 5.2
----------------------- -----------------------
5.56 2,630,498 50.7 5.07 2,781,488 51.5
----------------------- -----------------------
3.60 $5,191,552 100.0% 3.53 $5,399,718 100.0%
----------------------- -----------------------
----------------------- -----------------------
</TABLE>
Certificates had the following remaining maturities:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1995 1994
----------------------------------------- -----------------------------------------
WEIGHTED WEIGHTED
NEGOTIABLE AVERAGE NEGOTIABLE AVERAGE
MATURITY RATE OTHER TOTAL RATE RATE OTHER TOTAL RATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0-3 months $141.0 $ 617.4 $ 758.4 5.45% $203.2 $ 498.0 $ 701.2 4.74%
4-6 months 26.7 474.8 501.5 5.50 25.4 542.4 567.8 4.84
7-12 months 5.5 575.4 580.9 5.52 46.2 600.7 646.9 4.97
13-24 months 1.3 472.5 473.8 5.62 4.5 432.5 437.0 5.47
25-36 months 1.8 158.8 160.6 5.77 1.2 184.3 185.5 5.52
37-48 months .1 82.2 82.3 5.74 1.8 124.1 125.9 5.75
49-60 months - 26.5 26.5 5.64 .3 64.9 65.2 5.47
Over 60 months - 46.5 46.5 6.46 - 52.0 52.0 6.36
- -------------------------------------------------------------- ------------------------------
$176.4 $2,454.1 $2,630.5 5.56 $282.6 $2,498.9 $2,781.5 5.07
- -------------------------------------------------------------- ------------------------------
- -------------------------------------------------------------- ------------------------------
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Checking $ 6,606 $ 8,205 $ 8,355
Passbook and statement 18,507 19,292 23,079
Money market 21,878 18,834 20,227
Certificates 147,086 137,502 157,664
- -------------------------------------------------------------------------------
194,077 183,833 209,325
Less early withdrawal penalties 833 654 712
- -------------------------------------------------------------------------------
$193,244 $183,179 $208,613
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Included in deposits at December 31, 1995 and 1994 are $3.4 million and
$147.2 million, respectively, of brokered deposits acquired primarily as a
result of the Great Lakes acquisition.
Accrued interest on deposits totaled $10.3 million and $9.3 million at
December 31, 1995 and 1994, respectively.
Mortgage-backed securities aggregating $43.5 million were pledged as
collateral to secure certain deposits at December 31, 1995.
At December 31, 1995, TCF was required by Federal Reserve regulations to
maintain reserve balances of approximately $90.4 million in cash on hand or
at the Federal Reserve Bank.
55
<PAGE>
(13) BORROWINGS
Borrowings consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------
1995 1994
----------------------- ----------------------
WEIGHTED WEIGHTED
YEAR OF AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) MATURITY AMOUNT RATE AMOUNT RATE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Securities sold under repurchase agreements 1995-1996 $ 363,426 5.91% $ 429,469 5.78%
1997 75,000 6.12 -- --
- ----------------------------------------------------------------------------- ----------
438,426 5.94 429,469 5.78
- ----------------------------------------------------------------------------- ----------
Federal Home Loan Bank advances 1995 -- -- 661,405 6.17
1996 589,339 5.79 386,900 6.15
1997 90,014 5.90 76,014 6.54
1998 128,000 5.76 73,000 5.80
1999 63,000 6.38 123,000 6.98
2000 8,074 7.24 8,074 7.34
2001 15,000 6.97 25,000 7.33
2008 160 6.15 345 6.27
2009 -- -- 925 6.86
- ----------------------------------------------------------------------------- ----------
893,587 5.87 1,354,663 6.27
- ----------------------------------------------------------------------------- ----------
Subordinated debt:
Subordinated capital notes of TCF Financial Corporation 2002 -- -- 34,500 10.00
Senior subordinated debentures 2006 6,248 18.00 6,248 18.00
Convertible subordinated debentures 2011 7,272 7.25 9,928 7.25
--------------------------------------------------------------------------- ----------
13,520 12.22 50,676 10.45
- ----------------------------------------------------------------------------- ----------
Collateralized obligations:
Collateralized notes 1997 37,500 6.19 37,500 6.81
Less unamortized discount 59 -- 90 -
--------------------------------------------------------------------------- ----------
37,441 6.20 37,410 6.83
--------------------------------------------------------------------------- ----------
Collateralized mortgage obligations 2006 -- -- 488 6.50
2008 2,627 6.50 3,000 6.50
2010 1,530 5.90 1,443 5.90
--------------------------------------------------------------------------- ----------
4,157 6.28 4,931 6.32
Less unamortized discount 207 -- 306 --
--------------------------------------------------------------------------- ----------
3,950 6.61 4,625 6.74
--------------------------------------------------------------------------- ----------
41,391 6.24 42,035 6.82
- ----------------------------------------------------------------------------- ----------
Other borrowings:
Federal funds purchased 1995-1996 14,500 5.58 1,500 6.13
Industrial development revenue bonds 2015 -- -- 3,125 4.65
Bank line of credit 1996 40,000 6.53 -- --
Bank loan 1998 -- -- 3,500 9.50
Other 1998 20 7.60 27 7.60
--------------------------------------------------------------------------- ----------
54,520 6.28 8,152 7.01
- ----------------------------------------------------------------------------- ----------
$1,441,444 5.98 $1,884,995 6.29
- ----------------------------------------------------------------------------- ----------
- ----------------------------------------------------------------------------- ----------
</TABLE>
56 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
At December 31, 1995, borrowings with a maturity of one year or less
consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT RATE
- -------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements $ 363,426 5.91%
Federal Home Loan Bank advances 589,339 5.79
Bank line of credit 40,000 6.53
Federal funds purchased 14,500 5.58
- ----------------------------------------------------------------
$1,007,265 5.86
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
Accrued interest on borrowings totaled $4.6 million and $10.7 million at
December 31, 1995 and 1994, respectively.
At December 31, 1995, securities sold under repurchase agreements were
collateralized by mortgage-backed securities and had the following maturities:
<TABLE>
<CAPTION>
REPURCHASE BORROWING COLLATERAL SECURITIES
---------------------- -----------------------
INTEREST CARRYING MARKET
(DOLLARS IN THOUSANDS) AMOUNT RATE AMOUNT(1) VALUE(1)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity:
January 1996 $363,426 5.91% $373,293 $380,038
May 1997 25,000 6.38 25,654 25,821
June 1997 50,000 5.99 53,874 54,685
---------------------------------- -----------------------
$438,426 5.94 $452,821 $460,544
- ------------------------------------ -----------------------
- ------------------------------------ -----------------------
</TABLE>
(1) INCLUDES ACCRUED INTEREST.
The securities underlying the repurchase agreements are book entry
securities. During the period, book entry securities were delivered by
appropriate entry into the counterparties' accounts through the Federal
Reserve System. The dealers may sell, loan or otherwise dispose of such
securities to other parties in the normal course of their operations, but
have agreed to resell to TCF identical or substantially the same securities
upon the maturities of the agreements. At December 31, 1995, all of the
securities sold under repurchase agreements provided for the repurchase of
identical securities. Securities sold under repurchase agreements averaged
$591.4 million and $444 million during 1995 and 1994, respectively, and the
maximum amount outstanding at any month-end during 1995 and 1994 was $718.4
million and $778.5 million, respectively.
As previously described in Note 2, Great Lakes prepaid $112.3 million of
FHLB advances at a pretax loss of $1.5 million during 1995. This amount, net
of a $578,000 income tax benefit, was recorded as an extraordinary item in
the Consolidated Statements of Operations.
On November 30, 1995, TCF exercised its right of redemption on its $34.5
million of 10% Subordinated Capital Notes due 2002. The notes were redeemed
at par plus accrued interest to the date of redemption. The funding for this
redemption came from an increased bank line of credit.
The $7.3 million of 7 1/4% Convertible Subordinated Debentures due 2011
was convertible into 426,761 shares of TCF common stock at December 31, 1995.
The number of shares and the exercise price of the debentures are adjusted
upon the occurrence of certain events, including changes in the
capitalization associated with stock splits and stock dividends. The
convertible subordinated debentures provide for annual sinking fund payments
of $1.8 million commencing on March 1, 2001, intended to retire 50% of the
principal amount prior to maturity. At December 31, 1995, the convertible
subordinated debentures are callable at 100.25% of par. The call price
decreases to 100% on March 1, 1996. The debentures are subordinated to all
present and future senior indebtedness of TCF.
The $6.2 million of 18% Senior Subordinated Debentures due 2006 are
senior to the convertible subordinated debentures and will be redeemable at
par beginning March 1, 1998.
During 1993, Great Lakes redeemed its remaining $9.9 million balance of
subordinated capital notes and recorded a $157,000 extraordinary loss, net of
a $100,000 tax benefit, on the early repayment of the notes.
At December 31, 1995, mortgage-backed securities collateralizing the
collateralized mortgage obligations had a market value of $3.9 million. At
December 31, 1995, loans collateralizing the collateralized notes had a
carrying value of $66.4 million and a market value of $66.6 million.
Interest paid on the collateralized notes adjusts quarterly to .375% over the
three-month London Interbank Offered Rate ("LIBOR"), subject to a maximum
rate of 13.25%.
The bank line of credit is unsecured and contains certain covenants
common to such agreements with which TCF is in compliance. The interest rate
on the line of credit is based on either the prime rate or 30-, 60- or 90-day
LIBOR. TCF has the option to select the interest rate and term for the line
of credit. The line of credit expires in October 1996. Proceeds from
borrowings under the line of credit in 1995 were primarily used to redeem
TCF's $34.5 million of 10% Subordinated Capital Notes due 2002.
FHLB advances are collateralized by FHLB stock, residential real estate
loans and mortgage-backed securities with an aggregate carrying value of
approximately $1.4 billion at December 31, 1995.
Interest expense on borrowings is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FHLB advances $50,729 $56,587 $55,453
Securities sold under repurchase
agreements 35,753 25,107 23,952
Subordinated debt 4,986 5,603 6,732
Collateralized obligations 2,880 2,442 2,256
Other borrowings 900 412 443
- -------------------------------------------------------------------------------
$95,248 $90,151 $88,836
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
(14) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) CURRENT DEFERRED TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
FEDERAL $29,381 $ 3,234 $32,615
STATE 4,476 687 5,163
-----------------------------------------------------------------------------
$33,857 $ 3,921 $37,778
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Year ended December 31, 1994:
Federal $34,137 $ 3,036 $37,173
State 9,670 (441) 9,229
-----------------------------------------------------------------------------
$43,807 $ 2,595 $46,402
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Year ended December 31, 1993:
Federal $29,715 $ 621 $30,336
State 6,466 (5) 6,461
-----------------------------------------------------------------------------
$36,181 $ 616 $36,797
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Total income tax expense of $37.8 million, $46.4 million and $36.8
million for the years ended December 31, 1995, 1994 and 1993, respectively,
did not include tax benefits specifically allocated to stockholders' equity.
The tax benefit allocated to additional paid-in capital for compensation
expense for tax purposes in excess of amounts recognized for financial
reporting purposes totaled $2.1 million, $590,000 and $1.2 million for the
years ended December 31, 1995, 1994 and 1993, respectively. No tax valuation
allowance was required as of December 31, 1995 or 1994 since TCF paid taxes,
which are available for carryback, in excess of its deferred tax assets.
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% to income before income tax expense and
extraordinary items as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income tax expense $34,800 $40,805 $32,244
Increase (reduction) in income tax
expense resulting from:
Merger-related expenses 832 -- 473
ESOP dividend deduction (553) (305) --
Amortization of goodwill 648 418 664
State income tax, net of
federal income tax benefit 3,356 5,999 4,200
Other, net (1,305) (515) (784)
---------------------------------------------------------------------------
$37,778 $46,402 $36,797
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to the deferred
tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan and real estate losses $19,577 $27,199
Discounts on loans arising from acquisitions 1,111 1,564
Pension and other compensation plans 1,885 --
Other 2,465 4,499
-----------------------------------------------------------------------------
Total deferred tax assets 25,038 33,262
---------------------------------------------------------------------------
Deferred tax liabilities:
Adjustment for SFAS No. 115 7,548 --
FHLB stock 4,121 5,119
Pension and other compensation plans -- 1,452
Loan basis differences 4,505 4,064
Premises and equipment 3,463 7,285
Loan fees and discounts 5,324 1,188
Other -- 2,124
------------------------------------------------------------------------------
Total deferred tax liabilities 24,961 21,232
---------------------------------------------------------------------------
Net deferred tax assets $ 77 $12,030
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(15) STOCKHOLDERS' EQUITY
RESTRICTED RETAINED EARNINGS -- TCF Minnesota and Great Lakes may not declare
or pay a dividend to TCF in excess of 100% of their annual net income plus
the amount that would reduce by one-half their surplus capital ratio at the
beginning of the calendar year without prior Office of Thrift Supervision
approval. Additional limitations on dividends declared or paid on, or
repurchases of, TCF Minnesota's and Great Lakes' capital stock are tied to
the savings banks' level of compliance with their regulatory capital
requirements.
Retained earnings at December 31, 1995 includes approximately $100.9
million for which no provision for federal income tax has been made. This
amount represents earnings appropriated to bad debt reserves and deducted for
federal income tax purposes and is not available for payment of cash
dividends or other distributions to shareholders. Payments or distributions
of these appropriated earnings could invoke a tax liability for TCF based on
the amount of earnings removed and current tax rates.
At December 31, 1995, TCF's savings bank subsidiaries, TCF Minnesota,
Great Lakes, TCF Illinois and TCF Wisconsin, exceeded their fully phased-in
capital requirements.
SHAREHOLDER RIGHTS PLAN -- TCF's preferred share purchase rights will become
exercisable only if a person or group acquires or announces an offer to
acquire 15% or more of TCF's common stock. This triggering percentage may be
reduced to no less than 10% by TCF's Board of Directors (the "Board") under
certain circumstances. When exercisable, each right will entitle the holder
to buy one one-hundredth of a share of a new series of junior participating
preferred stock at a price of $180 per share. In addition, upon the
occurrence of certain events,
58 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
holders of the rights will be entitled to purchase either TCF's common stock
or shares in an "acquiring entity" at half of the market value. The Board is
generally entitled to redeem the rights at 1 cent per right at any time
before they become exercisable. The rights will expire on June 9, 1999, if
not previously redeemed or exercised.
STOCK SPLIT -- On October 16, 1995, the Board declared a two-for-one stock
split in the form of a 100% common stock dividend payable November 30, 1995
to stockholders of record as of November 10, 1995. The stock split increased
TCF's outstanding common shares from 17.8 million to 35.6 million shares.
Stockholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from additional
paid-in capital to common stock the par value of the additional shares
arising from the stock split. In addition, all references in the
Consolidated Financial Statements and Notes thereto to number of shares,
per-share amounts, stock option data and market prices of the Company's
common stock have been restated giving retroactive recognition to the stock
split.
TREASURY STOCK -- On December 19, 1995, the Board authorized the repurchase
of up to 5% of TCF common stock, or approximately 1.8 million shares. TCF
has 137,158 shares remaining unpurchased from its initial 5% stock repurchase
program, authorized by the Board in January 1994, which the Company expects
to repurchase before initiating the new program. The repurchased shares will
be used primarily for employee benefit plans.
TCF purchased 32,400 and 1,070,000 shares of stock under these plans
during the years ended December 31, 1995 and 1994, respectively. During
these periods, 304,400 and 424,240 shares were issued out of treasury stock
for restricted stock grants and employee benefit plans. In addition, 373,760
shares were issued out of treasury stock to effect TCF's merger with Great
Lakes.
PREFERRED STOCK -- On July 3, 1995, TCF exercised its right of redemption on
its 2.7 million shares of preferred stock at $10 per share. The preferred
stock carried an annual dividend rate of $1 per share, payable quarterly.
During the first three quarters of 1993, shares of common stock were issued
to preferred stockholders in lieu of cash dividends. Cash dividends were
paid on preferred stock during the fourth quarter of 1993, each quarter of
1994 and the first quarter of 1995.
STOCK WARRANTS -- In connection with TCF's acquisition of Great Lakes, TCF
assumed the obligation to issue common stock upon the exercise of the
outstanding warrants to purchase Great Lakes common stock. The warrants to
purchase common stock expired on July 1, 1995.
(16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
TCF is a party to financial instruments with off-balance-sheet risk in the
normal course of business, primarily to meet the financing needs of its
customers. These financial instruments, which are issued or held by TCF for
purposes other than trading, include commitments to extend credit, standby
letters of credit, financial guarantees written, forward mortgage loan sales
commitments, interest-rate exchange contracts, interest-rate exchange
contract options, interest-rate cap agreements and financial guarantees on
certain loans sold with recourse and on other contingent obligations. These
instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized in the Consolidated Statements of
Financial Condition. The contract or notional amounts of those instruments
reflect the extent of involvement TCF has in particular classes of financial
instruments.
TCF's exposure to credit loss in the event of non-performance by the
counterparty to the financial instrument for commitments to extend credit,
standby letters of credit, financial guarantees written and financial
guarantees on certain loans sold with recourse is represented by the
contractual amount of the commitments. TCF uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments. For Veterans Administration ("VA") loans
serviced with partial recourse, forward mortgage loan sales commitments,
interest-rate exchange contracts, interest-rate exchange contract options and
interest-rate cap agreements, the contract or notional amount exceeds TCF's
exposure to credit loss. TCF controls the credit risk of forward mortgage
loan sales commitments through credit approvals, credit limits and monitoring
procedures.
Unless noted otherwise, TCF does not require collateral or other
security to support financial instruments with credit risk. The contract or
notional amounts of these financial instruments are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $1,109,949 $989,061
Standby letters of credit 26,796 23,134
Financial guarantees written 13,506 18,595
Loans sold with recourse 29,776 36,368
Financial instruments whose credit risk is
less than the notional or contract amount:
VA loans serviced with partial recourse 388,072 398,261
Forward mortgage loan sales commitments 116,068 56,530
Interest-rate exchange contracts 5,000 539,500
Interest-rate exchange contract options - 40,000
Interest-rate cap agreements 20,000 20,000
</TABLE>
59
<PAGE>
COMMITMENTS TO EXTEND CREDIT -- As part of its normal business operations,
and in order to meet the ongoing credit needs of its customers, TCF has
outstanding at any time a significant number of commitments to extend credit.
Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract. These
commitments take the form of mortgage loan applications, approved loans,
consumer credit line products and credit card limits. Commitments generally
have fixed expiration dates or other termination clauses and may require
payment of a fee. Since certain of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. TCF evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by TCF upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral predominantly consists of
residential and commercial real estate and personal property. Included in
the total commitments to extend credit at December 31, 1995 were mortgage
loan commitments and loans in process aggregating $750.8 million, including
commercial and residential construction and development commitments totaling
$65.2 million. Of the total mortgage loan commitments and loans in process
at December 31, 1995, $225.1 million were for fixed-rate loans. Also included
in the total commitments to extend credit were various consumer credit line
products aggregating $628.6 million, of which $202.2 million were unsecured.
STANDBY LETTERS OF CREDIT -- Standby letters of credit are conditional
commitments issued by TCF guaranteeing the performance of a customer to a
third party. The standby letters of credit are primarily issued to support
public and private borrowing arrangements including bond financing, and
expire in various years through the year 2002. The credit risk involved in
issuing standby letters of credit is essentially the same as that involved in
making commercial loans to customers. The amount of collateral TCF obtains
to support standby letters of credit is based on management's credit
evaluation of the borrower. Collateral held primarily consists of commercial
real estate mortgages. Since the conditions under which TCF is required to
fund standby letters of credit may not materialize, the cash requirements are
expected to be less than the total outstanding commitments. TCF's
commitments to the beneficiaries under its outstanding standby letters of
credit at December 31, 1995 were collateralized by $30.1 million of TCF's
mortgage-backed securities.
FINANCIAL GUARANTEES WRITTEN -- Financial guarantees written represent
agreements whereby, for a fee, certain of TCF's mortgage-backed securities
are pledged as collateral for Housing Revenue Bonds and Industrial
Development Revenue Bonds which were issued by municipalities to finance
commercial and multi-family real estate owned by third parties. In the event
the third party borrowers default on principal or interest payments on the
bonds, TCF is required to either pay the amount in default or acquire the
then outstanding bonds. TCF may foreclose on the underlying real estate to
recover amounts in default. At December 31, 1995, the financial guarantees
totaled $13.5 million and mortgage-backed securities aggregating
approximately $32.7 million were held by the trustees as collateral for these
financial guarantees. Further, in order to protect TCF's ability to recover
losses in the event of default by the third party borrowers, TCF may also be
required to pay real estate taxes and other liabilities of the underlying
collateral. The collateral agreements expire on various dates from 1996
through 2011.
LOANS SOLD WITH RECOURSE AND VA LOANS SERVICED WITH PARTIAL RECOURSE --
During the normal course of business, TCF may sell certain loans with limited
recourse provisions. In addition, TCF services VA loans on which it must
cover any principal loss in excess of the VA's guarantee if the VA elects its
"no-bid" option upon the foreclosure of a loan. A significant portion of the
loans is partially supported by government-sponsored insurance, private
mortgage insurance or the VA partial guarantee, and all of the loans are
collateralized by residential real estate.
FORWARD MORTGAGE LOAN SALES COMMITMENTS -- As part of its residential
mortgage banking operation, TCF enters into forward mortgage loan sales
commitments in order to manage the market exposure on its residential loans
held for sale and its commitments to extend credit for residential loans.
Because gains or losses to be realized on the sale of residential loans held
for sale are dependent on interest rates, forward mortgage loan sales
commitments are used to reduce the impact of changes in interest rates on
TCF's mortgage banking operation. Forward mortgage loan sales commitments
are contracts for the delivery of mortgage loans or pools of loans in which
TCF agrees to make delivery at a specified future date of a specified
instrument, at a specified price or yield. Risks arise from the possible
inability of the counterparties to meet the terms of their contracts and from
movements in mortgage loan values and interest rates. Included in the total
at December 31, 1995 and 1994 were $16 million and $1 million, respectively,
of standby forward mortgage loan sales commitments for which TCF has the
option to deliver the mortgage loans. Also included in the total at December
31, 1994 were $2 million of standby forward mortgage loan sales commitments
for which the third parties have the option to purchase the mortgage loans.
Premiums paid for standby forward mortgage loan sales commitments are
amortized to gain on sale of loans held for sale over the terms of the
agreements. The fair value of the forward mortgage loan sales commitments is
not recognized in the financial statements.
INTEREST-RATE CONTRACTS -- Prior to being acquired by TCF, Great Lakes
entered into various interest-rate exchange contracts and interest-rate cap
agreements in order to manage its interest-rate risk. The principal
objective of Great Lakes' asset/liability management activities was to
provide maximum levels of net interest income while maintaining acceptable
levels of interest-rate and liquidity risk, and to facilitate the funding
needs of Great Lakes.
60 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
An interest-rate exchange contract is an agreement in which two parties
agree to exchange, at specified intervals, interest payment streams
calculated on an agreed-upon notional principal amount with at least one
stream based on a specified floating-rate index. Interest-rate cap
agreements are option-like contracts that require the seller to pay the
purchaser at specified future dates the amount, if any, by which a specified
market interest rate exceeds the fixed cap rate, applied to a notional
principal amount. Interest-rate exchange contracts are used to modify the
repricing characteristics of interest-bearing liabilities, while
interest-rate cap agreements are used to limit the interest expense
associated with the liabilities. The net amount payable or receivable on
these contracts is accrued and recognized as an adjustment to interest
expense on the hedged obligations. The related amount payable to or
receivable from the counterparty is included in accrued interest receivable
or payable. The fair value of these contracts is not recognized in the
financial statements. These contracts are more fully described below.
INTEREST-RATE EXCHANGE CONTRACTS -- Great Lakes entered into interest-rate
exchange contracts with fixed notional principal amounts under which payments
are based on a fixed rate of interest and amounts to be received are based on
a floating rate of interest based on LIBOR. These contracts are used to
reduce the interest-rate sensitivity of floating-rate liabilities and consist
of the following (dollars in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------
1995 1994
---------------------------------------- --------------------------------------------
RECEIVE RECEIVE
PAY AVERAGE PAY AVERAGE
NOTIONAL AVERAGE FLOATING NOTIONAL AVERAGE FLOATING
MATURITY PRINCIPAL FIXED RATE RATE PRINCIPAL FIXED RATE RATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ -- --% --% $174,500 6.68% 6.31%
1996 -- -- -- 37,500 8.59 5.60
1997 5,000(1) 8.55 6.00 5,000(1) 8.55 5.69
1998 -- -- -- 19,000 11.99 6.05
1999 -- -- -- 10,000 10.32 6.39
- ------------------------- ---------
$5,000 8.55 6.00 $246,000 7.57 6.17
- ------------------------- ---------
- ------------------------- ---------
</TABLE>
(1) CONTRACT WAS ASSUMED BY TCF IN CONNECTION WITH ITS ACQUISITION OF RCG.
Great Lakes also entered into interest-rate exchange contracts with fixed
notional principal amounts under which payments are based on a floating rate
of interest based on LIBOR and amounts to be received are based on fixed
interest rates. These contracts are used to increase the interest-rate
sensitivity of fixed-rate liabilities and consist of the following (dollars
in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------
1995 1994
--------------------------------------- ----------------------------------------
PAY PAY
RECEIVE AVERAGE RECEIVE AVERAGE
NOTIONAL AVERAGE FLOATING NOTIONAL AVERAGE FLOATING
MATURITY PRINCIPAL FIXED RATE RATE PRINCIPAL FIXED RATE RATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ -- --% --% $ 90,000 5.98% 7.93%
1998 -- -- -- 26,000 8.95 9.44
- ------------------------- --------
$ -- -- -- $116,000 6.65 8.26
- ------------------------- --------
- ------------------------- --------
</TABLE>
At December 31, 1994, Great Lakes had entered into interest-rate
exchange contracts with $122.5 million in notional principal under which
payments are based on a floating rate of interest equal to six-month LIBOR
and amounts to be received are based on six-month LIBOR plus approximately 42
basis points. The rate received is limited to 100 basis points over or under
the reset rate of the immediately preceding period. In addition, Great Lakes
had a $25 million notional principal interest-rate exchange contract
outstanding at December 31, 1994. Under this contract, payments are based on
six-month LIBOR and amounts to be received are based on six-month LIBOR less
10 basis points, reset monthly.
At December 31, 1994, Great Lakes had also entered into three
interest-rate exchange contracts with deferred start dates. Each had a
notional principal of $10 million and a six-year life. Under these
contracts, payments are based on an average fixed-rate of interest of 7.67%
and amounts to be received are based on six-month LIBOR.
As previously described in Note 2, Great Lakes terminated its entire
portfolio of interest-rate exchange contracts with notional principal amounts
totaling $544.5 million in 1995 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.
61
<PAGE>
In the event of counterparty default, TCF is subject to risk to the
extent that the value of collateral exceeds the Company's net obligations
under the contracts and to the extent that any contracts have to be replaced
under market conditions which are not favorable.
INTEREST-RATE CAP AGREEMENTS -- Great Lakes entered into four interest-rate
cap agreements during 1994. Each agreement has a notional principal of $5
million and amounts are received if three-month LIBOR exceeds 9% on any of
the designated interest rate set dates. At December 31, 1995, the
interest-rate cap agreements had a weighted average life of approximately
three years and deferred commitment costs of $185,000.
(17) FAIR VALUES OF FINANCIAL INSTRUMENTS
TCF is required to disclose the estimated fair value of financial
instruments, both assets and liabilities on and off the balance sheet, for
which it is practicable to estimate fair value. Fair value estimates are
made at a specific point in time, based on relevant market information and
information about the financial instruments. These estimates do not reflect
any premium or discount that could result from offering for sale at one time
TCF's entire holdings of a particular financial instrument. Because no market
exists for a significant portion of TCF's financial instruments, fair value
estimates are subjective in nature, involving uncertainties and matters of
significant judgment, and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. For example, TCF has established customer
relationships that contribute significant fee income annually. These customer
relationships are not considered financial instruments, and their values have
not been incorporated into the fair value estimates. Certain financial
instruments and all nonfinancial instruments are excluded from fair value of
financial instrument disclosure requirements. In addition, the tax effects
of unrealized gains and losses have not been considered in the estimates, nor
have costs necessary to execute a sale been considered. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of TCF, or the value TCF would realize in a negotiated sale of these
instruments.
Fair value estimates, methods and assumptions are set forth below for
TCF's financial instruments. These financial instruments are issued or held
by TCF for purposes other than trading. The carrying amounts disclosed below
are included in the Consolidated Statements of Financial Condition under the
indicated captions, except where noted otherwise. The carrying amount of
accrued interest approximates its fair value.
CASH AND DUE FROM BANKS -- The carrying amount of cash and due from banks
approximates its fair value and totaled $233.6 million and $224.3 million at
December 31, 1995 and 1994, respectively.
INVESTMENTS -- The carrying amounts of short-term investments approximate
their fair values since they mature in 90 days or less and do not present
unanticipated credit concerns. The fair values of longer-term
interest-bearing deposits with banks and federal funds sold are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated based on discounted cash flow analyses
using interest rates currently being offered for investments with similar
terms. The fair values of U.S. Government and other marketable securities
held to maturity are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments. The carrying amount of FHLB stock
approximates its fair value.
The carrying amounts and fair values of TCF's investment portfolio are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1995 1994
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-bearing deposits with banks $ 533 $ 533 $193,751 $193,751
Federal funds sold - - 6,900 6,900
U.S. Government and other marketable securities held to maturity:
U.S. Government and agency obligations 50 50 50 48
Commercial paper 3,666 3,666 3,478 3,478
-------------------------------------------------------------------------------------------------------------------
3,716 3,716 3,528 3,526
- -----------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank stock, at cost 60,096 60,096 78,925 78,925
- -----------------------------------------------------------------------------------------------------------------------
$64,345 $64,345 $283,104 $283,102
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
62 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
SECURITIES AVAILABLE FOR SALE -- The fair values of U.S. Government and other
marketable securities available for sale are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments. The fair values of
mortgage-backed securities available for sale are based on quoted market
prices. The amortized cost and fair values of TCF's securities available for
sale are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1995 1994
------------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
(IN THOUSANDS) COST VALUE COST VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and other marketable securities:
U.S. Government and agency obligations $ 1,001 $ 1,005 $ 54,462 $ 54,298
Corporate bonds - - 15,202 14,918
Commercial paper - - 14,955 14,843
Marketable equity securities 3 57 3 30
-------------------------------------------------------------------------------------------------------------------
1,004 1,062 84,622 84,089
- ----------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
FHLMC/FNMA/GNMA 1,134,143 1,154,922 31,742 30,726
Private issuer 28,148 26,903 14,099 13,971
Collateralized mortgage obligations 18,945 18,603 9,611 9,644
-------------------------------------------------------------------------------------------------------------------
1,181,236 1,200,428 55,452 54,341
- ----------------------------------------------------------------------------------------------------------------------
$1,182,240 $1,201,490 $140,074 $138,430
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
LOANS HELD FOR SALE -- Financial instruments associated with TCF's
residential mortgage banking operation include residential loans held for
sale, commitments to extend credit and forward mortgage loan sales
commitments. The estimated fair values of these financial instruments are
based on quoted market prices. The carrying amounts for commitments to
extend credit and forward mortgage loan sales commitments are included in
other assets in the Consolidated Statements of Financial Condition. The
contract amounts, carrying amounts and fair values of the financial
instruments associated with TCF's residential loans held for sale are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-----------------------------
ESTIMATED
CONTRACT CARRYING FAIR
(IN THOUSANDS) AMOUNT AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential loans held for sale (1) $ 78,687 $78,687 $80,139
Commitments to extend credit 242,925 166 567
Forward mortgage loan sales commitments 116,068 60 (731)
------------------
$78,913 $79,975
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
-----------------------------
ESTIMATED
CONTRACT CARRYING FAIR
(IN THOUSANDS) AMOUNT AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential loans held for sale (1) $ 45,487 $ 45,463 $46,275
Commitments to extend credit 172,442 155 54
Forward mortgage loan sales commitments 56,530 12 74
-------------------
$45,630 $46,403
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) NET OF UNEARNED DISCOUNTS, PREMIUMS AND DEFERRED FEES.
The estimated fair value of capitalized mortgage servicing rights
totaled $24.5 million at December 31, 1995, compared with a carrying amount
of $16.3 million. The estimated fair value of capitalized mortgage servicing
rights is based on estimated cash flows discounted using rates commensurate
with the risks involved. Assumptions regarding prepayments, defaults and
interest rates are determined using available market information.
The fair value of education loans held for sale is estimated based on an
existing forward sale agreement TCF has with the Student Loan Marketing
Association, or on sales of comparable loans. The estimated fair values of
education loans held for sale of $166.5 million and $159.5 million compare
with carrying amounts of $163.7 million and $156 million at December 31, 1995
and 1994, respectively.
63
<PAGE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- The fair values of
mortgage-backed securities held to maturity are based on quoted market
prices. The carrying amounts and fair values of TCF's mortgage-backed
securities held to maturity are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1995 1994
----------------------- -------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC/FNMA/GNMA $ -- $ -- $1,303,606 $1,249,398
Private issuer -- -- 31,261 30,765
----------------------------------------------------------------------------------------
-- -- 1,334,867 1,280,163
- -------------------------------------------------------------------------------------------
Collateralized mortgage obligations:
FHLMC/FNMA/GNMA -- -- 84,347 75,007
Private issuer -- -- 177,409 157,436
----------------------------------------------------------------------------------------
-- -- 261,756 232,443
Net premiums -- -- 4,577 --
- -------------------------------------------------------------------------------------------
$ -- $ -- $1,601,200 $1,512,606
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
LOANS -- The fair values of loans are estimated for portfolios of loans with
similar characteristics. Loans are segregated by type, and include
residential, commercial real estate, commercial business and consumer, and by
sub-type within these categories. Each of these categories is further
segmented into fixed- and adjustable-rate interest terms, and by performing
and non-performing status. For certain variable-rate loans that reprice
frequently and that have experienced no significant change in credit risk,
fair values are based on carrying values. For certain homogeneous categories
of loans, such as certain residential and consumer loans, fair values are
estimated using quoted market prices. The fair values of other performing
loans are estimated by discounting contractual cash flows adjusted for
prepayment estimates, using interest rates currently being offered for loans
with similar terms to borrowers with similar credit risk characteristics.
The fair values of significant non-performing loans are based on recent
internal or external appraisals, or estimated cash flows discounted using
rates commensurate with the risks associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows and discount rates are
judgmentally determined using available market information and specific
borrower information.
The carrying amounts and fair values of TCF's loan portfolio are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1995 1994
------------------------- ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT(1) VALUE AMOUNT(1) VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential real estate $2,607,202 $2,654,302 $2,646,644 $2,509,775
Commercial real estate 967,766 980,585 994,452 964,356
Commercial business 167,920 162,849 191,142 185,203
Consumer (2) 1,530,205 1,679,855 1,282,383 1,321,934
- -----------------------------------------------------------------------------------------------
5,273,093 5,477,591 5,114,621 4,981,268
Less: Allowance for loan losses 65,695 - 56,343 -
- -----------------------------------------------------------------------------------------------
$5,207,398 $5,477,591 $5,058,278 $4,981,268
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) NET OF UNEARNED DISCOUNTS AND DEFERRED FEES.
(2) EXCLUDES LEASE RECEIVABLES NOT SUBJECT TO FAIR VALUE DISCLOSURE OF $4
MILLION AND $3.8 MILLION AT DECEMBER 31, 1995 AND 1994, RESPECTIVELY.
64 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
DEPOSITS -- The fair value of deposits with no stated maturity, such as
checking, passbook and statement, and money market accounts, is deemed equal
to the amount payable on demand. The fair value of certificates is estimated
based on discounted cash flow analyses using interest rates offered by TCF at
December 31, 1995 and 1994 for certificates of similar remaining maturities.
The carrying amounts and fair values of TCF's deposit liabilities are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1995 1994
- ----------------------------------------------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Checking $1,103,272 $1,103,272 $1,031,039 $1,031,039
Passbook and statement 841,115 841,115 940,459 940,459
Money market 616,667 616,667 646,732 646,732
Certificates 2,630,498 2,663,541 2,781,488 2,774,775
- -----------------------------------------------------------------------------------------------
$5,191,552 $5,224,595 $5,399,718 $5,393,005
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
The fair value estimates above do not include the benefit that results
from the lower-cost funding provided by deposits compared with the cost of
wholesale borrowings. That benefit is commonly referred to as a deposit base
intangible.
BORROWINGS -- The carrying amounts of short-term borrowings approximate their
fair values. The fair values of TCF's long-term borrowings are estimated
based on quoted market prices or discounted cash flow analyses using interest
rates offered at December 31, 1995 and 1994 for borrowings of similar
remaining maturities.
The carrying amounts and fair values of TCF's borrowings are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1995 1994
------------------------ -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities sold under repurchase agreements $ 438,426 $ 438,995 $ 429,469 $ 429,469
Federal Home Loan Bank advances 893,587 895,812 1,354,663 1,324,157
Subordinated debt 13,520 14,038 50,676 52,786
Collateralized obligations 41,391 41,311 42,035 42,137
Other borrowings 54,520 54,520 8,152 8,152
- ----------------------------------------------------------------------------------------------------
$1,441,444 $1,444,676 $1,884,995 $1,856,701
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- The fair values of
residential commitments to extend credit and forward mortgage loan sales
commitments associated with residential loans held for sale are included in
the estimated fair value disclosures of TCF's residential loans held for
sale. The fair values of TCF's remaining commitments to extend credit,
standby letters of credit and financial guarantees written are estimated
using fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments and
standby letters of credit issued in conjunction with fixed-rate loan
agreements, fair value also considers the difference between current levels
of interest rates and the committed rates. For financial guarantees written,
fair value also considers reserves established relating to TCF's potential
obligation on the outstanding guarantees. The fair value of interest-rate
exchange contracts, interest-rate exchange contract options and interest-rate
cap agreements are based on the estimated cost to terminate the contracts at
the reporting date, taking into account current interest rates and the
current creditworthiness of the counterparties. The carrying amounts for
commitments to extend credit, interest-rate exchange contract options and
interest-rate cap agreements are included in other assets in the Consolidated
Statements of Financial Condition. The carrying
65
<PAGE>
amounts for standby letters of credit and financial guarantees written are
included in accrued expenses and other liabilities in the Consolidated
Statements of Financial Condition. The contract amounts, carrying amounts
and estimated fair values of TCF's financial instruments with
off-balance-sheet risk are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------
1995 1994
----------------------------------- -----------------------------------
ESTIMATED ESTIMATED
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
(IN THOUSANDS) AMOUNT AMOUNT(1) VALUE(1) AMOUNT AMOUNT(1) VALUE(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitments to extend credit(2) $867,024 $ 3,922 $ (817) $816,619 $1,823 $(1,054)
Standby letters of credit 26,796 (5) (11) 23,134 -- (8)
Financial guarantees written 13,506 (2,089) (2,089) 18,595 (3,064) (3,064)
Interest-rate exchange contracts 5,000 -- (185) 539,500 -- (4,786)
Interest-rate exchange contract options -- -- -- 40,000 40 124
Interest-rate cap agreements 20,000 185 26 20,000 242 107
</TABLE>
(1) POSITIVE AMOUNTS REPRESENT ASSETS, NEGATIVE AMOUNTS REPRESENT
LIABILITIES.
(2) EXCLUDES COMMITMENTS TO EXTEND CREDIT FOR RESIDENTIAL REAL ESTATE LOANS
HELD FOR SALE.
In addition to the financial instruments with off-balance-sheet risk
noted above, TCF had $29.8 million and $36.4 million of loans sold with
recourse and serviced $388.1 million and $398.3 million of VA loans with
partial recourse at December 31, 1995 and 1994, respectively. TCF has not
incurred, and does not anticipate, significant losses as a result of the
recourse provisions associated with these financial instruments. As a
result, the carrying amounts and related estimated fair values of these
financial instruments were not material at December 31, 1995 and 1994.
(18) STOCK OPTION AND INCENTIVE PLAN
The Stock Option and Incentive Plan of TCF Financial was adopted to
enable TCF to attract and retain key personnel. Options generally become
exercisable over a period of one to five years from the date of the grant and
expire after 10 years. Restricted stock granted in 1991 under the Stock
Option and Incentive Plan of TCF Financial vested over four years in
accordance with a vesting formula based on TCF's return on tangible equity.
Restricted stock granted in 1994 under the Stock Option and Incentive Plan of
TCF Financial generally vests within five years, but may vest more rapidly or
be subject to forfeiture in accordance with a vesting schedule based on TCF's
return on average common equity. Other restricted stock grants generally
vest over periods from three to eight years. Compensation expense for
restricted stock is recorded over the vesting periods, and totaled $6.3
million, $2.7 million and $896,000 in 1995, 1994 and 1993, respectively.
66 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
Prior to its merger with TCF, Great Lakes had a separate stock option
plan. In connection with the acquisition, TCF assumed the obligation to
issue common stock upon the exercise of the outstanding employee and director
options to purchase Great Lakes common stock. Great Lakes did not have
compensatory stock option grants or restricted stock transactions with
employees. The following table reflects TCF's restricted stock transactions
since December 31, 1992 and the pooled Great Lakes and TCF stock option
transactions since December 31, 1992 as if all Great Lakes options were
granted, exercised or cancelled as equivalent TCF shares:
<TABLE>
<CAPTION>
OUTSTANDING
OUTSTANDING OPTIONS RESTRICTED STOCK
-------------------------- ------------------------
SHARES PRICE RANGE SHARES PRICE RANGE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1992 1,701,384 $ 3.88-13.29 401,914 $ 4.09- 8.41
Adjustments for pooling-of-interests (123,582) 5.67- 7.25 -- --
Granted 129,974 14.88-18.57 101,922 15.75-17.50
Exercised (483,384) 3.88-12.53 -- --
Cancelled (113,054) 5.14-12.78 -- --
Vested -- -- (93,524) 4.09-15.75
--------------------------------------------------- ----------
December 31, 1993 1,111,338 3.88-18.57 410,312 4.44-17.50
Granted 9,394 13.84 424,490 15.31-19.28
Exercised (218,222) 4.44-11.81 -- --
Cancelled (370) 11.81 -- --
Vested -- -- (250,228) 4.44-19.28
--------------------------------------------------- ----------
December 31, 1994 902,140 3.88-18.57 584,574 4.44-17.50
Granted -- -- 308,400 18.81-29.66
Exercised (423,434) 4.44-15.47 -- --
Cancelled (7,504) 13.57-15.47 (5,089) 19.78
Vested -- -- (223,453) 4.44-19.78
--------------------------------------------------- ----------
DECEMBER 31, 1995 471,202 3.88-18.57 664,432 15.31-29.66
- ------------------------------------------------------ ----------
- ------------------------------------------------------ ----------
EXERCISABLE AT DECEMBER 31, 1995 408,402 3.88-18.57
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>
At December 31, 1995, there were 2,213,710 shares reserved for issuance
under the Stock Option and Incentive Plan of TCF Financial, including 471,202
shares for which options had been granted but had not yet been exercised.
(19) EMPLOYEE BENEFIT PLANS
PENSION PLANS -- The TCF Cash Balance Pension Plan (the "Plan") is a defined
benefit qualified plan covering all "regular stated salary" employees who are
at least 21 years old and have completed a year of eligibility service with
TCF. TCF makes a monthly allocation to the participant's account based on a
percentage of the participant's compensation. The percentage is based on the
sum of the participant's age and years of employment with TCF. Participants
are fully vested after five years of vesting service. The projected unit
credit method is the actuarial cost method used to compute the pension cost.
Net pension cost (credit) included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 1,762 $ 1,750 $ 1,527
Interest cost on projected
benefit obligation 762 529 378
Gain on plan assets (7,266) (23) (3,130)
Net amortization and deferral 4,806 (2,418) 836
- -------------------------------------------------------------------------------
Net pension cost (credit) $ 64 $ (162) $ (389)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
The following tables set forth the Plan's funded status at the dates
indicated:
<TABLE>
<CAPTION>
AT OCTOBER 1,
-----------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested benefits $ 8,569 $ 6,163
Non-vested benefits 820 859
-------------------------------------------------------------------------
Total accumulated benefits $ 9,389 $ 7,022
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation for
service rendered to date $10,406 $ 8,008
Plan assets at fair value 30,142 23,211
- -------------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation 19,736 15,203
Unrecognized prior service cost (356) (600)
Unrecognized net gain (5,390) (549)
- -------------------------------------------------------------------------------
Prepaid pension cost included in other assets $13,990 $14,054
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The Plan's assets consist primarily of listed stocks and government bonds.
At December 31, 1995 and 1994, the Plan's assets included TCF common stock
with a market value of $6 million and $3.7 million, respectively.
The weighted average discount rate and rate of increase in future
compensation used to measure the projected benefit obligation and the
expected long-term rate of return on plan assets were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.75% 8.00% 7.50%
Rate of increase in future compensation 5.00 5.00 5.00
Expected long-term rate of
return on plan assets 9.50 9.00 9.00
</TABLE>
Great Lakes is a participant in the multi-employer Financial Institutions
Retirement Fund ("FIRF"). The FIRF covers substantially all of Great Lakes'
officers and employees and provides benefits based on compensation and years
of service for employees age 21 and over after one year of eligibility
service. Great Lakes' contributions are determined by FIRF and generally
represent the normal cost of the plan. The plan provides benefits of
approximately 2% of the average of the five highest years of compensation
times the number of years of service. Pension costs and funding include
normal costs and amortization of prior service costs over 10 years. The FIRF
does not segregate the assets, liabilities or costs by participating
employer. As a result, disclosures required by SFAS No. 87, "Employers'
Accounting for Pensions," cannot be made.
Significant actuarial assumptions for the FIRF for plan years 1995, 1994
and 1993 include a 7.5% return on plan investments. Pension expense is based
on Great Lakes' contributions as determined by the FIRF. As of June 30,
1995, 1994 and 1993, the market value of the fund assets exceeded the value
of vested benefits in the aggregate. Contributions for plan years beginning
July 1, 1988 have not been required due to plan performance. As a result,
Great Lakes did not record pension expense during the three-year period ended
December 31, 1995. Great Lakes withdrew from the FIRF effective December 31,
1995 and commenced participation in the Plan effective January 1, 1996.
POSTRETIREMENT PLANS -- In addition to providing retirement income benefits,
TCF currently provides health care benefits for eligible retired employees,
and in some cases life insurance benefits. Substantially all full-time
employees may become eligible for health care benefits if they reach
retirement age and have completed 10 years of service with the Company, with
certain exceptions. These and similar benefits for active employees are
provided through insurance companies or through self-funded programs.
TCF's postretirement benefit plan is currently unfunded. The following
table reconciles the status of the plan with the amounts recognized in TCF's
Consolidated Statements of Financial Condition at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and beneficiaries $(8,624) $(6,875)
Fully eligible active plan participants (1,195) (944)
Other active plan participants (1,844) (1,154)
----------------------------------------------------------------------------
Total accumulated postretirement benefit
obligation (11,663) (8,973)
Unrecognized prior service cost 1,206 --
Unrecognized net loss 1,914 1,669
Unrecognized transition obligation 5,801 6,219
- -------------------------------------------------------------------------------
Accrued postretirement benefit cost
included in other liabilities $(2,742) $(1,085)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 285 $ 182 $138
Interest cost on accumulated postretirement benefit
obligation 772 559 527
Amortization of unrecognized transition obligation 342 331 331
Amortization of unrecognized net loss 138 18 --
- -------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,537 $1,090 $996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
In connection with TCF's acquisition of Great Lakes, a $329,000
curtailment loss and $168,000 in special termination benefits were recognized
in 1995 associated with benefits provided under Great Lakes'
68 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
postretirement benefit plan. These costs are included in merger-related
expenses in the Consolidated Statements of Operations.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75%, 8.0% and 7.5% at December 31,
1995, 1994 and 1993, respectively. For active participants, a 9.2% annual
rate of increase in the per capita cost of covered health care benefits was
assumed for 1996. This rate is assumed to decrease gradually to 6% for the
year 2004 and remain at that level thereafter. For retired participants,
other than Great Lakes' retirees, the annual rate of increase is assumed to
be 4% for all future years, which represents the plan's annual limit on
increases in TCF's contributions for retirees. The health care cost trend
rate assumption has a significant effect on the amounts reported. Increasing
the assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1995 by $584,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1995 by
$57,000.
EMPLOYEE STOCK OWNERSHIP PLANS -- TCF's Employees Stock Ownership Plan-401(k)
("ESOP") generally allows participants to make contributions by salary
deduction of up to 12% of their salary on a tax-deferred basis pursuant to
section 401(k) of the Internal Revenue Code. Through December 31, 1994, TCF
matched the contributions for tax-favored deposits of employees who are
non-highly compensated (as defined in the Internal Revenue Code) at the rate
of 75 cents per dollar, with a maximum employer contribution of 4.5% of the
employee's salary. TCF matched the contributions of remaining employees at
the rate of 50 cents per dollar with a maximum employer contribution of 3% of
the employee's salary. Beginning January 1, 1995, TCF matched the
contributions of all employees at the rate of 50 cents per dollar, with a
maximum employer contribution of 3% of the employee's salary. TCF, at its
discretion, may make additional contributions. Employee contributions vest
immediately while the Company's matching contributions are subject to a
graduated vesting schedule based on an employee's years of vesting service.
The Company's matching contributions are expensed when made. TCF's
contribution to the plan was $1.4 million, $1.8 million and $1.6 million in
1995, 1994 and 1993, respectively.
Prior to being acquired by TCF, Great Lakes established a
non-contributory employee stock ownership plan through a $7 million line of
credit. All contributions were made by Great Lakes at the discretion of its
board of directors based on annual principal and interest repayments.
Eligible employees must be at least 18 years old and have worked 1,000 hours
in a calendar year. Employees vest in the plan over a period of 7 years. On
January 3, 1995, Great Lakes repaid its remaining stock ownership plan debt
balance of $1.5 million. During 1994, Great Lakes made a special
contribution of $1.9 million in addition to the required contribution of
$500,000 plus accrued interest, for a total contribution of $2.6 million.
Great Lakes' contribution to the plan was $758,000 in 1993. This plan was
merged with TCF's ESOP effective January 1, 1996.
(20) PARENT COMPANY FINANCIAL INFORMATION
TCF Financial Corporation's (parent company only) condensed statements of
financial condition as of December 31, 1995 and 1994, and the condensed
statements of operations and cash flows for the years ended December 31,
1995, 1994 and 1993 are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 70 $ 65
Interest-bearing deposits with banks 11,711 36,178
Investment in subsidiaries:
Savings bank subsidiaries 545,958 472,453
Other subsidiaries 1,237 697
Premises and equipment 3,452 2,169
Loan to unconsolidated subsidiary 965 1,346
Other assets 10,995 6,003
-----------------------------------------------------------------------------
$574,388 $518,911
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Subordinated debt $ -- $ 34,500
Note payable to commercial bank 40,000 3,500
Notes payable to non-savings bank subsidiaries 1,042 509
Other liabilities 5,671 4,933
-----------------------------------------------------------------------------
Total liabilities 46,713 43,442
---------------------------------------------------------------------------
Stockholders' equity:
Preferred stock -- 27
Common stock 356 342
Additional paid-in capital 243,122 251,174
Unamortized deferred compensation (11,195) (6,986)
Retained earnings, subject to certain restrictions 283,821 244,779
Loan to Executive Deferred Compensation Plan (131) (195)
Employee Stock Ownership Plan debt -- (1,500)
Unrealized gain (loss) on securities available
for sale, net 11,702 (1,160)
Treasury stock, at cost -- (11,012)
---------------------------------------------------------------------------
Total stockholders' equity 527,675 475,469
-------------------------------------------------------------------------
$574,388 $518,911
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,412 $ 620 $ 394
Interest expense 3,680 4,090 4,013
- ------------------------------------------------------------------------------------------
Net interest expense (2,268) (3,470) (3,619)
----------------------------------------------------------------------------------------
Cash dividends received from subsidiaries:
Cash dividends received from savings bank
subsidiaries 27,500 56,380 15,947
Cash dividends received from other subsidiaries 2,832 4,562 3,327
----------------------------------------------------------------------------------------
Total cash dividends received from subsidiaries 30,332 60,942 19,274
--------------------------------------------------------------------------------------
Other non-interest income:
Affiliate service fee revenues 36,427 25,942 15
Other (4) 4 326
----------------------------------------------------------------------------------------
Total other non-interest income 36,423 25,946 341
--------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 27,189 22,630 2,607
Occupancy and equipment, net 8,435 7,515 152
Other 13,508 12,254 1,832
----------------------------------------------------------------------------------------
Total non-interest expense 49,132 42,399 4,591
--------------------------------------------------------------------------------------
Income before income tax benefit and equity
in undistributed earnings of subsidiaries 15,355 41,019 11,405
Income tax benefit 5,991 8,169 2,857
- ------------------------------------------------------------------------------------------
Income before equity in undistributed earnings
of subsidiaries 21,346 49,188 14,262
Equity in undistributed earnings of subsidiaries 39,342 20,995 40,909
- ------------------------------------------------------------------------------------------
Net income $60,688 $70,183 $55,171
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
All dividends were received from consolidated subsidiaries during the
three-year period ended December 31, 1995. Effective January 1, 1994, TCF
Minnesota completed the transfer of certain support service functions and
certain related assets and liabilities to TCF Financial Corporation. Also
effective January 1, 1994, TCF Financial Corporation commenced allocating a
portion of the operating costs of these service functions to its subsidiaries.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $60,688 $70,183 $55,171
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries (39,342) (20,995) (40,909)
(Increase) decrease in other assets
and liabilities, net (3,604) 179 (435)
Other, net 8,849 4,871 949
--------------------------------------------------------------------------------
Total adjustments (34,097) (15,945) (40,395)
------------------------------------------------------------------------------
Net cash provided by operating activities 26,591 54,238 14,776
----------------------------------------------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing
deposits with banks 24,467 (20,817) (6,720)
Investments in and advances to subsidiaries, net (16,001) -- (1)
Loan to Executive Deferred Compensation Plan 64 153 253
Loan to Employee Stock Ownership Plan -- -- 3
Loan originations, net 381 51 (1,397)
Purchases of premises and equipment, net (2,457) (3,135) --
-----------------------------------------------------------------------------------
Net cash provided (used) by investing
activities 6,454 (23,748) (7,862)
---------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid on preferred stock (678) -- --
Dividends paid on common stock (20,968) (12,257) (8,724)
Proceeds from exercise of stock options and
stock warrants 12,455 272 1,127
Proceeds from conversion of convertible
debentures 2,656 -- --
Repurchases of common stock (824) (17,524) --
Redemption of preferred stock (27,100) -- --
Proceeds from commercial bank note and
line of credit 40,000 -- 5,000
Repayment of commercial bank notes (3,500) (1,000) (5,503)
Repayment of subordinated capital notes (34,500) -- --
Purchase of common shares granted as
restricted stock (1,062) -- (49)
Net increase (decrease) in notes payable to
subsidiaries 533 45 (137)
Other, net (52) 34 (26)
-----------------------------------------------------------------------------------
Net cash used by financing activities (33,040) (30,430) (8,312)
---------------------------------------------------------------------------------
Net increase (decrease) in cash 5 60 (1,398)
RCG cash flows for six months ended
December 31, 1992 - - 196
Cash at beginning of year 65 5 1,207
- -------------------------------------------------------------------------------------
Cash at end of year $ 70 $ 65 $ 5
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
70 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
(21) BUSINESS SEGMENTS
The following sumaraizes financial data for TCF's business segments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Financial institution $632,837 $604,487 $615,008
Mortgage banking operations 32,881 37,254 54,951
Insurance operations 27,809 27,073 29,408
Consumer finance 48,279 22,579 12,524
Real estate development 288 427 5,639
Eliminations (21,341) (13,692) (14,387)
----------------------------------------------------------------------------
$720,753 $678,128 $703,143
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Earnings (loss) from continuing
operations before income tax
expense and extraordinary items:
Financial institution $76,443 $ 93,953 $63,853
Mortgage banking operations 7,585 6,067 16,538
Insurance operations 12,448 13,895 15,476
Consumer finance 2,368 1,534 2,746
Real estate development 169 311 (4,914)
Eliminations 416 825 (1,574)
---------------------------------------------------------------------------
$ 99,429 $116,585 $ 92,125
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Identifiable assets:
Financial institution $7,174,184 $7,809,346
Mortgage banking operations 104,465 72,210
Insurance operations 16,206 11,512
Consumer finance 383,892 208,376
Real estate development 1,459 1,841
Eliminations (440,295) (257,697)
---------------------------------------------------------------------------
$7,239,911 $7,845,588
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Real estate development revenues in the Consolidated Statements of
Operations are presented net of costs of operations of real estate and are
included in other non-interest expense.
(22) LITIGATION AND CONTINGENT LIABILITIES
TCF is involved in certain lawsuits in the course of its general lending
business and other operations. Management, after review with its legal
counsel, is of the opinion that the ultimate disposition of its litigation
will not have a material adverse effect on TCF's financial condition or
results of operations.
INDEPENDENT AUDITORS' REPORT
[LOGO]
To the Board of Directors and Stockholders of TCF Financial Corporation:
We have audited the accompanying consolidated statements of financial
condition of TCF Financial Corporation and Subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations, cash
flows and stockholders' equity for each of the years in the three-year period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TCF
Financial Corporation and Subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, TCF
Financial Corporation and Subsidiaries adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS as of April 1,
1995.
/S/ KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
January 16, 1996
71
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) AT DEC. 31, 1995 AT SEPT. 30, 1995 AT JUNE 30, 1995 AT MARCH 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $7,239,911 $7,331,962 $7,432,692 $7,369,061
Investments (1) 64,345 73,651 64,874 91,969
Securities available for sale 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 5,277,101 5,323,912 5,329,880 5,237,533
Deposits 5,191,552 5,181,765 5,249,819 5,371,461
Federal Home Loan Bank advances 893,587 809,770 805,781 879,184
Subordinated debt 13,520 48,020 48,876 50,676
Other borrowings 534,337 695,903 735,204 515,467
Stockholders' equity 527,675 490,542 495,550 470,501
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
-------------------------------------------------------------------------
DEC. 31, 1995 SEPT. 30, 1995 JUNE 30, 1995 MARCH 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income $ 153,222 $ 154,036 $ 151,641 $ 148,791
Interest expense 70,451 72,549 72,349 73,143
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 82,771 81,487 79,292 75,648
Provision for credit losses 2,649 2,951 2,924 6,688
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 80,122 78,536 76,368 68,960
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Loss on sale of mortgage-backed securities, net -- -- -- (21,037)
Gain on sale of loan servicing, net 3 3 1,006 523
Gain (loss) on sale of securities available for sale, net -- -- 60 (250)
Gain on sale of branches, net -- -- 1,061 42
Other non-interest income 35,620 34,164 31,981 29,600
--------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 35,623 34,167 34,108 8,878
------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Provision for real estate losses 1,068 195 378 163
Amortization of goodwill and other intangibles 791 791 791 790
Merger-related expenses -- -- -- 21,733
Cancellation cost on early termination of interest-rate
exchange contracts -- -- -- 4,423
Other non-interest expense 74,140 71,554 70,465 70,051
--------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 75,999 72,540 71,634 97,160
------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit)
and extradordinary item 39,746 40,163 38,842 (19,322)
Income tax expense (benefit) 14,263 15,750 15,448 (7,683)
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 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) 25,483 24,413 23,394 (12,602)
Dividends on preferred stock -- -- -- 678
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 25,483 $ 24,413 $ 23,394 $ (13,280)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Per common share:
Income (loss) before extraordinary item $ .71 $ .68 $ .66 $ (.36)
Extraordinary item -- -- -- (.03)
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .71 $ .68 $ .66 $ (.39)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Dividends declared $ .15625 $ .15625 $ .15625 $ .125
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS:
Return on average assets (2) 1.40% 1.32% 1.27% (.67)%
Return on average common equity (2) 20.21 20.44 20.48 (11.86)
Average total equity to average assets 6.95 6.56 6.53 6.33
Net interest margin (2)(3) 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, securities
purchased under resale agreements and FHLB stock.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
72 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) AT DEC. 31, 1994 AT SEPT. 30, 1994 AT JUNE 30, 1994 AT MARCH 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $7,845,588 $7,830,976 $7,725,299 $7,725,961
Investments (1) 283,104 363,104 408,475 322,367
Securities available for sale 138,430 186,146 142,071 392,972
Mortgage-backed securities held to maturity 1,601,200 1,670,848 1,715,841 1,590,669
Loans 5,118,381 4,961,496 4,794,255 4,687,941
Deposits 5,399,718 5,407,766 5,442,527 5,588,007
Federal Home Loan Bank advances 1,354,663 992,677 1,127,918 1,131,639
Subordinated debt 50,676 50,676 50,676 50,676
Other borrowings 479,656 828,012 564,832 417,268
Stockholders' equity 475,469 460,221 444,972 435,398
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
-------------------------------------------------------------------------
DEC. 31, 1994 SEPT. 30, 1994 JUNE 30, 1994 MARCH 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income $ 145,592 $ 141,308 $ 135,139 $ 130,443
Interest expense 71,978 68,408 66,629 66,315
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 73,614 72,900 68,510 64,128
Provision for credit losses 3,556 3,262 1,344 2,640
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 70,058 69,638 67,166 61,488
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Loss on sale of mortgage-backed securities, net -- -- -- --
Gain on sale of loan servicing, net 581 518 693 561
Gain (loss) on sale of securities available for sale, net (1,689) (52) (36) 2,758
Gain on sale of branches, net -- -- -- --
Other non-interest income 30,331 31,393 30,505 29,656
--------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 29,223 31,859 31,162 32,975
------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Provision for real estate losses 713 682 1,828 799
Amortization of goodwill and other intangibles 814 823 822 823
Merger-related expenses -- -- -- --
Cancellation cost on early termination of interest-rate
exchange contracts -- -- -- --
Other non-interest expens 69,769 67,641 66,224 66,046
--------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 71,296 69,146 68,874 67,668
------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit)
and extradordinary item 27,985 32,351 29,454 26,795
Income tax expense (benefit) 11,230 12,917 11,692 10,563
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 16,755 19,434 17,762 16,232
Extraordinary item:
Penalties on early repayment of FHLB advances, net
of tax benefit of $578 -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 16,755 19,434 17,762 16,232
Dividends on preferred stock 677 678 677 678
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 16,078 $ 18,756 $ 17,085 $ 15,554
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Per common share:
Income (loss) before extraordinary item $ .46 $ .54 $ .50 $ .45
Extraordinary item -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .46 $ .54 $ .50 $ .45
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Dividends declared $ .125 $ .125 $ .125 $ .125
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS:
Return on average assets (2) .89% 1.03% .94% .87%
Return on average common equity (2) 14.56 17.58 16.48 15.24
Average total equity to average assets 6.18 5.98 5.83 5.78
Net interest margin (2)(3) 4.16 4.11 3.88 3.67
</TABLE>
(1) Includes interest-bearing deposits with banks, federal funds sold, U.S.
Government and other marketable securities held to maturity, securities
purchased under resale agreements and FHLB stock.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
73
<PAGE>
OTHER FINANCIAL DATA
SUMMARY OF INVESTMENT YIELDS BY SCHEDULED MATURITIES
<TABLE>
<CAPTION>
U.S. GOVERNMENT
AND AGENCY SECURITIES
OBLIGATIONS ALL OTHER TOTAL AVAILABLE
HELD TO MATURITY INVESTMENTS INVESTMENTS FOR SALE
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1995:
Due in one year or less $ 50 4.30% $ 4,199 5.57% $ 4,249 5.56% $ 1,005 8.06%
No stated maturity -- -- 60,096(1) 7.82 60,096 7.82 1,200,485(2) 7.13
- ---------------------------------------- -------- -------- ----------
Total $ 50 4.30 $ 64,295 7.68 $ 64,345 7.67 $1,201,490 7.13
- ---------------------------------------- -------- -------- ----------
- ---------------------------------------- -------- -------- ----------
Weighted average life (in years) .4 .1 .1 .1
AT DECEMBER 31, 1994:
Due in one year or less $ -- --% $204,129 5.91% $204,129 5.91% $ 69,684 5.93%
Due after one year
through five years 50 4.30 -- -- 50 4.30 14,375 7.40
No stated maturity -- -- 78,925(1) 7.52 78,925(1) 7.52 54,371(2) 7.21
- ---------------------------------------- -------- -------- ----------
Total $ 50 4.30 $283,054 6.36 $283,104 6.36 $ 138,430 6.58
- ---------------------------------------- -------- -------- ----------
- ---------------------------------------- -------- -------- ----------
Weighted average life (in years) 1.4 .1 .1 .3
</TABLE>
(1) BALANCE REPRESENTS FHLB STOCK, A REQUIRED REGULATORY INVESTMENT AT
ADJUSTABLE RATES HAVING NO STATED MATURITY. FHLB STOCK HAS BEEN EXCLUDED
FROM THE WEIGHTED AVERAGE LIFE CALCULATION.
(2) BALANCE REPRESENTS MORTGAGE-BACKED SECURITIES AND MARKETABLE EQUITY
SECURITIES WHICH HAVE BEEN EXCLUDED FROM THE WEIGHTED AVERAGE LIFE
CALCULATION.
MAXIMUM AND AVERAGE BORROWING LEVELS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM BALANCES (1):
FHLB advances $1,089,993 $1,354,663 $1,017,481
Securities sold under repurchase agreements 718,425 778,473 555,831
Subordinated debt 50,676 50,676 88,088
Collateralized obligations 41,817 43,427 45,388
Other borrowings 54,520 20,903 10,212
</TABLE>
(1) MAXIMUM MONTH-END BALANCES.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS) BALANCE RATE BALANCE RATE BALANCE RATE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES AND RATES:
FHLB advances $860,948 5.89% $975,937 5.80% $921,158 6.02%
Securities sold under repurchase agreements 591,367 6.05 443,972 5.66 469,450 5.10
Subordinated debt 46,429 10.74 50,676 11.06 58,718 11.46
Collateralized obligations 41,586 6.93 42,588 5.73 44,825 5.03
Other borrowings 13,486 6.67 8,971 4.59 8,141 5.44
</TABLE>
74 TCF FINANCIAL CORPORATION AND SUBSIDIARIES
<PAGE>
LOAN AND MORTGAGE-BACKED SECURITIES ACTIVITY
<TABLE>
<CAPTION>
(IN THOUSANDS) YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ORIGINATIONS:
Residential (1) $ 514,228 $ 861,977 $1,871,061
Commercial real estate 172,569 142,260 75,231
Commercial business 93,435 54,607 27,235
Consumer (1) 1,034,397 906,154 671,759
- --------------------------------------------------------------------------------------------
Total originations 1,814,629 1,964,998 2,645,286
------------------------------------------------------------------------------------------
PURCHASES:
Mortgage-backed securities -- 544,248 573,025
Residential (1) 476,111 608,668 1,114,479
Consumer 1,730 -- 680
- --------------------------------------------------------------------------------------------
Total purchases 477,841 1,152,916 1,688,184
------------------------------------------------------------------------------------------
Total additions 2,292,470 3,117,914 4,333,470
----------------------------------------------------------------------------------------
SALES:
Mortgage-backed securities 232,154 -- --
Residential (1) 562,074 994,016 2,033,540
Commercial real estate -- -- 2,066
Consumer (1) 91,005 80,338 65,310
- --------------------------------------------------------------------------------------------
Total sales 885,233 1,074,354 2,100,916
Principal payments and other reductions 1,612,459 1,655,692 1,922,652
- --------------------------------------------------------------------------------------------
Total reductions 2,497,692 2,730,046 4,023,568
------------------------------------------------------------------------------------------
Decrease in other items, net (18,314) (36,327) (24,316)
Transfer of mortgage-backed securities
to securities available for sale (1,187,394) (294,611) --
Adjustments for pooling-of-interests -- -- 74,270
- --------------------------------------------------------------------------------------------
Net increase (decrease) $(1,410,930) $ 56,930 $ 359,856
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES LOANS HELD FOR SALE.
COMMERCIAL REAL ESTATE LOANS BY PROPERTY TYPE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1995 1994
----------------------- -----------------------
NUMBER NUMBER
(DOLLARS IN THOUSANDS) BALANCE OF LOANS BALANCE OF LOANS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments $405,975 784 $432,114 818
Office buildings 168,487 259 161,475 276
Retail services 145,772 202 143,801 213
Hospitality facilities 84,861 44 95,625 47
Warehouse/industrial buildings 84,489 131 80,766 133
Health care facilities 24,478 15 27,651 21
Other 56,701 245 56,200 231
- ----------------------------------------------------------------------------------------------------
$970,763 1,680 $997,632 1,739
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Average balance $578 $574
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
TCF FINANCIAL CORPORATION
Exhibit 21
Subsidiaries of Registrant
(As of March 19, 1996)
<TABLE>
<CAPTION>
NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS
<S> <C> <C>
TCF Financial Insurance Illinois TCF Financial Insurance Agency
Agency Illinois, Inc. Illinois, Inc.
TCF Insurance
TCF Financial Insurance Minnesota TCF Financial Insurance Agency
Agency Wisconsin, Inc. Wisconsin, Inc.
TCF Insurance
TCF Financial Insurance Agency Minnesota TCF Financial Insurance Agency
Michigan, Inc. Michigan, Inc.
TCF Insurance
GLB Agency
TCF Financial Insurance Agency, Inc. Minnesota TCF Financial Insurance
Agency, Inc.
TCF Insurance
TCF Securities, Inc. Minnesota TCF Securities, Inc.
GLB Securities (MI)
TCF Foundation Minnesota TCF Foundation
TCF Minnesota Financial Services, Inc. Minnesota TCF Minnesota Financial Services, Inc.
Twin City/Burnet, Inc. Minnesota Twin City/Burnet, Inc.
Asset Quality Consultants, Inc. Minnesota Asset Quality Consultants, Inc.
TCF Bank Minnesota fsb United States TCF Bank Minnesota fsb
TCF Consumer Financial Services, Inc. Minnesota TCF Consumer Financial Services, Inc.
TCF Financial Services
TCF Mortgage Corporation Minnesota TCF Mortgage Corporation
TCFMC Holding Co. Minnesota TCFMC Holding Co,
TCF Financial Services, Inc. Minnesota TCF Financial Services, Inc.
TCF Management Corporation Minnesota TCF Management Corporation
MKP, Inc. Minnesota MKP, Inc.
NUM, Inc. Minnesota NUM, Inc.
North Star Title, Inc. Minnesota North Star Title, Inc.
North Star Real Estate Services, Inc. Minnesota North Star Real Estate Services, Inc.
TCF Agency Minnesota, Inc. Minnesota TCF Agency Minnesota, Inc.
TCF Agency Minnesota
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS
<S> <C> <C>
TCF Agency Mississippi, Inc. Mississippi TCF Agency Mississippi, Inc.
TCF Agency Mississippi
TCF National Properties, Inc. Minnesota TCF National Properties, Inc.
TCF New York Investment, Inc. Minnesota TCF New York Investments, Inc.
TCF Qwik, Inc. New York TCF Qwik, Inc.
TCF Wisk, Inc. New York TCF Wisk, Inc.
TCF Bolt, Inc. New York TCF Bolt, Inc.
TCF Jump, Inc. New York TCF Jump, Inc.
TCF Sped, Inc. New York TCF Sped, Inc.
TCF Real Estate Financial Services, Inc. Minnesota TCF Real Estate Financial Services, Inc.
TCF Bank Wisconsin fsb United States TCF Bank Wisconsin fsb
Republic Capital Funding Corp. I Wisconsin Republic Capital Funding Corp. I
TCF Agency Wisconsin, Inc. Wisconsin TCF Agency Wisconsin, Inc.
Great Lakes Financial, Inc. Wisconsin Great Lakes Financial, Inc.
TCF Bank Illinois fsb United States TCF Bank Illinois fsb
TCF Agency Illinois, Inc. Illinois TCF Agency Illinois, Inc.
Great Lakes Bancorp, A Federal United States Great Lakes Bancorp
Savings Bank
GLB Service Corporation II Michigan GLB Service Corporation II
Lakeland Group Insurance Agency, Inc. Michigan Lakeland Group Insurance Agency, Inc.
401 Service Corporation Michigan 401 Service Corporation
GLB Properties, Inc. Michigan GLB Properties, Inc.
Great Lakes Mortgage Company Michigan Great Lakes Mortgage Company
GLB Management Company Michigan GLB Management Company
</TABLE>
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
TCF Financial Corporation:
We consent to incorporation by reference of our report dated January 16,
1996, relating to the consolidated statements of financial condition of TCF
Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three year period ended December 31,
1995, which report appears in the December 31, 1995, Form 10-K of TCF
Financial Corporation and in the following Registration Statements of TCF
Financial Corporation: Nos. 33-43030, 33-57633, 33-14203, 33-22375, 33-40403,
33-53986 and 33-63767 on Forms S-8.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1995
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 233,619
<INT-BEARING-DEPOSITS> 533
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,201,490
<INVESTMENTS-CARRYING> 3,716
<INVESTMENTS-MARKET> 3,716
<LOANS> 5,277,101
<ALLOWANCE> 65,695
<TOTAL-ASSETS> 7,239,911
<DEPOSITS> 5,191,552
<SHORT-TERM> 1,007,265
<LIABILITIES-OTHER> 79,240
<LONG-TERM> 434,179
0
0
<COMMON> 356
<OTHER-SE> 527,319
<TOTAL-LIABILITIES-AND-EQUITY> 7,239,911
<INTEREST-LOAN> 488,433
<INTEREST-INVEST> 101,004
<INTEREST-OTHER> 18,253
<INTEREST-TOTAL> 607,690
<INTEREST-DEPOSIT> 193,244
<INTEREST-EXPENSE> 288,492
<INTEREST-INCOME-NET> 319,198
<LOAN-LOSSES> 16,131
<SECURITIES-GAINS> (21,227)
<EXPENSE-OTHER> 317,333
<INCOME-PRETAX> 99,429
<INCOME-PRE-EXTRAORDINARY> 61,651
<EXTRAORDINARY> (963)
<CHANGES> 0
<NET-INCOME> 60,688
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 4.61
<LOANS-NON> 44,328
<LOANS-PAST> 761
<LOANS-TROUBLED> 1,612
<LOANS-PROBLEM> 56,495
<ALLOWANCE-OPEN> 56,343
<CHARGE-OFFS> 14,770
<RECOVERIES> 7,991
<ALLOWANCE-CLOSE> 65,695
<ALLOWANCE-DOMESTIC> 47,867
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,828
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE HAS BEEN RESTATED TO REFLECT TCF
FINANCIAL CORPORATION'S FEBRUARY 8, 1995 ACQUISITION OF
GREAT LAKES BANCORP, A FEDERAL SAVINGS BANK
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 224,266
<INT-BEARING-DEPOSITS> 193,751
<FED-FUNDS-SOLD> 6,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 138,430
<INVESTMENTS-CARRYING> 1,604,728
<INVESTMENTS-MARKET> 1,516,132
<LOANS> 5,118,381
<ALLOWANCE> 56,343
<TOTAL-ASSETS> 7,845,588
<DEPOSITS> 5,399,718
<SHORT-TERM> 1,093,374
<LIABILITIES-OTHER> 85,406
<LONG-TERM> 791,621
0
27
<COMMON> 342
<OTHER-SE> 475,100
<TOTAL-LIABILITIES-AND-EQUITY> 7,845,588
<INTEREST-LOAN> 403,095
<INTEREST-INVEST> 132,470
<INTEREST-OTHER> 16,917
<INTEREST-TOTAL> 552,482
<INTEREST-DEPOSIT> 183,179
<INTEREST-EXPENSE> 273,330
<INTEREST-INCOME-NET> 279,152
<LOAN-LOSSES> 10,802
<SECURITIES-GAINS> 981
<EXPENSE-OTHER> 276,984
<INCOME-PRETAX> 116,585
<INCOME-PRE-EXTRAORDINARY> 70,183
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,183
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.92
<YIELD-ACTUAL> 3.96
<LOANS-NON> 33,762
<LOANS-PAST> 2,433
<LOANS-TROUBLED> 4,330
<LOANS-PROBLEM> 74,199
<ALLOWANCE-OPEN> 54,444
<CHARGE-OFFS> 15,994
<RECOVERIES> 7,091
<ALLOWANCE-CLOSE> 56,343
<ALLOWANCE-DOMESTIC> 40,859
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,484
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE HAS BEEN RESTATED TO REFLECT TCF FINANCIAL
CORPORATION'S FEBRUARY 8, 1995 ACQUISITION OF GREAT LAKES
BANCORP, A FEDERAL SAVINGS BANK
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 191,365
<INT-BEARING-DEPOSITS> 34,031
<FED-FUNDS-SOLD> 249,041
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 186,146
<INVESTMENTS-CARRYING> 1,674,329
<INVESTMENTS-MARKET> 1,615,641
<LOANS> 4,961,496
<ALLOWANCE> 54,837
<TOTAL-ASSETS> 7,830,976
<DEPOSITS> 5,407,766
<SHORT-TERM> 1,050,878
<LIABILITIES-OTHER> 91,624
<LONG-TERM> 820,487
0
27
<COMMON> 340
<OTHER-SE> 459,854
<TOTAL-LIABILITIES-AND-EQUITY> 7,830,976
<INTEREST-LOAN> 293,354
<INTEREST-INVEST> 100,094
<INTEREST-OTHER> 13,442
<INTEREST-TOTAL> 406,890
<INTEREST-DEPOSIT> 137,256
<INTEREST-EXPENSE> 201,352
<INTEREST-INCOME-NET> 205,538
<LOAN-LOSSES> 7,246
<SECURITIES-GAINS> 2,670
<EXPENSE-OTHER> 205,688
<INCOME-PRETAX> 88,600
<INCOME-PRE-EXTRAORDINARY> 53,428
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,428
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 3.89
<LOANS-NON> 48,799
<LOANS-PAST> 5,081
<LOANS-TROUBLED> 3,803
<LOANS-PROBLEM> 78,996
<ALLOWANCE-OPEN> 54,444
<CHARGE-OFFS> 11,800
<RECOVERIES> 4,947
<ALLOWANCE-CLOSE> 54,837
<ALLOWANCE-DOMESTIC> 41,205
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,632
</TABLE>
