<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 4, 1997
-----------------
TCF Financial Corporation
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- ------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-16431 41-1591444
------- ------------------------------
Commission File Number (IRS Employer Identification No.)
801 Marquette Avenue, Suite 302, Minneapolis, Minnesota 55402
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(612) 661-6500
- -----------------------------
Registrant's Telephone Number
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
On September 4, 1997, TCF Financial Corporation ("TCF" or the "Company"),
completed its acquisition (the "Acquisition") of Standard Financial, Inc.
("Standard") pursuant to an Agreement and Plan of Reorganization (the
"Agreement") previously filed with the Company's Current Report on Form 8-K
dated March 16, 1997 (No. 0-16431). A Current Report on Form 8-K dated
September 4, 1997 (No. 0-16431) was filed in connection with the completion of
the Acquisition. This Form 8-K/A includes as Exhibits certain financial
information required under Item 7 which was not contained in the Form 8-K dated
September 4, 1997.
(a) Financial Statements of Business Acquired.
Financial statements for Standard Financial, Inc. as of and for the
year ended December 31, 1996 are attached hereto as Exhibit 99.1 and
are incorporated herein by reference.
Financial statements for Standard Financial, Inc. as of and for the
six months ended June 30, 1997 and 1996 are attached hereto as Exhibit
99.2 and are incorporated herein by reference.
(b) Pro Forma Financial Information.
Unaudited pro forma combined financial information consisting of an
unaudited pro forma combined statement of financial condition at June
30, 1997 and unaudited pro forma combined statements of operations for
the six months ended June 30, 1997 and 1996 and for the year ended
December 31, 1996, and related notes thereto, is attached hereto as
Exhibit 99.3 and is incorporated herein by reference.
(c) Exhibits.
23.1 Consent of KPMG Peat Marwick LLP dated November 7, 1997.
23.2 Consent of Ernst & Young LLP dated November 7, 1997.
99.1 Financial statements for Standard Financial, Inc. as of and
for the year ended December 31, 1996.
99.2 Financial statements for Standard Financial, Inc. as of and
for the six months ended June 30, 1997 and 1996.
99.3 Unaudited pro forma combined financial information
consisting of an unaudited pro forma combined statement of
financial condition at June 30, 1997, unaudited pro forma
combined statements of operations for the six months ended
June 30, 1997 and 1996 and for the year ended December 31,
1996 and related notes thereto.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995.
This Current Report and other written and oral statements made by or on
behalf of TCF contain, or may contain, certain "forward-looking statements,"
including statements concerning plans, objectives and future events or
performance, and other statements which are other than statements of historical
fact. Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, but are not limited to,
the following: (i) failure to fully realize or to realize within the expected
time frame expected cost savings from the Acquisition; (ii) lower than expected
income or revenues following the Acquisition, or higher than expected operating
costs; (iii) a significant increase in competitive pressure in the banking and
financial services industry; (iv) business disruption related to the
Acquisition; (v) greater than expected costs or difficulties related to the
integration of the management of TCF and Standard; (vi) litigation costs and
delays caused by litigation; (vii) higher than anticipated costs in completing
the Acquisition; (viii) unanticipated regulatory constraints arising from the
Acquisition; (ix) reduction in interest margins due to changes in the interest
rate environment; (x) poorer than expected general economic conditions,
including acquisition and growth opportunities, either nationally or in the
states in which TCF does business; (xi) legislation or regulatory changes which
adversely affect the businesses in which the combined company is engaged; and
(xii) other unanticipated occurrences which increase the costs related to the
Acquisition or decrease the expected financial benefits of the Acquisition.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 10, 1997
TCF FINANCIAL CORPORATION
By /s/ Ronald J. Palmer
------------------------------------
Ronald J. Palmer
Its Treasurer and Chief Financial Officer
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TCF Financial Corporation:
We consent to the incorporation by reference of our report dated
January 15, 1997 except for Note 24, which is as of February 28, 1997, with
respect to the consolidated statements of financial condition of TCF
Financial Corporation and Subsidiaries as of December 31, 1996 and 1995, 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, 1996, in the Form 8-K/A of TCF Financial Corporation dated
September 4, 1997.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Current Report on Form 8-K/A of TCF Financial
Corporation of our report dated January 27, 1997, with respect to the
consolidated financial statements of Standard Financial, Inc. included on
pages 24 through 41, inclusively of its 1996 Annual Report to Shareholders
included in this Current Report as pages 3 through 20, inclusively, of
exhibit 99.1.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
November 7, 1997
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FOR STANDARD FINANCIAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
At December 31, 1996 1995 1994(1) 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets $2,405,221 $2,081,228 $1,739,363 $1,508,840 $1,506,132
Cash and cash equivalents 43,298 69,571 76,097 66,843 45,027
Loans receivable, net 1,485,459 1,010,777 593,047 525,969 505,550
Investment securities 153,501 137,807 253,604 101,861 98,235
Mortgage-backed and related securities 651,443 804,010 759,860 754,781 811,023
Deposits 1,719,300 1,538,546 1,392,558 1,371,214 1,379,605
Borrowings 385,000 235,000 50,000 25,000 10,000
Retained income/stockholders' equity 268,078 280,886 276,659 96,069 92,201
SELECTED OPERATING DATA:
Total interest income $ 157,496 $ 131,973 $ 100,932 $ 98,399 $ 109,098
Total interest expense 93,935 71,667 51,361 52,839 65,479
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 63,561 60,306 49,571 45,560 43,619
Provision for loan losses 2,500 1,695 660 3,053 390
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 61,061 58,611 48,911 42,507 43,229
NON-INTEREST INCOME (LOSS):
Net gain (loss) on sales of investments, mortgage-
backed securities and loans 2,964 1,132 (763) 617 474
Write-down of mortgage-backed securities - - - (6,767) -
Fees for customer services 4,631 3,263 3,241 3,422 3,509
Other income 1,285 911 1,272 1,518 1,739
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income (loss) 8,880 5,306 3,750 (1,210) 5,722
NON-INTEREST EXPENSE:
Compensation and benefits 20,629 18,056 16,190 16,644 14,715
Occupancy 8,728 8,335 7,112 7,237 5,547
Marketing 1,745 1,198 1,630 1,477 1,166
Federal insurance premiums 13,569 3,564 3,590 3,075 3,177
Amortization of cost in excess of net assets
acquired 135 90 840 1,208 1,185
Other operating expenses 7,159 6,449 5,451 5,233 6,336
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 51,965 37,692 34,813 34,874 32,126
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 17,976 26,225 17,848 6,423 16,825
Federal and state income taxes 6,064 9,508 6,793 2,555 6,818
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 11,912 $ 16,717 $ 11,055 $ 3,868 $ 10,007
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Earnings $ 0.76 $ 0.98 $ 0.37(2) n/a n/a
Cash dividends 0.32 - - n/a n/a
Book value at year end 16.58 15.95 14.85 n/a n/a
Market price at year end 19.63 14.63 9.50 n/a n/a
</TABLE>
(1) Standard Financial, Inc. (the "Company") was organized as the holding
company for Standard Federal Bank for savings in connection with the Bank's
conversion from mutual to stock form of ownership. On July 28, 1994, the
Company issued and sold 18,630,000 shares of its common stock at an issuance
price of $10.00 per share. Net proceeds to the Company were $182.5 million
after deduction of conversion expenses and underwriting fees of $3.8 million.
(2) Earnings per share for 1994 are computed based on the weighted average
number of common shares outstanding of 17,382,000 and net income of $6,468,000
from July 28, 1994 (date of conversion to stock form of ownership) through
December 31, 1994.
1
<PAGE>
SELECTED FINANCIAL RATIOS AND OTHER DATA
FOR STANDARD FINANCIAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1996 1995 1994 1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS
Return on average assets 0.53% 0.88% 0.68% 0.26% 0.68%
Return on average assets excluding
one-time SAIF provision 0.78 - - - -
Return on average equity 4.45 5.97 6.24 3.88 11.29
Return on average equity excluding
one-time SAIF provision 6.60 - - - -
Dividend payout ratio 44.63 - - - -
Equity to total assets 11.15 13.50 15.91 6.37 6.12
Average equity to average assets 11.88 14.81 10.91 6.64 6.04
Core deposits to total deposits 31.76 36.95 43.85 48.34 46.11
Interest spread during period 2.37 2.71 2.87 2.98 2.87
Net interest margin 2.90 3.31 3.19 3.17 3.10
Non-interest expenses to average assets 2.31 1.99 2.14 2.32 2.19
Net interest income to operating expenses 1.22x 1.60x 1.42x 1.31x 1.36x
Average interest-earning assets to average
interest-bearing liabilities 1.12x 1.15x 1.09x 1.05x 1.05x
ASSET QUALITY RATIOS
Non-performing assets to total assets 0.65% 0.57% 0.86% 0.63% 0.25%
Non-performing loans to gross loans 0.30 0.32 0.71 0.77 0.67
Non-performing mortgage-backed and
related securities to gross mortgage-backed
and related securities 1.71 1.06 1.39 0.70 -
Allowance for loan losses to gross loans 0.48 0.50 0.75 0.80 0.36
Allowance for loan losses to
non-performing loans 160.20 157.45 106.50 103.55 53.60
Net charge-offs to average loans 0.04 0.15 0.09 0.11 0.10
REGULATORY CAPITAL RATIOS
Tangible ratio 8.47 9.94 11.12 6.26 5.91
Core ratio 8.49 9.95 11.14 6.37 6.12
Total risk-based ratio 21.46 25.22 29.21 16.74 15.46
OTHER DATA
Number of deposit accounts 183,260 172,048 162,473 160,755 163,767
Number of real estate loans in portfolio 15,295 11,031 9,118 9,357 9,683
Number of real estate loans serviced
(in portfolio and sold) 16,780 11,888 10,321 10,668 11,059
Loan originations (in thousands) $807,598 $559,003 $204,299 $294,338 $258,737
Full service customer facilities 14 13 13 13 12
</TABLE>
2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Standard Financial, Inc.
We have audited the accompanying consolidated statements of condition of
Standard Financial, Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Standard Financial, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
January 27, 1997
3
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
<S> <C> <C>
Cash $ 17,464 $ 22,620
Interest-bearing deposits at depository institutions 25,834 46,951
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 43,298 69,571
Investment securities 153,501 137,807
Mortgage-backed and related securities 651,443 804,010
Loans receivable, net 1,466,541 1,010,777
Loans held for sale 18,918 -
Investment in Federal Home Loan Bank stock, at cost 20,500 12,802
Office properties and equipment, at cost 27,267 28,468
Accrued interest receivable 15,015 13,754
Other assets 8,738 4,039
- --------------------------------------------------------------------------------------------------------------------
Total assets $2,405,221 $2,081,228
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,719,300 $1,538,546
Advances from Federal Home Loan Bank of Chicago 385,000 235,000
Advance payments by borrowers for taxes and insurance 11,470 7,854
Federal and state income taxes payable 1,270 4,044
Miscellaneous liabilities 20,103 14,898
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 2,137,143 1,800,342
Stockholders' equity:
Preferred stock, $.01 par value; 1,000 shares authorized; none outstanding - -
Common stock, $.01 par value; 25,000 shares authorized; 1996 - 19,093 shares issued,
16,174 shares outstanding; 1995 - 19,082 shares issued, 17,608 shares outstanding 191 191
Additional paid-in capital 189,459 188,443
Unrealized net gain on securities available-for-sale net of income taxes 2,431 3,581
Retained income, substantially restricted 130,437 123,841
Treasury stock, at cost (1996 - 2,920 shares; 1995 - 1,474 shares) (41,085) (19,411)
MRP shares (3,745) (4,879)
ESOP shares (9,610) (10,880)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 268,078 280,886
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,405,221 $2,081,228
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 94,023 $ 60,443 $ 41,021
Mortgage-backed and related securities 50,724 56,860 46,017
Investment securities and interest-bearing deposits 12,749 14,670 13,894
- ----------------------------------------------------------------------------------------------------------------
Total interest income 157,496 131,973 100,932
INTEREST EXPENSE
Deposits 73,955 64,544 49,368
Borrowings 19,980 7,123 1,207
Deposits on stock subscriptions - - 786
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 93,935 71,667 51,361
- ----------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 63,561 60,306 49,571
Provision for loan losses 2,500 1,695 660
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 61,061 58,611 48,911
NONINTEREST INCOME
Fees for customer services 4,631 3,263 3,241
Net gain (loss) on sales of investments and mortgage-backed securities 1,578 1,009 (669)
Net gain (loss) on sales of loans 1,386 123 (94)
Other 1,285 911 1,272
- ----------------------------------------------------------------------------------------------------------------
Total noninterest income 8,880 5,306 3,750
NONINTEREST EXPENSE
Compensation and benefits 20,629 18,056 16,190
Occupancy 8,728 8,335 7,112
Federal insurance premiums 3,992 3,564 3,590
Special SAIF assessment 9,577 - -
Marketing 1,745 1,198 1,630
Other general and administrative expenses 7,294 6,539 6,291
- ----------------------------------------------------------------------------------------------------------------
Total noninterest expense 51,965 37,692 34,813
- ----------------------------------------------------------------------------------------------------------------
Income before federal and state income taxes 17,976 26,225 17,848
Federal and state income taxes 6,064 9,508 6,793
- ----------------------------------------------------------------------------------------------------------------
Net income $ 11,912 $ 16,717 $ 11,055
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Earnings per share $ 0.76 $ 0.98 $ 0.37
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) on
Additional Securities
Common Stock Paid-in Available- Retained Treasury MRP ESOP
Issued Amount Capital For-Sale Income Stock Shares Shares Total
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at January 1, 1994 - $ - $ - $ - $ 96,069 $ - $ - $ - $ 96,069
Net income for the year - - - - 11,055 - - - 11,055
Net proceeds from stock
offering 18,630 186 182,336 - - - - - 182,522
Unrealized loss, net of
income taxes, on securities
available-for-sale - - - (837) - - - - (837)
Common stock acquired by ESOP - - - - - - - (12,696) (12,696)
ESOP shares released - - - - - - - 546 546
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 18,630 186 182,336 (837) 107,124 - - (12,150) 276,659
Net income for the year - - - - 16,717 - - - 16,717
Change in unrealized gain
(loss), net of income taxes,
on securities
available-for-sale - - - 4,418 - - - - 4,418
Purchase of treasury stock - - - - - (19,411) - - (19,411)
Issuance of MRP shares 452 5 5,519 - - - (5,524) - -
MRP shares earned, net - - - - - - 645 - 645
ESOP shares released - - 588 - - - - 1,270 1,858
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 19,082 191 188,443 3,581 123,841 (19,411) (4,879) (10,880) 280,886
Net income for the year - - - - 11,912 - - - 11,912
Dividends declared
($0.32 per share) - - - - (5,316) - - - (5,316)
Change in unrealized
net gain on securities
available-for-sale net
of income taxes - - - (1,150) - - - - (1,150)
Purchase of treasury stock - - - - - (21,674) - - (21,674)
Options exercised 21 - 243 - - - - - 243
Tax benefit from options
exercised - - 27 - - - - - 27
ESOP shares released - - 799 - - - - 1,270 2,069
MRP shares forfeited (23) - (281) - - - 281 - -
Issuance of MRP shares 13 - 228 - - - (228) - -
MRP shares earned, net - - - - - - 1,081 - 1,081
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 19,093 $191 $189,459 $2,431 $130,437$(41,085) $(3,745) $ (9,610) $268,078
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 11,912 $ 16,717 $ 11,055
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for depreciation 3,288 3,127 2,659
Provision for loan losses 2,500 1,695 660
Amortization of premiums and discounts
and net deferred loan fees 849 (192) (1,707)
ESOP and MRP expense 3,150 2,503 546
Deferred income taxes (1,009) 798 (322)
Proceeds from sales of loans 42,219 2,751 9,440
Loans originated for sale (42,061) (2,628) (9,534)
Net (gain) loss on sale of securities available-for-sale (1,578) (1,009) 669
(Increase) decrease in current income taxes (1,001) (464) 2,352
Increase in interest receivable (1,261) (2,327) (2,990)
Increase in miscellaneous liabilities 5,205 2,360 3,688
Other (13,408) (1,136) 3,334
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,805 22,195 19,850
INVESTING ACTIVITIES
Proceeds from sales of investment securities available-for-sale 105,682 116,906 39,248
Proceeds from maturity and repayment of investment securities
available-for-sale 399,874 336,920 55,613
Purchases of investment securities available-for-sale (519,994) (330,034) (173,121)
Purchases of investment securities held to maturity - - (485,926)
Proceeds from maturity and repayment of investment securities
held to maturity - - 413,166
Proceeds from maturity and repayment of mortgage-backed
and related securities held to maturity - 171,555 211,559
Purchases of mortgage-backed and related securities held to maturity - (215,523) (218,192)
Proceeds from maturity and repayment of mortgage-backed
and related securities available-for-sale 210,961 - -
Purchases of mortgage-backed and related securities available-for-sale (59,826) - -
Loan principal repayments 288,370 137,846 137,760
Loan originations (765,537) (538,387) (167,733)
Loans purchased - (17,988) (27,032)
Office property and equipment, net (2,200) (3,054) (10,563)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (342,670) (341,759) (225,221)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
FINANCING ACTIVITIES
<S> <C> <C> <C>
Net decrease in passbook, NOW, and money market accounts $ (22,430) $ (42,162) $ (52,086)
Net increase in certificates of deposit 203,126 187,956 73,393
Proceeds of advances from Federal Home Loan Bank 194,500 210,000 50,000
Proceeds from maturity and repayment of advances
from Federal Home Loan Bank (44,500) (25,000) (25,000)
Net increase (decrease) in advance payments by borrowers 3,616 1,655 (1,508)
Net proceeds from stock offering - - 182,522
Common stock acquired by ESOP - - (12,696)
Stock options exercised 270 - -
Dividends paid (5,316) - -
Purchase of treasury shares (21,674) (19,411) -
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 307,592 313,038 214,625
- ------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (26,273) (6,526) 9,254
Cash and cash equivalents at beginning of year 69,571 76,097 66,843
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 43,298 $ 69,571 $ 76,097
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during year for interest on:
Deposits $ 73,897 $ 64,350 $ 49,477
Borrowings 19,101 6,159 1,050
- ------------------------------------------------------------------------------------------------------
$ 92,998 $ 70,509 $ 50,527
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Income taxes $ 8,075 $ 8,659 $ 8,030
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Transfer of loans to real estate held for sale $ 240 $ 422 $ 100
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Transfer of loans to loans held for sale $ 17,690 $ - $ -
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND BUSINESS
Standard Financial, Inc. (the Company) is a non-diversified savings and loan
holding company headquartered in Chicago, Illinois, which wholly owns Standard
Federal Bank for savings (the Bank) and Capitol Equities Corporation. The
Company operates 14 full-service banking offices on the southwest side of
Chicago and nearby suburbs. The Company was organized in connection with the
Bank's conversion from mutual to stock form of ownership. On July 28, 1994, the
Company issued and sold 18,630,000 shares of its common stock at an issuance
price of $10.00 per share. Net proceeds to the Company were $182.5 million
after deducting conversion and offering expenses and underwriting fees of $3.8
million. The Bank's subsidiary, Standard Financial Mortgage Corporation,
purchases, originates, sells, and services mortgage loans.
The Company offers a variety of retail deposit and lending services and
is principally engaged in attracting retail deposits from the general public and
investing the funds in residential mortgage loans and mortgage-backed
securities. The Company's lending activities are concentrated primarily in the
Chicago metropolitan area it serves.
The Company is subject to the regulations of certain federal agencies and
undergoes periodic examinations by those regulatory authorities.
2. SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and results of
operations of the Company and its wholly owned subsidiaries, the Bank and
Capitol Equities Corporation, and the Bank's subsidiaries, Standard Financial
Mortgage Corporation and SFB Insurance Agency, Inc. All significant
intercompany balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents represent highly liquid assets with a maturity of three months
or less when purchased.
INVESTMENT AND MORTGAGE-BACKED AND RELATED SECURITIES
The carrying amount of securities is dependent upon their classification as held
to maturity, trading, or available-for-sale. The accounting for securities in
each of the three categories is as follows:
HELD TO MATURITY
Debt securities for which the Company has the positive intent and ability
to hold to maturity are classified as held to maturity and are recorded at
cost, net of unamortized premiums and discounts. Discounts and premiums
are amortized using the interest method over the estimated remaining
contractual life of the assets. Declines in value judged to be other than
temporary by management are included in the statement of income. At
December 31, 1996 and 1995, the Company did not have any securities
classified as held to maturity.
TRADING
Trading account assets are carried at fair value, with any unrealized gains
and losses included in earnings. At December 31, 1996 and 1995, the
Company did not have any securities classified as trading.
AVAILABLE-FOR-SALE
Debt securities not classified as held to maturity and all equity
securities are classified as available-for-sale and are recorded at fair
value, with unrealized gains and losses included as a separate component of
stockholders' equity. Discounts and premiums are amortized using the
interest method over the estimated remaining contractual life of the
assets. Realized gains and losses and declines in value judged to be other
than temporary are included in the statement of income. The cost of
securities sold is based on specific identification.
On November 15, 1995, the FASB staff issued a Special Report, A
GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. In accordance with provisions
in that Special Report, the Company chose to reclassify all securities from
held to maturity to available-for-sale. At the date of transfer, December
31, 1995, the amortized cost of those securities was $872,383,000 and the
net unrealized gain on those securities was $2,067,000, which was included
in stockholders' equity, net of tax.
9
<PAGE>
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, net of undisbursed
proceeds, the allowance for loan losses, net deferred loan origination fees, and
unearned premiums and discounts.
Interest on loans receivable is recorded as income as required monthly
payments become due. Allowances are established for uncollected interest on
loans and mortgage-backed securities on which any payments are more than 90 days
past due at which time previously accrued but uncollected interest is reversed
from income. Interest thereafter is recognized on a cash basis until such time
the loan is again contractually current.
LOAN FEES
Loan origination fees and direct costs related to processing successful mortgage
loan applications or acquiring servicing rights are deferred and amortized as an
adjustment of the related loan's yield. Costs associated with processing
unsuccessful mortgage loan applications are charged directly to expense.
LOANS HELD FOR SALE
Loans held for sale consist of the principal balance outstanding on loans
secured by first mortgage liens on one-to-four family homes. Loan origination
fees and direct origination costs are deferred and included in the carrying
amount of the loans. Loans held for sale are generally sold within 30 to 90
days of funding and are carried at the lower of cost or market value determined
on an aggregate basis.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to absorb losses in the loan portfolio. Management's determination
of the adequacy of the allowance is based on an evaluation of the portfolio and,
among other things, growth and composition of the portfolio, general economic
conditions, prior loss experience, and collateral value. Future additions to
the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for losses and may require
modifications to the allowance based on their judgments of information available
at the time of the examination.
SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, as amended
by SFAS No. 118, was adopted by the Company as of January 1, 1995. Under SFAS
No. 114, a loan is impaired when it is probable that all principal and interest
amounts due will not be collected in accordance with its contractual terms.
Pursuant to SFAS No. 114, to the extent the recorded investment of an impaired
loan exceeds the present value of the loan's expected future cash flows or other
measures of value, a valuation allowance is established for the difference. In
making such determination of impairment and amount of loss as permitted by the
Statement, loans with homogeneous characteristics (including one-to-four family
mortgages and consumer loans) are excluded from this measurement.
The Company did not have any impaired loans at December 31, 1996 and 1995.
MORTGAGE SERVICING RIGHTS
In May 1996, the Financial Accounting Standards Board issued SFAS No. 122,
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. The Statement provides guidance for
the recognition of loan servicing rights as an asset and the measurement of
impairment of those rights. The Company adopted the Statement on January 1,
1996. Such adoption did not have a material effect on financial position or
results of operation.
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights are stratified
based on the predominant risk characteristics of the underlying loans which
includes loan product type (i.e., fixed or adjustable rate) and interest rate
bands. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceed their fair value.
PENDING ACCOUNTING CHANGE
The FASB issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which requires the Company
to recognize the financial and servicing assets it controls and the liabilities
it has incurred and to derecognize financial assets when control has been
surrendered in accordance with the criteria provided in the Statement. The
Company will apply the new rules prospectively to transactions beginning in the
first quarter of 1997. Based on current circumstances, the Company believes the
application of the new rules will not have a material impact on the financial
statements.
DEPRECIATION
Depreciation of office properties and equipment is computed on a straight-line
basis over the estimated useful lives of the related assets.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Compensation expense under the ESOP is equal to the fair value of common shares
released or committed to be released to participants in the ESOP. Common stock
purchased by the ESOP and not committed to be released to participants is
included in the statement of condition at cost as a reduction to stockholders'
equity.
10
<PAGE>
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and the related Interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB Opinion No. 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
MANAGEMENT RECOGNITION AND RETENTION PLAN (MRP)
The cost of shares granted under the MRP is recognized as compensation expense
over the vesting period. Granted awards under the MRP that have not vested are
included in the statement of condition, at cost, as a reduction to stockholders'
equity.
INCOME TAXES
The Company follows the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of common
shares and equivalents outstanding utilizing the treasury stock method. Stock
options and shares granted under the MRP represent the common stock equivalents
of the Company. ESOP shares not committed to be released to participants are
not considered outstanding for purposes of computing earnings per share amounts.
The weighted average number of common shares and equivalents deemed
outstanding for 1996 and 1995 were 15,635,000 and 17,044,000, respectively.
Earnings per share for 1994 was computed based on the weighted average number of
common shares deemed outstanding of 17,382,000 and net income of $6,468,000 from
July 28, 1994 (date of conversion to stock form of ownership) through December
31, 1994.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
3. INVESTMENT SECURITIES
The amortized cost and fair values of investment securities follows:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
- --------------------------------------------------------------------------------
(IN THOUSANDS)
AVAILABLE-FOR-SALE
U.S. government and
agency securities $115,271 $886 $55 $116,102
Corporate obligations 37,402 39 42 37,399
- --------------------------------------------------------------------------------
$152,673 $925 $97 $153,501
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- --------------------------------------------------------------------------------
(IN THOUSANDS)
AVAILABLE-FOR-SALE
U.S. government and
agency securities $100,810 $3,102 $19 $103,893
Corporate obligations 33,606 309 1 33,914
- --------------------------------------------------------------------------------
$134,416 $3,411 $20 $137,807
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The amortized cost and fair values of investment securities at December 31,
1996, by contractual maturity, are shown below.
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------
(IN THOUSANDS)
AVAILABLE-FOR-SALE
Due in one year or less $ 76,751 $ 76,842
Due after one year through five years 65,510 66,096
Due after five years through 10 years 601 604
Due after 10 years 9,811 9,959
- --------------------------------------------------------------------------------
$152,673 $153,501
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The change in unrealized holding gains (losses), net of income taxes, on
available-for-sale securities included as a separate component of stockholders'
equity totaled $1,150,000 and $4,418,000 during 1996 and 1995, respectively.
Proceeds from the sale of investment securities available-for-sale totaled
$105,682,000, $116,906,000, and $39,248,000 for the years ended December 31,
1996, 1995, and 1994, respectively. Gross gains and gross losses of $1,770,000
and $192,000, respectively, were realized on the sale of investment securities
available-for-sale in 1996. Gross gains and gross losses of $1,350,000 and
$341,000, respectively, were realized on the sale of investment securities
available-for-sale in 1995. Gross gains and gross losses of $0 and $669,000,
respectively, were realized on the sale of investment securities available-for-
sale in 1994.
11
<PAGE>
The Company invests in corporate obligations of issuers with a Moody's
Investors Service rating of A/P2 or better at date of purchase.
4. MORTGAGE-BACKED AND RELATED SECURITIES
The amortized cost and fair values of mortgage-backed and related securities
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
- --------------------------------------------------------------------------------
(IN THOUSANDS)
AVAILABLE-FOR-SALE
Mortgage-backed securities $623,072 $7,983 $6,306 $624,749
Collateralized mortgage
obligations and REMICs 25,211 1,507 24 26,694
- --------------------------------------------------------------------------------
$648,283 $9,490 $6,330 $651,443
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- --------------------------------------------------------------------------------
(IN THOUSANDS)
AVAILABLE-FOR-SALE
Mortgage-backed securities $758,140 $ 9,327 $9,362 $758,105
Collateralized mortgage
obligations and REMICs 43,359 2,556 10 45,905
- --------------------------------------------------------------------------------
$801,499 $11,883 $9,372 $804,010
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Inverse floating collateralized mortgage obligations with an amortized cost
of $10,730,000 and $11,067,000, with fair values of $11,010,000 and $11,455,000,
were held at December 31, 1996 and 1995, respectively. These securities were
primarily collateralized by Federal Home Loan Mortgage Corporation (FHLMC) and
Federal National Mortgage Association (FNMA) mortgage-backed securities.
The mortgage-backed and related securities portfolio included $4,552,000
and $5,368,000 in net unamortized purchase premiums at December 31, 1996 and
1995, respectively.
Mortgage-backed and related securities by issuer are summarized at December
31, 1996 and 1995, as follows:
1996 1995
- --------------------------------------------------------------------------------
FNMA 31% 30%
FHLMC 26 27
Government National Mortgage
Association (GNMA) - 1
Private issuers 43 42
- --------------------------------------------------------------------------------
100% 100%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mortgage-backed securities issued by FNMA, FHLMC, and GNMA are either
directly or indirectly guaranteed by the U.S. Treasury. Private issuer
securities are not guaranteed and expose the Company to credit risk. Although
all securities are of investment grade at the time of purchase, at December 31,
1996, private issuer securities with a carrying value of $13,322,000 were below
investment grade.
Interest income on private issuer mortgage-backed securities with an
amortized cost of $11,138,000 and $8,508,000 was recognized on a cash basis at
December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, the investment and mortgage-backed
securities with an amortized cost of $47,373,000 and $49,478,000, respectively,
were pledged to depositors with large deposit accounts at the Bank.
5. LOANS RECEIVABLE, NET
Loans receivable, net, at December 31 consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
(In Thousands)
Mortgage loans originated:
One-to-four family $1,352,858 $ 902,186
Multifamily 12,634 11,160
Commercial 7,322 6,666
Mortgage loans and participations
purchased, primarily
one-to-four family 57,831 73,371
- --------------------------------------------------------------------------------
1,430,645 993,383
Consumer loans 35,511 21,538
- --------------------------------------------------------------------------------
1,466,156 1,014,921
Allowance for losses (6,988) (5,048)
Undisbursed portion of loan proceeds (805) (1,951)
Unearned premiums on loans 10,130 4,580
Unearned discounts on loans (1,247) (905)
Net deferred loan origination fees (705) (820)
- --------------------------------------------------------------------------------
$1,466,541 $1,010,777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Activity in the allowance for loan losses is summarized as follows:
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Balance at beginning of year $5,048 $4,503 $4,320
Provision for loan losses 2,500 1,695 660
Charge-offs (605) (1,241) (522)
Recoveries 45 91 45
- --------------------------------------------------------------------------------
Balance at end of year $6,988 $5,048 $4,503
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12
<PAGE>
6. LOAN SERVICING
Mortgage loans serviced for others are not included in the consolidated
statements of condition. The unpaid principal balances of mortgage loans
serviced for others were $109,012,000 and $53,584,000 at December 31, 1996 and
1995, respectively.
Funds held in trust for borrowers and investors maintained in connection
with the foregoing loan servicing, and included in demand deposits, were
approximately $1,175,000 and $599,000 at December 31, 1996 and 1995,
respectively.
Mortgage servicing rights, included in other assets, of $614,000 were
capitalized in 1996. A valuation reserve of $13,000 has been recorded at
December 31, 1996, for mortgage servicing right strata in which amortized cost
exceeded their fair value. Amortization of mortgage servicing rights was
$58,000 in 1996.
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31 are summarized as follows:
1996 1995
(IN THOUSANDS)
COST
Land $ 6,073 $ 5,623
Buildings 28,321 27,457
Parking lot improvements 477 477
Automobiles 230 212
Furniture and equipment 10,232 9,670
- --------------------------------------------------------------------------------
45,333 43,439
Less: Allowance for depreciation 18,066 14,971
- --------------------------------------------------------------------------------
$27,267 $28,468
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. DEPOSITS
Deposits at December 31 are summarized as follows:
1996 1995
- --------------------------------------------------------------------------------
Passbook savings accounts $ 356,376 $ 370,935
Negotiable Order of Withdrawal accounts 114,657 115,804
Money market deposit accounts 74,959 81,683
Certificates of deposit 1,172,790 969,664
- --------------------------------------------------------------------------------
1,718,782 1,538,086
Accrued interest 518 460
- --------------------------------------------------------------------------------
$1,719,300 $1,538,546
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of December 31, 1996, certificates of deposit had scheduled maturity
dates as follows:
Amount Percent
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1997 $ 940,992 80.2%
1998 172,305 14.7
1999 32,741 2.8
2000 19,391 1.7
Thereafter 7,361 0.6
- --------------------------------------------------------------------------------
$1,172,790 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The aggregate amount of certificates of deposit in excess of $100,000 was
approximately $23,692,000 and $20,193,000 at December 31, 1996 and 1995,
respectively.
9. ADVANCES FROM FEDERAL HOME LOAN BANK
OF CHICAGO
Advances from the Federal Home Loan Bank of Chicago (FHLB) consisted of the
following at December 31:
1996 1995
- --------------------------------------------------------------------------------
Year of Maturity Amount Fixed Rate Amount Rate
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1996 $ - -% $ 25,000 5.92%
1998 125,000 6.09 75,000 5.99
1999 75,000 6.20 - -
2000 135,000 6.25 135,000 6.25
2001 25,000 6.15 - -
2003 25,000 5.70 - -
- --------------------------------------------------------------------------------
$385,000 $235,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Bank is required to maintain unencumbered loans in its portfolio of at least
167% of outstanding amounts as collateral for advances from the FHLB. The
investment in Federal Home Loan Bank stock also serves as collateral.
10. INCOME TAXES
The provision for income taxes consisted of the following:
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Current federal $7,338 $8,273 $6,768
Current state (265) 437 347
Deferred expense (benefit) (1,009) 798 (322)
- --------------------------------------------------------------------------------
$6,064 $9,508 $6,793
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Statutory rate 35.0% 35.0% 35.0%
Additions (subtractions):
State income taxes (1.3) 1.3 1.1
Low income housing credit (0.7) (0.5) (0.7)
Non-deductible amortization
of excess of cost over net
assets of acquired - - 1.5
Other 0.7 0.5 1.2
- --------------------------------------------------------------------------------
Effective rate 33.7% 36.3% 38.1%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Bank qualified under provisions of the Internal Revenue Code that
permitted it to deduct from taxable income an allowance for bad debts that
differed from the provision for such losses charged to income. Such amounts
accumulated prior to 1988 qualify for a permanent deferral. Accordingly,
retained income at December 31, 1996, included approximately $24,500,000 for
which no provision for federal income taxes had been made. If in the future
this portion of retained income is distributed or the Bank no longer qualifies
for tax purposes as a bank, federal and state income taxes may be imposed at the
then-applicable rates. If incurred, the tax liability related to this balance
would approximate $9,700,000.
Significant components of deferred tax liabilities and assets at December
31, 1996 and 1995 were as follows:
1996 1995
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Deferred tax liabilities:
Loan fees deferred for
income tax purposes $ 553 $ 396
Depreciation - 324
FHLB stock dividends 720 676
Other 485 385
Unrealized gain due to market value
increase in securities 1,557 2,321
- --------------------------------------------------------------------------------
3,315 4,102
Deferred tax assets:
Depreciation 66 -
General valuation allowance 2,072 1,310
Other 348 187
- --------------------------------------------------------------------------------
2,486 1,497
- --------------------------------------------------------------------------------
Net deferred tax liability $ 829 $2,605
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
The Bank established a liquidation account for the benefit of eligible
depositors as of September 30, 1993 (the eligibility record date) who continue
to maintain their deposit accounts in the Bank after the Bank's conversion to
stock ownership. In the unlikely event of a liquidation, each eligible
depositor will be entitled to receive a liquidation distribution from the
liquidation account in an amount proportionate to current adjusted qualifying
balances before any liquidation distribution may be made with respect to the
stockholders. The balance of the liquidation account approximates $62.7 million
(unaudited) at December 31, 1996.
The Bank may not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause stockholders' equity of the
Bank to be reduced below either the amount required for the liquidation account
or if such declaration and payment would otherwise violate regulatory
requirements.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory-and possibly additional discretionary-actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of core, tangible, and
risk-based capital. Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the framework
for prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum core, tangible, and risk-based capital ratios as set forth
in the subsequent table. There have been no conditions or events since that
notification that management believes have changed the Bank's category. The
qualification results in a lower assessment of FDIC Premiums and other benefits.
These amounts, as well as the Bank's actual capital amounts and ratios, are
shown on the following page.
14
<PAGE>
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
- ----------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1996
Risk-based $206,386 21.46% $76,930 8.00% $ 96,163 10.00%
Core 199,398 8.49 70,464 3.00 117,439 5.00
Tangible 198,966 8.47 35,225 1.50 58,709 2.50
AS OF DECEMBER 31, 1995
Risk-based 205,365 25.22 65,133 8.00 81,416 10.00
Core 200,317 9.95 60,466 3.00 100,777 5.00
Tangible 200,204 9.94 30,203 1.50 50,338 2.50
</TABLE>
12. RETIREMENT AND SAVINGS PLANS
The Bank sponsors a defined-contribution plan (the 401(k) Plan) covering
substantially all employees. Employees are eligible to participate in the
401(k) Plan after completing a 12-month period of service and attaining the age
of 21 years. The 401(k) Plan permits participants to elect to have salary
deferral contributions made in amounts between 1% and 12% of their annual
compensation. The Bank makes matching contributions to the 401(k) Plan at 50%
of the first 6% of salary deferral contributions. The expense relating to this
plan was approximately $226,000, $227,000, and $223,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
The Bank adopted an employee stock ownership plan (the ESOP) on July 28,
1994, for the benefit of employees of the Bank. The ESOP invests in the common
stock of the Company. All employees who have completed at least one year of
credited service at the Company and have attained the age of 21 are eligible to
participate in the ESOP. All eligible employees receive an allocation of common
stock in the ratio that the compensation, as defined, of each eligible employee
for the plan year bears to the total compensation of all eligible employees for
the plan year. Under the ESOP, 1,269,600 shares are to be distributed over the
10-year period beginning in 1994.
In 1994, the ESOP obtained a term loan (the Loan) of $12,696,000 from the
Company and utilized the proceeds to acquire shares of common stock. The Loan
bears interest at the prime rate and is payable to the Company in annual
installments of principal and interest commencing December 31, 1994. The Bank,
to the extent permissible by law and regulatory authority, has guaranteed
repayment of the Loan.
In fiscal 1996, 1995, and 1994, total compensation expense under the ESOP
was $2,069,000, $1,857,000, and $546,000, respectively. Total expense under the
Company's money purchase pension plan, which was terminated upon inception of
the ESOP, equaled $352,000 in 1994.
The following table summarizes shares of Company common stock held by the
ESOP:
December 31, 1996 1995
- -----------------------------------------------------------------------------
Shares allocated to participants 302,522 181,570
Unallocated and unearned shares 961,070 1,088,030
- -----------------------------------------------------------------------------
1,263,592 1,269,600
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Fair value of unearned ESOP shares $18,861,000 $15,912,000
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
13. STOCK OPTION PLANS
The Company has two stock option plans: the Option Plan is for the benefit of
officers and other key employees of the Company or its subsidiaries, while the
Option Plan for Outside Directors is for the benefit of the outside directors.
Both plans were approved by the Company's stockholders on May 19, 1995. Under
the original terms of the Option Plan and the Option Plan for Outside Directors,
1,522,000 and 341,000 shares of authorized but unissued common stock,
respectively, were reserved for issuance.
The Option Plan and the Option Plan for Outside Directors authorize the
Stock Incentive Compensation Committee of the Board of Directors to administer
the respective plans and make recommendations to award stock options to
officers, key employees, and outside directors, as applicable. Stock options
are granted at the discretion of the Stock Incentive Compensation Committee.
Stock options must be granted at an option price equal to the fair market value
of the Company's common stock on the date of grant and have a maximum 10-year
term. Options granted are exercisable in increments of 20% per year commencing
one year after the date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its stock options granted subsequent to
December 31, 1994, under the fair value method of SFAS No. 123. The fair value
of these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
1996 1995
- --------------------------------------------------------------------------------
Risk-free interest rates 6.37% 6.60%
Dividend yields 2.11% 2.48%
Volatility factors of the expected market
price of common stock 0.14 0.21
Weighted-average estimated life of the
options in years 7.0 7.0
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
15
<PAGE>
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. The Company's
pro forma information is as follows:
1996 1995
- -----------------------------------------------------------------------------
Pro forma net income $11,294,000 $16,324,000
Pro forma earnings per share 0.72 0.96
The following table sets forth activity relating to stock options under the
Option Plan for the years ended December 31:
1996 1995
- --------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
- --------------------------------------------------------------------------------
Outstanding at beginning
of year 1,365,578 $12.19 - $ -
Granted 36,647 15.61 1,365,578 12.19
Exercised (20,244) 12.00 - -
Forfeited (75,044) 12.00 - -
Outstanding at end
of year 1,306,937 12.30 1,365,578 12.19
Exercisable at end of year 251,695 12.21 - -
Weighted-average fair
value of options granted
during the year $4.12 $3.42
The exercise prices for Option Plan options outstanding as of December 31,
1996, ranged from $12.00 to $15.75. The weighted-average remaining contractual
life of those options is 8.5 years.
The following table sets forth activity relating to stock options under
the Option Plan for Outside Directors for the years ended December 31:
1996 1995
- --------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
- --------------------------------------------------------------------------------
Outstanding at beginning
of year 248,000 $12.00 - $ -
Granted 62,000 16.38 248,000 12.00
Exercised - - - -
Forfeited (24,800) 12.00 - -
Outstanding at end
of year 285,200 12.95 248,000 12.00
Exercisable at end of year 49,600 12.00 - -
Weighted-average fair
value of options granted
during the year $3.87 $3.39
The exercise prices for Option Plan for Outside Directors options outstanding as
of December 31, 1996, ranged from $12.00 to $17.88. The weighted-average
remaining contractual life of those options is 8.6 years.
14. MANAGEMENT RECOGNITION AND
RETENTION PLAN (MRP)
The Company has a MRP for the benefit of officers and key employees of the
Company that was approved by the Company's stockholders on May 19, 1995. Under
the original terms of the MRP, 745,200 shares of authorized but unissued stock
were reserved for issuance.
The MRP authorizes the Stock Incentive Compensation Committee to administer
and make recommendations to award stock to participants. Stock awards granted
under the MRP vest at a rate of 20% per year commencing one year after the date
of grant. For the years ended December 31, 1996 and 1995, 13,472 and 452,089
shares, respectively, were granted. Expense under the MRP equaled $1,081,000
and $645,000 for the years ended December 31, 1996 and 1995, respectively.
The following table sets forth activity relating to the MRP for the years
ended December 31:
1996 1995
- --------------------------------------------------------------------------------
MRPs outstanding on January 1 452,089 -
Granted 13,472 452,089
Issued (89,775) -
Forfeited (23,420) -
- --------------------------------------------------------------------------------
MRPs outstanding at December 31 352,366 452,089
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16
<PAGE>
15. FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
In the normal course of business, the Company is party to financial instruments
with off-balance-sheet risk. These financial instruments consist of commitments
to extend credit and forward commitments to sell mortgage loans. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statements of
condition. The contract amounts reflect the extent of involvement the Company
has in particular classes of financial instruments.
The Company's maximum exposure to credit loss for commitments to extend
credit and unused equity lines of credit is represented by the contract amount
of those instruments. Forward commitments to sell loans do not represent
exposure to credit loss.
Financial instruments whose contract amounts represent credit and interest
rate risk at December 31 are as follows:
1996 1995
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
COMMITMENTS TO EXTEND CREDIT
Fixed rate (weighted-average interest
rate: 8.00% in 1996 and 1995) $ 2,039 $ 1,776
Adjustable rate 51,170 38,747
Equity lines of credit 7,459 4,229
Unused credit card lines - 39,929
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and generally require payment of a fee. As some commitments expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates the credit-worthiness of each
customer on a case by case basis. The Company extends credit only on a secured
basis. Collateral obtained varies, but consists primarily of one- to four-
family residences.
Commitments to extend credit on a fixed rate basis expose the Company to
interest rate risk if market rates of interest substantially increase during the
commitment period.
The Company had forward commitments to sell mortgage loans totaling
$18,918,000 at December 31, 1996. The Company did not have any forward
commitments to sell mortgage loans at December 31, 1995. Commitments to sell
loans expose the Company to market risk if rates of interest decrease during the
commitment period. Commitments to sell loans are made to mitigate interest rate
risk on commitments to originate mortgage loans and loans held for sale. All
loans are sold on a nonrecourse basis and the servicing of these loans may or
may not be retained by the Company.
Except for the above-noted commitments to originate and/or sell mortgage
loans in the normal course of business, the Company has not undertaken the use
of off-balance-sheet derivative financial instruments for any purpose.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of fair value information about financial instruments, whether or not
recognized in the statement of condition, for which it is practicable to
estimate that value follows. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash flow.
In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized on
immediate settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
17
<PAGE>
The following table presents the carrying amount and fair values of financial
instruments as defined by SFAS No. 107:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
December 31, Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
FINANCIAL ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 43,298 $ 43,298 $ 69,571 $ 69,571
Investment securities 153,501 153,501 137,807 137,807
Mortgage-backed and related securities 651,443 651,443 804,010 804,010
Loans receivable, net 1,466,541 1,460,032 1,010,777 1,040,255
Loans held for sale 18,918 18,918 - -
Investment in Federal Home Loan Bank stock 20,500 20,500 12,802 12,802
Mortgage servicing rights 543 624 - -
Accrued interest receivable 15,015 15,015 13,754 13,754
- -------------------------------------------------------------------------------------------------------------
Total financial assets $2,369,759 $2,363,331 $2,048,721 $2,078,199
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Deposits without stated maturities $ 545,992 $ 545,992 $ 568,422 $ 568,422
Deposits with stated maturities 1,172,790 1,179,286 969,664 973,176
Advances from Federal Home Loan Bank 385,000 382,255 235,000 237,849
Advance payments by borrows for taxes and insurance 11,470 11,470 7,854 7,854
Accrued interest payable 518 518 460 460
- -------------------------------------------------------------------------------------------------------------
Total financial liabilities $2,115,770 $2,119,521 $1,781,400 $1,787,761
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $ - $ 110 $ - $ -
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used by management in estimating
the fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts reported in the statement of condition for cash and short-
term instruments approximate those assets' fair values.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Fair values for investment and mortgage-backed securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
value is based on quoted market prices of comparable instruments.
LOANS RECEIVABLE
For mortgage and consumer loans, fair value is based on quoted market prices
where available and, where not available, on quoted prices of other mortgage
debt with similar characteristics (with appropriate adjustment if necessary).
FEDERAL HOME LOAN BANK STOCK
The fair value of FHLB stock equals its carrying amount because the shares can
be resold to the FHLB or other member banks at their carrying amount of $100 per
share par value.
MORTGAGE SERVICING RIGHTS
The fair value of mortgage servicing rights is estimated using discounted cash
flows based on a current market interest rate.
OFF-BALANCE-SHEET INSTRUMENTS
Fair values for off-balance-sheet instruments (lending commitments) are based on
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
DEPOSIT LIABILITIES
The fair value disclosed for non-maturing deposits (e.g., passbook, NOW, and
money market deposit accounts) is, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a current market rate
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected maturities on time deposits.
ADVANCES FROM FEDERAL HOME LOAN BANK
The fair value of advances from the FHLB is estimated based on current rates
offered by the FHLB.
OTHER ASSETS AND LIABILITIES
Carrying amounts of miscellaneous receivables and liabilities approximate their
fair value.
18
<PAGE>
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total interest income $37,388 $38,553 $40,238 $41,317
Total interest expense 21,393 22,885 24,161 25,496
- -------------------------------------------------------------------------------------------------------------
Net interest income 15,995 15,668 16,077 15,821
Provision for loan losses 800 800 450 450
Non-interest income 3,000 1,442 2,126 2,312
Non-interest expense 10,415 10,247 20,195 11,108
- -------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 7,780 6,063 (2,442) 6,575
Income taxes (benefit) 2,859 2,245 (1,436) 2,396
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,921 $ 3,818 $ (1,006) $ 4,179
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) per share $ 0.31 $ 0.25 $ (0.07) $ 0.27
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total interest income $30,373 $32,746 $33,752 $35,102
Total interest expense 15,503 17,266 18,883 20,015
- -------------------------------------------------------------------------------------------------------------
Net interest income 14,870 15,480 14,869 15,087
Provision for loan losses 165 605 525 400
Non-interest income 1,053 1,600 1,179 1,474
Non-interest expense 9,009 9,435 9,678 9,570
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 6,749 7,040 5,845 6,591
Income taxes 2,458 2,537 2,099 2,414
- -------------------------------------------------------------------------------------------------------------
Net income $ 4,291 $ 4,503 $ 3,746 $ 4,177
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) per share $ 0.25 $ 0.26 $ 0.22 $ 0.25
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
18. CONDENSED FINANCIAL INFORMATION
The condensed statements of condition of Standard Financial, Inc. (Parent
Company only) as of December 31, 1996 and 1995, and the related condensed
statements of income and cash flows for each of the three periods in the period
ended December 31, 1996, are summarized as follows:
CONDENSED STATEMENTS OF CONDITION
December 31, 1996 1995
- --------------------------------------------------------------------------------
(IN THOUSANDS)
ASSETS
Cash and cash equivalents $ 51 $ 29
Investment securities available-for-sale 45,243 56,086
Mortgage-backed securities available-for-sale 10,206 10,289
Investment in subsidiaries 202,180 203,318
Other 10,748 12,353
- --------------------------------------------------------------------------------
Total assets $268,428 $282,075
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Miscellaneous liabilities $ 350 $ 1,189
- --------------------------------------------------------------------------------
Total liabilities 350 1,189
Total stockholders' equity 268,078 280,886
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $268,428 $282,075
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
Period From
July 28, 1994
To
December 31,
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Interest income $ 3,717 $ 4,609 $1,968
NON-INTEREST INCOME
Equity in net earnings of subsidiaries 9,658 13,810 5,806
Gain (loss) on sales of investment
securities available-for-sale 1,563 1,009 (669)
- --------------------------------------------------------------------------------
Total income 14,938 19,428 7,105
General and administrative expenses (1,878) (1,146) (239)
- --------------------------------------------------------------------------------
Income before income taxes 13,060 18,282 6,866
Federal and state income tax (1,148) (1,565) (371)
- --------------------------------------------------------------------------------
Net income $11,912 $16,717 $6,495
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19
<PAGE>
18. CONDENSED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
July 28, 1994
To
December 31,
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 11,912 $ 16,717 $ 6,495
Adjustment to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts (1,463) (472) (371)
ESOP and MRP expense 3,150 2,503 546
(Gain) loss on sale of investment securities available-for-sale (1,563) (1,009) 669
Undistributed earnings of subsidiaries (9,658) (13,810) (5,806)
Other 12,803 453 (1,015)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,181 4,382 518
INVESTING ACTIVITIES
Proceeds from sales of investment securities 105,682 116,906 39,248
Purchases of investment securities (364,389) (163,006) (173,121)
Proceeds from maturity and repayment of investment securities 270,184 71,826 55,613
Acquisition of the stock of the Bank - - (91,261)
Purchase of mortgage-backed securities - (9,943) -
Proceeds from maturity and repayment of mortgage-backed securities 84 8 -
Capitalization of subsidiaries - (1,556) -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 11,561 14,235 (169,521)
FINANCING ACTIVITIES
Net proceeds from stock offering - - 182,522
Common stock acquired by ESOP - - (12,696)
Dividends paid (5,316) - -
Purchase of treasury stock (21,674) (19,411) -
Stock options exercised 270 - -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (26,720) (19,411) 169,826
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 22 (794) 823
Cash and cash equivalents at beginning of period 29 823 -
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 51 $ 29 $ 823
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS:
Cash................................................................................. $ 24,306 $ 17,464
Interest-bearing deposits at depository institutions................................. 56,639 25,834
------------ ------------
Cash and cash equivalents.......................................................... 80,945 43,298
Investment securities................................................................ 204,152 153,501
Mortgage-backed and related securities............................................... 642,890 651,443
Loans receivable, net................................................................ 1,570,906 1,485,459
Real estate held for sale............................................................ 120 70
Investment in Federal Home Loan Bank stock........................................... 21,693 20,500
Office properties and equipment...................................................... 27,685 27,267
Accrued interest receivable.......................................................... 15,613 15,015
Other assets......................................................................... 10,253 8,236
Excess of cost over net assets of acquired association, less accumulated
amortization........................................................................ 418 432
------------ ------------
Total assets................................................................... $ 2,574,675 $2,405,221
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits............................................................................. $ 1,834,879 $1,719,300
Advances from Federal Home Loan Bank of Chicago...................................... 434,000 385,000
Advance payments by borrowers for taxes and insurance................................ 13,438 11,470
Federal & state income taxes payable................................................. 2,504 1,270
Miscellaneous liabilities............................................................ 12,540 20,103
------------ ------------
Total liabilities.............................................................. 2,297,361 2,137,143
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none outstanding...... 0 0
Common stock, $0.01 par value; 25,000,000 shares authorized, 19,129,785 shares
issued, 16,210,435 shares outstanding at June 30, 1997; and 25,000,000 shares
authorized, 19,092,585 shares issued, 16,173,235 outstanding at December 31, 1996... 191 191
Additional paid-in capital........................................................... 190,799 189,460
Unrealized gain, net of income taxes, on securities available-for-sale............... 3,497 2,431
Retained income...................................................................... 136,094 130,437
Treasury stock, at cost (2,919,350 shares at June 30, 1997; 2,919,350 shares at
December 31, 1996).................................................................. (41,085) (41,085)
ESOP shares.......................................................................... (8,976) (9,611)
MRP shares........................................................................... (3,206) (3,745)
------------ ------------
Total stockholders' equity..................................................... 277,314 268,078
------------ ------------
Total liabilities and stockholders' equity..................................... $ 2,574,675 $2,405,221
------------ ------------
------------ ------------
</TABLE>
1
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans................................................................. $ 27,844 $ 22,583 $ 55,729 $ 42,886
Mortgage-backed and related securities................................ 12,166 13,654 23,752 27,314
Investment securities and interest-bearing deposits................... 3,825 2,316 7,233 5,741
--------- --------- --------- ---------
Total interest income........................................... 43,835 38,553 86,714 75,941
INTEREST EXPENSE:
Deposits.............................................................. 20,948 18,197 40,951 35,620
Borrowings............................................................ 6,643 4,688 12,791 8,658
--------- --------- --------- ---------
Total interest expense.......................................... 27,591 22,885 53,742 44,278
--------- --------- --------- ---------
Net interest income before provision for loan losses.................. 16,244 15,668 32,972 31,663
Provision for loan losses............................................. 450 800 925 1,600
--------- --------- --------- ---------
Net interest income after provision for loan losses................... 15,794 14,868 32,047 30,063
NON-INTEREST INCOME:
Fees for customer services............................................ 958 1,141 1,843 2,226
Net gain(loss) on sales of investments and mortgage-backed
securities........................................................... 0 22 (146) 1,591
Net gain on sales of loans............................................ 254 42 446 70
Other................................................................. 198 237 358 555
--------- --------- --------- ---------
Total non-interest income....................................... 1,410 1,442 2,501 4,442
NON-INTEREST EXPENSE:
Compensation and benefits............................................. 5,370 4,912 10,503 9,948
Occupancy............................................................. 2,182 2,108 4,240 4,187
Federal deposit insurance premiums.................................... 373 967 521 1,915
Marketing............................................................. 518 461 1,034 918
Other general and administrative expenses............................. 1,238 1,777 4,397 3,649
Amortization of excess of cost over net assets of acquired
association.......................................................... 26 22 71 45
--------- --------- --------- ---------
Total non-interest expense...................................... 9,707 10,247 20,766 20,662
--------- --------- --------- ---------
Income before federal and state income taxes.......................... 7,497 6,063 13,782 13,843
Federal and state income taxes........................................ 2,685 2,245 4,886 5,104
--------- --------- --------- ---------
Net income............................................................ $ 4,812 $ 3,818 $ 8,896 $ 8,739
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary earnings per share............................................ $ 0.31 $ 0.25 $ 0.57 $ 0.56
Fully diluted earnings per share...................................... $ 0.30 $ 0.24 $ 0.56 $ 0.55
Dividends declared per share.......................................... $ 0.10 $ 0.08 $ 0.20 $ 0.16
</TABLE>
2
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON ADDITIONAL ON SEC.
STOCK COMMON STOCK PAID-IN AVAILABLE- RETAINED TREASURY ESOP
ISSUED AT PAR VALUE CAPITAL FOR-SALE INCOME STOCK SHARES
----------- ------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997...... 19,093 $ 191 $ 189,460 $ 2,431 $ 130,437 $ (41,085) $ (9,611)
Net income for the period....... 0 0 0 0 8,896 0 0
Dividends paid.................. 0 0 0 0 (3,239) 0 0
Change in unrealized gain, net
of income taxes, on securities
available-for-sale............ 0 0 0 1,066 0 0 0
Options exercised............... 37 0 446 0 0 0 0
Tax Benefit from options
exercise...................... 0 0 131 0 0 0 0
ESOP shares earned.............. 0 0 762 0 0 0 635
MRP shares earned, net.......... 0 0 0 0 0 0 0
----------- ----- ----------- ----------- ----------- ----------- ---------
Balance at June 30, 1997........ 19,130 $ 191 $ 190,799 $ 3,497 $ 136,094 $ (41,085) $ (8,976)
----------- ----- ----------- ----------- ----------- ----------- ---------
----------- ----- ----------- ----------- ----------- ----------- ---------
<CAPTION>
TOTAL
MRP STOCKHOLDERS'
SHARES EQUITY
--------- -------------
<S> <C> <C>
Balance at January 1, 1997...... $ (3,745) $ 268,078
Net income for the period....... 0 8,896
Dividends paid.................. 0 (3,239)
Change in unrealized gain, net
of income taxes, on securities
available-for-sale............ 0 1,066
Options exercised............... 0 446
Tax Benefit from options
exercise...................... 0 131
ESOP shares earned.............. 0 1,397
MRP shares earned, net.......... 539 539
--------- -------------
Balance at June 30, 1997........ $ (3,206) $ 277,314
--------- -------------
--------- -------------
</TABLE>
3
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................................................... $ 8,896 $ 8,739
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation.......................................................... 1,432 1,642
Provision for loan losses........................................................... 925 1,600
Amortization of other intangibles................................................... 58 58
Amortization of cost over net assets of acquired association........................ 71 45
Amortization of premiums and discounts.............................................. (698) 814
Amortization of net deferred loan fees.............................................. (105) (325)
Release of ESOP shares.............................................................. 1,397 941
Release of MRP shares............................................................... 539 515
Deferred income taxes............................................................... (915) 398
Gain on sale of loans............................................................... (446) (70)
Proceeds from loan sales............................................................ 47,190 39,991
Loans originated for sale........................................................... (58,222) (8,522)
(Gain) loss on sale of securities available-for-sale................................ 146 (1,591)
Proceeds from sale of other real estate............................................. 84 0
Gain on sale of other real estate................................................... (14) 0
Increase in interest receivable..................................................... (598) (796)
Increase in interest payable........................................................ 747 1,231
Decrease in miscellaneous liabilities............................................... (7,563) (248)
Other, primarily other assets....................................................... 484 (1,182)
------------- -------------
Net cash (used) provided by operating activities................................ (6,592) 43,240
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale..................... 29,659 74,269
Proceeds from maturity and repayment of investment securities available-for-sale.... 289,367 188,859
Purchases of investment securities available-for-sale............................... (368,330) (265,639)
Repayments of mortgage-backed and related securities available-for-sale............. 75,608 126,172
Purchases of mortgage-backed and related securities available-for-sale.............. (65,812) (59,825)
Loan principal repayments........................................................... 186,304 123,088
Loans originated and purchased...................................................... (262,409) (436,015)
Office property and equipment, net.................................................. (1,906) (1,664)
Purchase of Federal Home Loan Bank stock............................................ (1,193) (5,725)
------------- -------------
Net cash used by investing activities........................................... (118,712) (256,480)
FINANCING ACTIVITIES:
Net (decrease) increase in passbook, NOW, and money market deposit accounts......... (5,710) 11,983
Net increase in certificates of deposit............................................. 120,543 119,109
Premium paid on purchased deposits.................................................. (57) (454)
Proceeds of advances from Federal Home Loan Bank.................................... 49,000 87,000
Repayments of advances from Federal Home Loan Bank.................................. 0 (12,000)
Net increase in advance payments by borrowers....................................... 1,968 3,137
Options exercised................................................................... 446 207
Purchase of treasury stock.......................................................... 0 (17,874)
Dividends paid...................................................................... (3,239) (2,715)
------------- -------------
Net cash provided by financing activities....................................... 162,951 188,393
------------- -------------
Increase (decrease) in cash and cash equivalents................................ 37,647 (24,847)
Cash and cash equivalents at beginning of period.................................... 43,298 69,571
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 80,945 $ 44,724
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for interest on:
Deposits............................................................................ $ 40,204 $ 34,389
Borrowings.......................................................................... 12,630 8,447
------------- -------------
$ 52,834 $ 42,836
------------- -------------
------------- -------------
Income taxes........................................................................ $ 3,652 $ 5,080
------------- -------------
------------- -------------
Transfer of loans to real estate held for sale...................................... $ 120 $ 170
------------- -------------
------------- -------------
</TABLE>
4
<PAGE>
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the results for the interim periods presented have been included.
The results of operations and other data for the three and six months ended
June 30, 1997 are not necessarily indicative of results that may be expected for
the entire year ending December 31, 1997.
The consolidated financial statements include the accounts of Standard
Financial, Inc. (the "Company") and its wholly-owned subsidiaries, Standard
Federal Bank for savings (the "Bank"), and Capitol Equities Corporation, and the
Bank's wholly-owned subsidiaries SFB Insurance Agency, Inc., and Standard
Financial Mortgage Corporation (the "Mortgage Company").
(2) EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common shares and equivalents outstanding utilizing the treasury stock method.
Stock options and shares granted under the Management Recognition and Retention
Plan (the "MRP") represent the common stock equivalents of the Company.
The weighted average number of common shares and equivalents outstanding for
the second quarters of 1997 and 1996 were 15,741,202 and 15,527,024,
respectively. The weighted average number of common shares and equivalents
outstanding for the first six months of 1997 and 1996 were 15,656,221 and
15,778,257 respectively.
(3) COMMITMENTS
The Bank had outstanding lending commitments at June 30, 1997 and December
31, 1996 comprised of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Mortgage loans.............................................. $ 68,436 $ 53,209
Equity lines................................................ 8,576 7,459
------------- -------
$ 77,012 $ 60,668
------------- -------
------------- -------
</TABLE>
5
<PAGE>
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(4) LOANS RECEIVABLE
Loans receivable at June 30, 1997 and December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Loans held for sale.............................................. $ 29,950 $ 18,918
Mortgage loans originated:
One-to-four family............................................. 1,394,535 1,361,741
Multifamily.................................................... 11,556 12,634
Commercial..................................................... 7,722 7,322
Mortgage loans and participations purchased, primarily
one-to-four family............................................. 50,763 57,831
------------ ------------
Total mortgage loans............................................. 1,494,526 1,458,446
Consumer loans................................................... 84,428 35,511
------------ ------------
Loans receivable, gross.................................... 1,578,954 1,493,957
Less:
Allowance for losses........................................... (7,825) (6,988)
Undisbursed portions of loan proceeds.......................... 23 (805)
Net deferred loan origination fees............................. (246) (705)
------------ ------------
Loans receivable, net............................................ $ 1,570,906 $1,485,459
------------ ------------
------------ ------------
</TABLE>
ITEM 2 STANDARD FINANCIAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Standard Financial, Inc. (the "Company") was organized as the holding
company for Standard Federal Bank for savings (the "Bank") in connection with
the Bank's conversion from the mutual to stock form of ownership. On July 28,
1994, the Company issued and sold 18,630,000 shares of its common stock at an
issuance price of $10.00 per share to complete the conversion. Net proceeds to
the Company were $182.5 million after deduction of conversion expenses and
underwriting fees of $3.8 million. The Company used $91.3 million of the net
proceeds to acquire all of the stock of the Bank. The Bank owns a mortgage
banking subsidiary which is in the wholesale mortgage business throughout the
Chicago metropolitan area, and an insurance subsidiary which sells insurance and
brokerage services.
The Company's primary business is offering residential first mortgage loans
and consumer financing and providing conveniently located deposit facilities
with transaction, savings and certificate accounts. The Bank's deposit gathering
and lending markets are primarily concentrated in the communities surrounding
its full service offices located in the southwestern and western parts of the
city of Chicago and neighboring suburbs in Cook and DuPage counties, Illinois.
At June 30, 1997, the Bank had fourteen full service offices, three of which are
located on the southwest side of the City of Chicago and eleven of which are
located in Chicago's western and southwestern suburbs, and two limited service
offices.
6
<PAGE>
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During the first six months of 1997, net income increased slightly to $8.9
million, a 2.3% or $0.2 million increase over the same period in 1996. This
equated to $0.57 per share for the first six months of 1997 compared to $0.56
per share for the same period in 1996. Total assets of the Company rose to $2.6
billion at June 30, 1997. Capital remained strong at $277.3 million at June 30,
1997, an increase of $9.2 million from December 31, 1996. The Company paid cash
dividends of $.20 cents per share during this same period.
At June 30, 1997, total assets of the Company reached $2.575 billion, an
increase of 7.1% from December 31, 1996. During this same period, loans grew to
$1.571 billion or 5.8%, and deposits grew to $1.835 billion or 6.7%. While net
interest income for the first six months of 1997 was up 4.1% from the same
period in 1996 because of volume growth, the net interest margin dropped to
2.73% from 3.00% in the previous year. The high level of pre-payments from
mortgage related products and higher rates paid on the Company's growing deposit
portfolio caused this shrinking of the margin.
BUSINESS COMBINATION
The Company and TCF Financial Corporation, a Delaware corporation ("TCF"),
entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated March 16, 1997, providing for the combination of the Company
and TCF (the "Transaction"). For Company stockholders, the Transaction will be
structured as a cash election merger in which the holders of Company Common
Stock will have the right to elect cash, TCF Common Stock or a combination
thereof, subject to certain limitations set forth in the Reorganization
Agreement. At the Effective Time of the Transaction, each outstanding share of
Company Common Stock will be converted into TCF Common Stock, cash or a
combination thereof, based on a value of TCF Common Stock determined over the 30
consecutive trading days ending on the Determination Date (as that term is
defined in the Reorganization Agreement). The Transaction is structured to be
tax-free to Company stockholders except to the extent they receive cash.
Completion of the Transaction is subject to certain conditions, including
(i) approval by the stockholders of the Company, (ii) approval by the Federal
Reserve Board, the Office of the Comptroller of Currency, the Office of Thrift
Supervision and other requisite regulatory authorities, (iii) receipt of
opinions of counsel for the Company and for TCF that the Transaction will be
treated, for federal income tax purposes, as a tax-free reorganization, and (iv)
other conditions to closing customary in transactions of this type.
If the Reorganization Agreement is terminated under certain circumstances,
the Company would be required to pay TCF a cash termination fee of $15 million.
It is currently anticipated that the Transaction will be consummated during the
third quarter of 1997.
7
<PAGE>
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996
GENERAL
Net income for the quarter ended June 30, 1997, increased 26.3% to $4.8
million compared to $3.8 million for the quarter ended June 30, 1996. Earnings
per share for the 1997 quarter was $0.31 compared to $0.25 in the second quarter
of 1996. The weighted average number of common shares and equivalents
outstanding for the second quarters of 1997 and 1996 were 15,741,202 and
15,527,024 shares, respectively. Net interest income before provision for loan
losses increased $0.5 million or 3.2% to $16.2 million in 1997 compared to $15.7
million in 1996. The provision for loan losses decreased $0.3 million to $0.5
million in 1997 from $0.8 million in 1996. The Company's results of operations
depend primarily on its level of net interest income, which is the difference
between interest earned on interest-earning assets, and the interest paid on
interest-bearing liabilities. The Company's earnings also are affected by the
level of its other income, including loan servicing, commitment and origination
fees, gains and losses on sale of loans and investment securities, as well as
its level of non-interest expenses, including employee compensation and
benefits, occupancy and equipment costs, federal deposit insurance premiums and
other general and administrative expenses. The Company's results of operations
are also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities. Non-interest income remained flat totaling $1.4
million in both 1997 and 1996. Non-interest expense decreased by $0.5 million or
4.9% to $9.7 million in 1997 from $10.2 million in 1996.
INTEREST INCOME
Total interest income increased $5.2 million or 13.5% to $43.8 million for
1997 from $38.6 million for 1996. The increase in interest income was the result
of average earning assets increasing to $2.451 billion in 1997 from $2.160
billion in 1996. Interest income on loans increased $5.2 million or 23.0% to
$27.8 million in 1997 from $22.6 million in 1996. The increase was the result of
growth in average loans outstanding of $303.4 million or 24.5% from $1.240
billion in 1996 to $1.543 billion in 1997. This was partially offset by a
decline in the portfolio yield from 7.28% in 1996 to 7.22% in 1997. Interest
income on mortgage-backed and related securities decreased $1.5 million or 10.9%
to $12.2 million in 1997 from $13.7 million in 1996. This decrease was due to a
decline in the average volume. This decrease was partially offset by an increase
in yield from 7.20% in 1996 to 7.39% in 1997. Interest on investment securities
increased by $1.4 million or 77.8% to $3.2 million in 1997 from $1.8 million in
1996. The increase was due to the average balance of investment securities
increasing $73.0 million or 54.4% to $207.2 million in 1997 from $134.2 million
in 1996, and an increase in the portfolio yield from 5.49% in 1996 to 6.17% in
1997. Short-term investment interest income decreased by $0.2 million to $0.3
million in 1997 from $0.1 million in 1996.
INTEREST EXPENSE
Total interest expense increased by $4.7 million or 20.5% to $27.6 million
in 1997 from $22.9 million in 1996. The increase in interest expense was the
result of an increase in the rates paid on interest-bearing liabilities to 5.01%
in 1997 from 4.77% in 1996, and a 14.8% increase in the average amount of those
liabilities to $2.204 billion in 1997 from $1.920 billion in 1996. This volume
growth came from certificates of deposit and borrowings. The increase in the
rates paid on interest-bearing funds was primarily due to the growth in
borrowings.
8
<PAGE>
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased to $0.5 million in 1997 from $0.8
million in 1996, a decrease of $0.3 million or 37.5%. The allowance for loan
losses at June 30, 1997 was $7.8 million or 0.49% of gross loans outstanding,
compared to $7.0 million or 0.48% of gross loans outstanding at December 31,
1996. Based on management's evaluation of the loan portfolio, past loan loss
experience and known inherent risks in the portfolio, management believes that
the allowance is adequate.
NON-INTEREST INCOME
Non-interest income remained flat at $1.4 million in both 1997 and 1996. In
1997, the Company had $254,000 in gains from the sale of loans. The Company
expects an increase in loan sales in the future due to increased mortgage loan
originations which may result in greater fluctuations in non-interest income.
NON-INTEREST EXPENSE
Non-interest expense decreased by $0.5 million or 4.9% to $9.7 million in
1997 from $10.2 million in 1996. Compensation and employee benefits expense
increased by $0.5 million or 10.2% to $5.4 million in 1997 from $4.9 in 1996.
The Company accrued $0.7 million in expense relating to the Employee Stock
Ownership Plan (the "ESOP") in 1997, up from the $0.5 million expensed for the
ESOP in 1996. Under generally accepted accounting principles ("GAAP"), expense
under the ESOP reflects the market value of shares to participants. The
difference between the market value and the cost of shares released, which
equaled $0.4 million in 1997, is reflected as an increase in additional paid-in
capital.
Federal insurance premiums were $0.4 million in 1997 and $1.0 million in
1996. The decline in this expense was the result of a reduction in rates charged
by the Federal Deposit Insurance Corporation (the "FDIC").
Other general and administrative expenses decreased to $1.2 million in 1997
from $1.8 million 1996. Loan origination expenses were down due to reduced loan
originations during the quarter.
INCOME TAX EXPENSE
Income tax expense increased $0.5 million to $2.7 million in 1997 from $2.2
million in 1996. The primary reason for the increase was the increase of pre-tax
income from $6.1 million to $7.5 million. The effective tax rate for 1997 was
35.8% compared with 37.0% for 1996.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1996
GENERAL
Net income for the six months ended June 30, 1997, increased 2.3% to $8.9
million compared to $8.7 million for the six months ended June 30, 1996.
Earnings per share for the 1997 period increased to $0.57 compared to $0.56 for
1996. The weighted average number of common shares and equivalents outstanding
for first six months of 1997 and 1996 were 15,656,221 and 15,778,257 shares,
respectively. Net interest income before provision for loan losses increased
$1.3 million or 4.1% to $33.0 million in 1997 compared to $31.7 million in 1996.
The provision for loan losses decreased $0.7 million to $0.9 million in 1997
from $1.6 million in 1996. Non-interest income decreased by $1.9 million or
43.2% to $2.5 million in 1997 from
9
<PAGE>
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
$4.4 million in 1996. Non-interest expense increased by $0.1 million or 0.5% to
$20.8 million in 1997 from $20.7 million in 1996.
INTEREST INCOME
Total interest income increased $10.8 million or 14.2% to $86.7 million for
1997 from $75.9 million for 1996. The increase in interest income was the result
of average earning assets increasing to $2.413 billion in 1997 from $2.109
billion in 1996. Interest income on loans increased $12.8 million or 29.8% to
$55.7 million in 1997 from $42.9 million in 1996. The increase was the result of
growth in average loans outstanding of $364.9 million or 31.5% from $1.159
billion in 1996 to $1.524 billion in 1997. This was partially offset by a
decline in the portfolio yield from 7.40% in 1996 to 7.31% in 1997. Interest
income on mortgage-backed and related securities decreased $3.5 million or 12.8%
to $23.8 million in 1997 from $27.3 million in 1996. This decrease was due to
the average balance of mortgage-backed and related securities decreasing $119.8
million or 15.4% to $655.9 million in 1997 from $775.7 million 1996. This was
partially offset by an increase in portfolio yield from 7.04% in 1996 to 7.24%
in 1997. Interest on investment securities increased by $1.3 million or 28.3% to
$5.9 million in 1997 from $4.6 million in 1996. The increase was due to the
average balance of investment securities increasing $48.6 million or 34.8% to
$188.1 million in 1997 from $139.5 million in 1996. Short-term investment
interest income increased to $0.6 million in 1997 from $0.5 million in 1996.
INTEREST EXPENSE
Total interest expense increased by $9.4 million or 21.2% to $53.7 million
in 1997 from $44.3 million in 1996. The increase in interest expense was the
result of a 16.2% increase in the average amount of interest-bearing liabilities
to $2.166 billion in 1997 from $1.864 billion in 1996 and an increase in the
rates paid on those liabilities to 4.96% in 1997 from 4.75% in 1996. The
increase in the rates paid on interest-bearing funds was primarily due to the
growth in borrowings and certificates of deposit.
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased to $0.9 million in 1997 from $1.6
million in 1996, a decrease of $0.7 million or 43.8%.
10
<PAGE>
NON-INTEREST INCOME
Non-interest income decreased $1.9 million or 43.2% to $2.5 million in 1997
from $4.4 million in 1996. In 1996, the Company recorded $1.6 million in gains
from the sale of investments and mortgage-backed securities, versus a $0.1
million loss in 1997.
NON-INTEREST EXPENSE
Non-interest expense increased by $0.1 million or 0.5% to $20.8 million in
1997 from $20.7 million in 1996. Compensation and employee benefits expense
increased by $0.6 million to $10.5 million in 1997 from $9.9 million in 1996.
Federal insurance premiums were $0.5 million in 1997 and $1.9 million in
1996, as a result of a reduction in rates charged by the Federal Deposit
Corporation (the "FDIC").
Other general and administrative expenses increased to $4.4 million in 1997
from $3.6 million 1996. A variety of professional fees and outside services
accounted for these increased expenses.
INCOME TAX EXPENSE
Income tax expense decreased $0.2 million to $4.9 million in 1997 from $5.1
million in 1996. The effective tax rate for 1997 was 35.5% compared with 36.9%
for 1996.
COMPARISON OF CHANGES IN FINANCIAL CONDITION
At June 30, 1997, total consolidated assets of the Company were $2.6
billion, an increase of $0.2 billion or 8.3% as compared to assets of $2.4
billion at December 31, 1996.
Cash and cash equivalents increased $37.6 million or 86.8% from $43.3
million at December 31, 1996, to $80.9 million at June 30, 1997.
Investment securities increased $50.7 million or 33.0% from $153.5 million
at December 31, 1996, to $204.2 million at June 30, 1997. The Company has been
investing in short term securities in anticipation of the upcoming merger with
TCF.
Mortgage-backed and related securities decreased $8.5 million or 1.3% from
$651.4 million at December 31, 1996, to $642.9 million at June 30, 1997,
primarily because proceeds were used to fund the growth of the Company's
mortgage loan portfolio.
Loans receivable increased $85.4 million or 5.8% from $1.485 billion at
December 31, 1996, to $1.571 billion at June 30, 1997. During the first two
quarters of 1997, the Company originated or purchased $320.6 million in loans
compared to $444.5 million during the first six months of 1996. The Company
purchases loans from correspondents. Correspondents are mortgage bankers and
brokers that originate loans for the Company using rates and underwriting
guidelines that the Company sets. The correspondents are paid a fee for loans
that are acquired. The Company underwrites all loans and only funds those that
meet its underwriting standards. As mortgage loan production grows, the Company
intends to increase the amount of loans sold and will retain the loan servicing
to generate additional fee income.
Deposits increased by $115.6 billion or 6.7% from $1.719 billion at December
31, 1996 to $1.835 billion at June 30, 1997. This increase was the result of
growth in the certificate of deposit portfolio. The Company continues to utilize
various marketing strategies to promote specific deposit products and to acquire
or expand targeted customer deposits.
Borrowings increased 12.7% to $434.0 million at June 30, 1997, from $385.0
million at December 31, 1996. The Company's increased borrowings from the
Federal Home Loan Bank (the "FHLB") were utilized to fund the growth of loans.
11
<PAGE>
INTEREST RATE SENSITIVITY
The Company manages its exposure to interest rate risk by emphasizing the
origination or purchase of adjustable rate mortgage ("ARM") loans and
mortgage-backed securities and the purchase of investments with a short term to
maturity for its portfolio. The Company also seeks to match the maturities of
assets with deposits and FHLB borrowings. Management believes that investing in
ARM loans and mortgage-backed securities, although possibly sacrificing
short-term profits compared to the yields obtainable through fixed rate
investments, reduces the Company's exposure to the risk of interest rate
fluctuations and thereby enhances long-term profitability. The Company's
portfolio of mortgage-backed and related securities has net unamortized premiums
of $5.9 million. If prepayments accelerate, the amortization of the premium will
increase and lower the net yield of the securities over its remaining life. The
majority of the collateralized mortgage obligation ("CMO") portfolio was
purchased at a discount and therefore does not have the risk of acceleration of
premium amortization.
At June 30, 1997, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing in
the same time period by $413.9 million. This represented a negative cumulative
one year gap ratio of 17.1%. Thus, during periods of falling interest rates, it
is expected that the cost of interest-bearing liabilities would fall more
quickly than the yield on interest-earning assets, which would positively affect
net interest income. In periods of rising interest rates, the opposite affect on
net interest income is expected. The Company's one-year gap ratio at December
31, 1996, was a negative 7.86%.
Certain shortcomings are inherent in the method of analysis presented in the
following table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans and mortgage-backed and
related securities, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. In addition, the proportion of
ARM loans and mortgage-backed and related securities in the Company's portfolio
could decrease in future periods if market interest rates remain at or decrease
below current levels due to refinance activity. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in the table. Finally, the ability of
many borrowers to service their debt may decrease in the event of an interest
rate increase.
12
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES RATE SENSITIVITY
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MORE THAN
WITHIN FOUR TO MORE THAN THREE YEARS
THREE TWELVE ONE YEAR TO TO FIVE OVER FIVE
MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL
--------- --------- ----------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Mortgage loans(2):
Fixed..................................... $ 5,416 $ 16,260 $ 43,873 $ 48,805 $ 57,731 $ 172,085
Variable.................................. 46,637 122,940 504,164 611,401 37,299 1,322,441
Consumer loans(2)......................... 375 1,277 9,557 58,302 14,917 84,428
Mortgage-backed and related securities:
Fixed..................................... 894 2,687 5,403 5,411 13,161 27,556
Variable.................................. 139,270 420,131 55,481 452 0 615,334
Investment securities and other
assets(3)............................... 171,840 6,017 21,842 82,785 0 282,484
--------- --------- ----------- ----------- ----------- ---------
Total................................... 364,432 569,312 640,320 807,156 123,108 2,504,328
Interest-bearing liabilities:
Deposits(4):
Now accounts.............................. 4,349 13,046 34,789 34,789 17,186 104,160
Passbook savings accounts................. 14,504 43,511 116,028 116,028 57,319 347,390
Money market deposit accounts............. 71,562 0 0 0 0 71,562
Certificates of deposit................... 201,334 999,357 76,362 16,181 99 1,293,333
Borrowings................................ 0 25,000 274,000 110,000 25,000 434,000
--------- --------- ----------- ----------- ----------- ---------
Total................................... 291,748 1,080,914 501,180 276,999 99,605 2,250,445
--------- --------- ----------- ----------- ----------- ---------
Excess(deficiency) of interest-earning
assets over interest-bearing
liabilities............................. $ 72,684 $(511,602) $ 139,140 $ 530,157 $ 23,503 $ 253,883
--------- --------- ----------- ----------- ----------- ---------
--------- --------- ----------- ----------- ----------- ---------
Cumulative excess(deficiency) of interest-
earning assets over interest-bearing
liabilities............................. $ 72,684 $(438,918) $(299,778) $ 230,380 $ 253,883
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Cumulative excess(deficiency) of interest-
earning assets over interest-bearing
liabilities as a % of total assets...... 2.82% (17.05)% (11.64)% 8.95% 9.86%
</TABLE>
- ------------------------------
1) Adjustable and floating rate assets are included in the earlier of the
period in which interest rates are next scheduled to adjust or the period in
which they are due, and fixed rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization. For
fixed rate mortgage loans and mortgage-backed and related securities, an
annual prepayment rate of 13% was used, which management believes accurately
reflects the Company's historical experiences.
2) Balances have been reduced for unearned discounts.
3) Amounts shown reflect the repricing of inverse floating rate securities
during the indicated period. Such securities have rates which reset in the
opposite direction of interest rates and thus are reflected as a reduction
in total assets repricing in that period. When inverse floating rate
securities mature, the amount shown for such period reflects the principal
amount of such security plus the negative effect of repricing in prior
periods.
4) Although the Company's NOW accounts and passbook savings accounts generally
are subject to immediate withdrawal, management considers a certain amount
of such accounts to be core deposits having significantly longer effective
maturities based on the Company's retention of such deposits in changing
interest rate environments. NOW accounts and passbook savings accounts are
assumed to be withdrawn at annual rates of 16.7%, which management believes
accurately reflects the Company's expected historical experience. If all of
the Company's NOW accounts and passbook savings accounts had been assumed to
be subject to repricing within one year, the one-year cumulative deficiency
of interest-earning assets to interest-bearing liabilities would have been
$790.1 million or 30.7% of total assets.
13
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSET QUALITY
The Company regularly reviews its assets to determine that the allowance for
loan losses is adequate. The review consists of a comparison of the allowance
for loan losses to historical loss experience while incorporating the impact of
any classified loan. Management also reviews its allowance adequacy in light of
the outlook for the general economy and regulatory environment.
The following table sets forth information regarding non-performing loans,
investment securities and real estate owned at the dates indicated.
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1997 1997 1996 1996 1996
--------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans........................ $ 5,593 $ 5,258 $ 4,362 $ 3,649 $ 2,556
Non-accrual consumer loans........................ 15 24 0 0 358
--------- ----------- ------------ ------------- ---------
Total non-performing loans...................... 5,608 5,282 4,362 3,649 2,914
Net real estate held for sale..................... 120 160 70 70 0
Non-accrual mortgage-backed and related
securities...................................... 10,223 10,386 11,138 12,123 7,373
--------- ----------- ------------ ------------- ---------
Total non-performing assets..................... $ 15,951 $ 15,828 $ 15,570 $ 15,842 $ 10,287
--------- ----------- ------------ ------------- ---------
--------- ----------- ------------ ------------- ---------
Allowance for loan losses......................... $ 7,825 $ 7,401 $ 6,988 $ 6,559 $ 6,218
Total non-performing assets to total assets....... 0.62% 0.64% 0.65% 0.68% 0.45%
Total non-performing loans to gross loans......... 0.36% 0.35% 0.30% 0.26% 0.22%
Allowance for loan losses to total non-performing
loans........................................... 139.53% 140.12% 160.20% 179.75% 213.38%
Total non-performing mortgage-backed and related
securities to gross mortgage-backed and related
securities...................................... 1.57% 1.57% 1.71% 1.76% 1.01%
</TABLE>
14
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
AVERAGE BALANCE SHEET
The following tables set forth certain information relating to the Company's
consolidated average statements of condition and the consolidated statements of
income for the periods indicated and reflects the average yield on assets and
average cost of liabilities for those periods. Such yields and costs are derived
by dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived principally
from average daily balances and include non-accruing loans. The yields and costs
include fees which are considered adjustments to yields. Interest income on
non-accruing loans is reflected in the period it is collected and not in the
period it is earned. In the opinion of management, such amounts are not material
to net interest income or net change in net interest income in any period.
Non-accrual loans are included in the average balances and do not have a
material effect on the average yield.
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
--------- ----------- ------------- --------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earnings assets:
Short term investments......................... $ 20,679 $ 274 5.30% $ 8,735 $ 119 5.45%
Investment securities.......................... 207,231 3,198 6.17% 134,189 1,841 5.49%
Mortgage-backed and related securities......... 658,404 12,166 7.39% 758,120 13,654 7.20%
Loans receivable............................... 1,543,492 27,844 7.22% 1,240,105 22,583 7.28%
Investment in Federal Home Loan Bank stock..... 21,309 353 6.63% 18,527 356 7.69%
--------- ----------- --- --------- ----------- ---
Total interest-earning assets.............. 2,451,115 43,835 7.15% 2,159,676 38,553 7.14%
Non-interest-earning assets.................... 61,792 61,612
--------- ---------
Total assets............................... $2,512,907 $2,221,288
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts................................... $ 105,773 $ 527 1.99% $ 98,661 $ 506 2.05%
Money market deposit accounts.................. 74,280 575 3.10% 79,787 615 3.08%
Passbook savings accounts...................... 353,073 2,210 2.50% 371,297 2,325 2.50%
Certificates of deposit........................ 1,243,039 17,636 5.68% 1,066,048 14,751 5.53%
Borrowings..................................... 428,000 6,643 6.21% 303,890 4,688 6.17%
--------- ----------- --- --------- ----------- ---
Total interest-bearing liabilities......... 2,204,165 27,591 5.01% 1,919,683 22,885 4.77%
Non-interest-bearing liabilities............... 34,727 34,521
--------- ---------
Total liabilities.......................... 2,238,892 1,954,204
Stockholders' equity........................... 274,015 267,084
--------- ---------
Total liabilities and stockholders'
equity................................... $2,512,907 $2,221,288
--------- ---------
--------- ---------
Net interest income before provision for loan
losses....................................... $ 16,244 2.14% $ 15,668 2.37%
----------- --- ----------- ---
----------- --- ----------- ---
Net yield on earning assets.................... 2.65% 2.90%
Ratio of interest-earning assets to
interest-bearing liabilities................. 1.11x 1.13x
</TABLE>
15
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------------------------------------- --------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------------ --------- ------------- ------------ --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Short term investments...................... $ 23,940 $ 648 5.41% $ 19,280 $ 521 5.40%
Investment securities....................... 188,137 5,890 6.26% 139,469 4,640 6.65%
Mortgage-backed and related securities...... 655,887 23,752 7.24% 775,679 27,314 7.04%
Loans receivable............................ 1,524,021 55,729 7.31% 1,159,112 42,886 7.40%
Investment in Federal Home Loan Bank
stock..................................... 20,905 695 6.65% 15,903 580 7.29%
------------ --------- --- ------------ --------- ---
Total interest-earning assets........... 2,412,890 86,714 7.19% 2,109,443 75,941 7.20%
Non-interest-earning assets................. 59,969 60,786
------------ ------------
Total assets............................ $ 2,472,859 $ 2,170,229
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts................................ $ 103,603 $ 1,041 2.01% $ 98,578 $ 1,005 2.04%
Money market deposit accounts............... 73,775 1,152 3.12% 80,281 1,246 3.10%
Passbook savings accounts................... 350,450 4,410 2.52% 369,410 4,625 2.50%
Certificates of deposit..................... 1,222,433 34,348 5.62% 1,034,845 28,744 5.56%
Borrowings.................................. 415,244 12,791 6.16% 281,258 8,658 6.16%
------------ --------- --- ------------ --------- ---
Total interest-bearing liabilities...... 2,165,505 53,742 4.96% 1,864,372 44,278 4.75%
Non-interest-bearing liabilities............ 35,648 36,043
------------ ------------
Total liabilities....................... 2,201,153 1,900,415
Stockholders' equity........................ 271,706 269,814
------------ ------------
Total liabilities and stockholders'
equity................................ $ 2,472,859 $ 2,170,229
------------ ------------
------------ ------------
Net interest income before provision for
loan losses............................... $ 32,972 2.23% $ 31,663 2.45%
--------- --- --------- ---
--------- --- --------- ---
Net yield on earning assets................. 2.73% 3.00%
Ratio of interest-earning assets to
interest-bearing liabilities.............. 1.11x 1.13x
</TABLE>
16
<PAGE>
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
AT JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
BALANCE YIELD/COST
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Interest-earning assets:
Short term investments.................................................................. $ 56,639 5.83%
Investment securities................................................................... 204,152 6.15%
Mortgage-backed and related securities.................................................. 642,890 7.16%
Loans receivable........................................................................ 1,578,954 7.47%
Investment in Federal Home Loan Bank stock.............................................. 21,693 6.75%
------------ ---
Total interest-earning assets....................................................... 2,504,328 7.24%
Non-interest-earning assets............................................................. 70,347
------------
Total assets........................................................................ $ 2,574,675
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts............................................................................ $ 104,160 2.00%
Money market deposit accounts........................................................... 71,562 3.15%
Passbook savings accounts............................................................... 347,390 2.53%
Certificates of deposit................................................................. 1,293,333 5.68%
Borrowings.............................................................................. 434,000 6.12%
------------ ---
Total interest-bearing liabilities.................................................. 2,250,445 5.03%
Non-interest-bearing liabilities........................................................ 46,916
------------
Total liabilities................................................................... 2,297,361
Stockholders' equity.................................................................... 277,314
------------
Total liabilities and stockholders' equity.......................................... $ 2,574,675
------------
------------
Net interest income before provision for loan losses.................................... 2.21%
---
---
</TABLE>
17
<PAGE>
CAPITAL COMPLIANCE
Office of Thrift Supervision (the "OTS") regulations require the Bank to
comply with the following minimum capital standards: a leverage (or core
capital) requirement consisting of a minimum ratio of core capital (which, as
defined by the OTS, is comprised primarily of stockholders' equity) to total
assets of 3%; a tangible capital requirement consisting of a minimum ratio of
tangible capital (defined as core capital minus all intangible assets other than
a specified amount of purchased mortgage servicing rights) to total assets of
1.5%; and a risk-based capital requirement, consisting of a minimum ratio of
total capital to total risk-weighted assets of 8%, with at least 50% of total
capital consisting of core capital.
At June 30, 1997, the Bank exceeded all regulatory minimum capital
requirements. The following table sets forth information relating to the Bank's
regulatory capital compliance at that date.
<TABLE>
<CAPTION>
EXCESS OF
REGULATORY BANK ACTUAL
REQUIREMENTS ACTUAL BANK CAPITAL CAPITAL OVER
---------------------- ----------------------- REGULATORY
AMOUNT PERCENT AMOUNT PERCENT REQUIREMENTS
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Risk-based............................................... $ 89,638 8.00% $ 215,814 19.26% $ 126,176
Leverage (core).......................................... 75,517 3.00% 207,989 8.26% 132,472
Tangible................................................. 37,752 1.50% 207,571 8.25% 169,819
</TABLE>
The capital requirements described above are minimum requirements. Higher
capital requirements will be required by the OTS if warranted by the particular
circumstances or risk profile of an individual institution. For example, OTS
regulations provide that additional capital may be required to take adequate
account of the risks posed by concentrations of credit, nontraditional
activities and the institution's ability to manage such risks. Further, the OTS
may require an institution to maintain additional capital to account for its
interest rate risk ("IRR") exposure. Under OTS regulations, the OTS quantifies
each institution's level of IRR exposure based on data reported by the
institution to the OTS, using a model designed to measure the change in the net
present value of the institution's assets, liabilities and off-balance sheet
positions resulting from a hypothetical 200 basis point increase or decrease in
interest rates. IRR exposure, as measured by the OTS, is used as the basis for
determining whether the institution must hold additional risk-based capital to
account for IRR. The Bank has not been required by the OTS to maintain capital
in excess of the minimum regulatory requirements set forth above.
LIQUIDITY
The Company's primary sources of funds are deposits, principal and interest
payments on loans, mortgage-backed and related securities and investment
securities, and advances from the FHLB and other borrowed funds. While scheduled
maturities of investments and amortization of loans are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Bank is required to maintain an average daily balance of liquid assets
and short-term liquid assets as a percentage of net withdrawable deposits plus
short-term borrowings as defined by OTS regulations. This requirement which may
vary at the direction of the OTS depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
minimum required liquidity and short-term liquidity ratios are currently 5% and
1%, respectively. The Bank's liquidity ratios were 10.64% at June 30, 1997 and
7.46% at December 31, 1996. The Bank's short-term liquidity ratios were 6.60% at
June 30, 1997 and 4.50% at December 31, 1996. Excess funds are generally
invested in high quality, short-term marketable investments and federal funds.
In the event that the Bank should require funds beyond its ability to generate
them internally, additional sources of funds are available through the use of
advances from the Company, the FHLB, and other commercial banking sources. The
Company's cash flows are comprised of three primary classifications: cash flows
from operating activities, investing
18
<PAGE>
activities and financing activities. Net cash (used in) provided by operating
activities, consisting of the results of operations of the Company, adjusted
primarily for non-cash amortization of expenses and changes in assets and
liabilities were, ($6.6) million and $43.2 million for the first six months of
1997 and 1996, respectively. Net cash used in investing activities, consisting
of purchases and maturities of investments, changes in the level of mortgage
loans, and payment for property and equipment, were $118.7 million and $256.5
million for the first six months of 1997 and 1996, respectively. Net cash
provided by financing activities, consisting primarily of changes in deposit and
escrow accounts and changes in borrowed funds, were $163.0 million and $188.4
million for the first six months of 1997 and 1996, respectively.
At June 30, 1997, the Company had outstanding loan commitments of $77.0
million and anticipates that it will have sufficient funds available to meet
these commitments. Certificates of deposit which are scheduled to mature in one
year or less from June 30, 1997, totaled $1.201 billion. Management believes
that a significant portion of such deposits will remain with the Company based
upon prior experience with such deposits.
RECENT REGULATORY DEVELOPMENTS
The Committee on Banking and Financial Services of the U.S. House of
Representatives has approved legislation that would eliminate the federal thrift
charter by requiring each federal thrift to convert to a national or state bank
within two years following enactment of the legislation. Any federal thrift that
failed to convert to a bank within such two year period would, by operation of
law, become a national bank as of the second anniversary of the enactment of the
legislation. Assuming the proposed combination of the Company and TCF is
consummated as provided in the Reorganization Agreement, this aspect of the
pending legislation will have no impact on the Company and its subsidiaries.
The proposed legislation would also allow bank holding companies to engage
in a wider range of nonbanking activities, including greater authority to engage
in securities and insurance activities. The expanded powers generally would be
available to a bank holding company only in the bank holding company and its
bank subsidiaries of the bank holding company had received at least a
"satisfactory" rating under the Community Reinvestment Act. The proposed
legislation would also impose various restrictions on transactions between the
depository institution subsidiaries of bank holding companies and their nonbank
affiliates. These restrictions are intended to protect the depository
institutions from the risks of the new nonbanking activities permitted to such
affiliates.
At this time, the Company is unable to predict whether the proposed
legislation will be enacted and therefore, is unable to predict the impact such
legislation may have on the operations of the Company and the Bank.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report may contain certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal polices of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or
19
<PAGE>
composition of the loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles, polices and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements. Further information concerning the
Company and its business, including additional factors that could materially
affect the Company's financial results, is included in the Company's filings
with the Securities and Exchange Commission.
20
<PAGE>
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On September 4, 1997, TCF Financial Corporation ("TCF" or the "Company")
completed its acquisition (the "Acquisition") of Standard Financial, Inc.
("Standard") pursuant to an Agreement and Plan of Reorganization (the
"Agreement") previously filed with the Company's Current Report on Form 8-K
dated March 16, 1997 (No. 0-16431). The Acquisition, which was accounted for as
a purchase transaction, was structured as a cash election merger in which
Standard shareholders had the right to designate a preference for either cash or
common stock of TCF ("TCF Common Stock"), or a combination of the two. The
total consideration to Standard shareholders was $217,074,827 in cash and
3,850,000 shares of TCF Common Stock. The consideration for the Acquisition is
described in further detail in the Company's Registration Statement on Form S-4,
No. 333-28555. The cash portion of the consideration was funded through
existing liquid assets and short-term borrowings. Additional information
regarding the Acquisition is included in the Company's Current Report on Form
8-K dated September 4, 1997 (No. 0-16431).
On June 24, 1997, TCF acquired Winthrop Resources Corporation ("Winthrop")
through a merger of a TCF subsidiary with and into Winthrop in a tax-free
stock-for-stock exchange. Winthrop, with total assets of $363 million as of
June 30, 1997, specializes in leasing high-tech and business equipment. TCF
issued approximately 6,700,000 shares of TCF Common Stock in the transaction,
which was treated as a pooling of interests for accounting purposes.
The following Unaudited Pro Forma Combined Financial Information reflects
the Acquisition including the issuance of 3,850,000 shares of TCF Common Stock
to Standard shareholders. The following Unaudited Pro Forma Combined Financial
Information also reflects the acquisition of Winthrop.
The following Unaudited Pro Forma Combined Statement of Financial Condition
as of June 30, 1997 combines the historical consolidated statements of financial
condition of TCF and Standard as if the Acquisition had been effective on June
30, 1997, after giving effect to certain pro forma adjustments described in the
accompanying notes.
The following Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1996 and for the six months ended June 30, 1997 and 1996
are presented as if the Acquisition and the acquisition of Winthrop had been
effective January 1, 1996, after giving effect to certain pro forma adjustments
described in the accompanying notes. TCF's, Standard's and Winthrop's fiscal
years end December 31.
The Unaudited Pro Forma Combined Financial Information and notes thereto
reflect the application of the purchase method of accounting for the
Acquisition. Under this method of accounting, the assets acquired and
liabilities assumed from Standard are recorded at their fair market values. The
amount of the purchase price in excess of the fair market value of the tangible
and identifiable intangible assets acquired less the liabilities assumed is
recorded as goodwill. Certain historical information of Standard has been
reclassified to conform to TCF's financial statement presentation.
1
<PAGE>
The Unaudited Pro Forma Combined Financial Information and notes thereto
reflect the application of the pooling-of-interests method of accounting for the
acquisition of Winthrop. Under this method of accounting, the recorded assets,
liabilities, income and expenses of TCF and Winthrop are combined and recorded
as their historical cost-based amounts, except as noted below and in the notes
thereto. Certain historical information of Winthrop has been reclassified to
conform to TCF's financial statement presentation.
The significant accounting and reporting policies of TCF, Standard and
Winthrop differ in minor respects and no effect has been given to such
differences in this Unaudited Pro Forma Combined Financial Information. The
Unaudited Pro Forma Combined Financial Information included herein is not
necessarily indicative of the consolidated financial position or results of
future operations of the combined entity or the actual results that would have
been achieved had the acquisitions of Standard and Winthrop been consummated
prior to the periods indicated. The Unaudited Pro Forma Combined Financial
Information should be read in conjunction with and are qualified in their
entirety by the separate historical consolidated financial statements and notes
thereto of TCF, which are incorporated herein by reference to TCF's (i) Annual
Report on Form 10-K for the year ended December 31, 1996 (File No. O-16431) and
(ii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File
No. O-16431), and of Standard, which are included in Item 7(a) of this Current
Report on Form 8-K/A.
2
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
AT JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
TCF STANDARD ADJUSTMENTS COMBINED
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 251,388 $ 24,306 $ - $ 275,694
Interest-bearing deposits with banks 14,364 56,639 - 71,003
U.S. Government and other marketable
securities held to maturity 3,962 - - 3,962
Federal Home Loan Bank stock, at cost 50,181 21,693 - 71,874
Federal Reserve Bank stock, at cost 13,591 - - 13,591
Securities available for sale 1,181,126 847,042 (212,450) (1)(2) 1,815,718
Loans held for sale 225,729 29,950 - 255,679
Loans and lease financings:
Total loans 5,065,830 1,548,781 4,009 (2) 6,618,620
Total lease financings 316,526 - - 316,526
----------- ----------- ----------- -----------
Total loans and lease financings 5,382,356 1,548,781 4,009 6,935,146
Allowance for loan and lease losses (72,466) (7,825) - (80,291)
----------- ----------- ----------- -----------
Net loans and lease financings 5,309,890 1,540,956 4,009 6,854,855
Premises and equipment 144,322 27,685 (1,482) (3) 170,525
Real estate 14,193 120 - 14,313
Accrued interest receivable 44,916 15,613 - 60,529
Goodwill 30,049 418 151,375 (2)(4) 181,842
Deposit base intangibles 12,855 - 17,330 (5) 30,185
Mortgage servicing rights 16,351 907 1,516 (2) 18,774
Other assets 90,843 9,346 - 100,189
----------- ----------- ----------- -----------
$ 7,403,760 $ 2,574,675 $ (39,702) $ 9,938,733
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits $ 5,243,574 $ 1,833,614 $ 12,025 (2) $ 7,089,213
----------- ----------- ----------- -----------
Securities sold under repurchase agreements 341,485 - - 341,485
Federal Home Loan Bank advances 641,030 434,000 2,189 (2) 1,077,219
Discounted lease rentals 239,859 - - 239,859
Subordinated debt 34,998 - - 34,998
Collateralized obligations 40,297 - - 40,297
Other borrowings 51,700 - 17,985 (6) 69,685
----------- ----------- ----------- -----------
Total borrowings 1,349,369 434,000 20,174 1,803,543
Accrued expenses and other liabilities 109,754 29,747 19,606 (7) 159,107
----------- ----------- ----------- -----------
Total liabilities 6,702,697 2,297,361 51,805 9,051,863
----------- ----------- ----------- -----------
Stockholders' equity:
Preferred stock - - - -
Common stock 430 191 (158) (8) 463
Additional paid-in capital 288,165 190,799 (27,830) (8) 451,134
Unamortized deferred compensation (22,181) (3,206) 3,206 (8) (22,181)
Retained earnings, subject to certain
restrictions 454,077 136,094 (136,094) (8) 454,077
Loan to Executive Deferred Compensation
Plan (35) - - (35)
Unrealized gain on securities available
for sale 3,412 3,497 (3,497) (8) 3,412
Employee Stock Ownership Plan shares - (8,976) 8,976 (9) -
Treasury stock, at cost (22,805) (41,085) 63,890 (8) -
----------- ----------- ----------- -----------
Total stockholders' equity 701,063 277,314 (91,507) 886,870
----------- ----------- ----------- -----------
$ 7,403,760 $ 2,574,675 $ (39,702) $ 9,938,733
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
3
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
Pursuant to the Agreement and consistent with generally accepted accounting
principles ("GAAP"), certain purchase accounting adjustments relating to
Standard will be recorded. The purchase accounting adjustments are preliminary
estimates and are subject to revision as economic conditions change or as more
information becomes available. The purchase price of $423.7 million consists of
an aggregate of $237.9 million in cash, including payments to holders of
Standard stock options totaling $20.8 million, and 3,850,000 shares of TCF
Common Stock. The following notes further explain the adjustments.
(1) Represents the planned sale of $211.5 million of securities available for
sale in connection with the acquisition of Standard.
(2) Represent the mark-to-market adjustments to reflect the fair market value
of the Standard assets acquired and liabilities assumed under the purchase
method of accounting, including the elimination of Standard's existing
goodwill of $418,000.
(3) Represents the write-off of certain Standard fixed assets and duplicative
data processing hardware and software.
(4) Represents the excess of the purchase price paid for Standard over the fair
market value of the tangible and identifiable intangible assets acquired
and liabilities assumed under the purchase method of accounting. Goodwill
is assumed to amortize on a straight-line basis over 25 years.
The purchase price of $423.7 million was allocated as follows (in
thousands):
Net assets at fair value (note 2). . . . . . . . . . . . $267,260
Write-off of certain fixed assets and duplicative
data processing hardware and software (note 3). . . . (1,482)
Deposit base intangibles (note 5). . . . . . . . . . . . 17,330
Severance and other change of control
payments (note 7) . . . . . . . . . . . . . . . . . . (11,580)
Professional fees related to the
acquisition (note 7). . . . . . . . . . . . . . . . . (6,010)
Data processing contract termination
costs (note 7). . . . . . . . . . . . . . . . . . . . (153)
Net deferred tax liability (note 7). . . . . . . . . . . (448)
Employee Stock Ownership Plan (note 6) . . . . . . . . . 7,999
Other miscellaneous accruals . . . . . . . . . . . . . . (1,024)
Goodwill (note 4). . . . . . . . . . . . . . . . . . . . 151,793
--------
Purchase Price. . . . . . . . . . . . . . . . . . . . $423,685
--------
--------
(5) Represents identifiable deposit base intangibles ("DBI") relating to
Standard's deposits. The DBI will be amortized using an accelerated
method.
(6) Represents the $237.9 million increase in TCF's short-term borrowings to
fund the acquisition of Standard, net of proceeds from the planned sale of
$211.5 million of securities available for sale (note 1), the repayment of
the remaining $8 million loan to the ESOP, and the $391,000 tax benefit
related to the expected $977,000 reduction of the ESOP loan.
4
<PAGE>
(7) Represents accruals for other merger related costs such as data processing
contract termination costs ($153,000), professional fees including
investment banking, attorneys and accountants fees ($6 million), severance
and other change of control payments ($11.6 million), accruals for other
miscellaneous liabilities ($1.4 million) and net deferred taxes ($448,000).
(8) Represents the elimination of Standard's stockholders' equity under the
purchase method of accounting and the issuance of 3,850,000 shares of TCF
Common Stock, of which 597,134 were from treasury.
(9) Represents the expected $977,000 reduction of the ESOP loan and the
repayment of the remaining $8 million ESOP loan by the ESOP.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
TCF STANDARD ADJUSTMENTS COMBINED
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 240,785 $ 54,613 $ (581) (1) $ 294,817
Lease financings 16,889 - - 16,889
Loans held for sale 7,192 1,116 - 8,308
Securities available for sale 43,207 29,642 (7,623) (2) 65,226
Investments 2,549 1,343 - 3,892
--------- -------- ------- ---------
Total interest income 310,622 86,714 (8,204) 389,132
--------- -------- ------- ---------
Interest expense:
Deposits 85,356 40,951 (5,158) (1) 121,149
Borrowings 42,538 12,791 259 (3) 55,588
--------- -------- ------- ---------
Total interest expense 127,894 53,742 (4,899) 176,737
--------- -------- ------- ---------
Net interest income 182,728 32,972 (3,305) 212,395
Provision for credit losses 5,595 925 - 6,520
--------- -------- ------- ---------
Net interest income after provision for
credit losses 177,133 32,047 (3,305) 205,875
--------- -------- ------- ---------
Non-interest income:
Fee and service charge revenues 53,963 1,577 - 55,540
ATM network revenues 7,230 266 - 7,496
Title insurance revenues 6,023 - - 6,023
Commissions on sales of annuities 4,044 164 - 4,208
Leasing revenues 14,352 - - 14,352
Gain on sale of loans held for sale 1,406 446 - 1,852
Gain (loss) on sale of securities available
for sale 2,478 (146) - 2,332
Gain on sale of loan servicing 1,622 - - 1,622
Gain on sale of branches 2,810 - - 2,810
Other 5,781 194 - 5,975
--------- -------- ------- ---------
Total non-interest income 99,709 2,501 - 102,210
--------- -------- ------- ---------
Non-interest expense:
Compensation and employee benefits 84,325 10,503 - 94,828
Occupancy and equipment 27,709 4,240 (304) (4) 31,645
Advertising and promotions 10,106 1,034 - 11,140
Federal deposit insurance premiums and
assessments 2,130 521 - 2,651
Amortization of goodwill and other intangibles 2,354 71 4,508 (5) 6,933
Provision for real estate losses 38 - - 38
Other 38,621 4,397 114 (1) 43,132
--------- -------- ------- ---------
Total non-interest expense 165,283 20,766 4,318 190,367
--------- -------- ------- ---------
Income before income tax expense and
extraordinary item 111,559 13,782 (7,623) 117,718
Income tax expense 43,597 4,886 (1,835) 46,648
--------- -------- ------- ---------
Income before extraordinary item $ 67,962 $ 8,896 $(5,788) $ 71,070
--------- -------- ------- ---------
--------- -------- ------- ---------
Per common share(6):
Income before extraordinary item:
Primary $ 1.62 $ .57 $ 1.56
--------- -------- ---------
--------- -------- ---------
Fully diluted $ 1.61 $ .56 $ 1.55
--------- -------- ---------
--------- -------- ---------
Weighted average shares outstanding(000's):
Primary 41,845 15,656 45,695
--------- -------- ---------
--------- -------- ---------
Fully diluted 42,210 15,754 46,060
--------- -------- ---------
--------- -------- ---------
</TABLE>
6
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
TCF STANDARD ADJUSTMENTS COMBINED
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 244,485 $ 42,886 $ (581) (1) $ 286,790
Lease financings 14,080 - - 14,080
Loans held for sale 9,110 - - 9,110
Securities available for sale 39,522 31,954 (7,623) (2) 63,853
Investments 2,186 1,101 - 3,287
--------- -------- ------- ---------
Total interest income 309,383 75,941 (8,204) 377,120
--------- -------- ------- ---------
Interest expense:
Deposits 87,670 35,620 (5,158) (1) 118,132
Borrowings 44,807 8,658 259 (3) 53,724
--------- -------- ------- ---------
Total interest expense 132,477 44,278 (4,899) 171,856
--------- -------- ------- ---------
Net interest income 176,906 31,663 (3,305) 205,264
Provision for credit losses 10,226 1,600 - 11,826
--------- -------- ------- ---------
Net interest income after provision for
credit losses 166,680 30,063 (3,305) 193,438
--------- -------- ------- ---------
Non-interest income:
Fee and service charge revenues 47,611 1,970 - 49,581
ATM network revenues 5,146 256 - 5,402
Title insurance revenues 7,191 - - 7,191
Commissions on sales of annuities 4,535 104 - 4,639
Leasing revenues 11,517 - - 11,517
Gain on sale of loans held for sale 2,077 70 - 2,147
Gain on sale of securities available
for sale 84 1,591 - 1,675
Gain on sale of branches 1,725 - - 1,725
Other 5,091 451 - 5,542
--------- -------- ------- ---------
Total non-interest income 84,977 4,442 - 89,419
--------- -------- ------- ---------
Non-interest expense:
Compensation and employee benefits 75,175 9,948 - 85,123
Occupancy and equipment 25,690 4,187 (304) (4) 29,573
Advertising and promotions 9,505 918 - 10,423
Federal deposit insurance premiums and
assessments 6,363 1,915 - 8,278
Amortization of goodwill and other intangibles 1,766 45 4,508 (5) 6,319
Provision for real estate losses 297 - - 297
Other 36,466 3,649 114 (1) 40,229
--------- -------- ------- ---------
Total non-interest expense 155,262 20,662 4,318 180,242
--------- -------- ------- ---------
Income before income tax expense and
extraordinary item 96,395 13,843 (7,623) 102,615
Income tax expense 36,762 5,104 (1,835) 40,031
--------- -------- ------- ---------
Income before extraordinary item $ 59,633 $ 8,739 $(5,788) $ 62,584
--------- -------- ------- ---------
--------- -------- ------- ---------
Per common share(6):
Income before extraordinary item:
Primary $ 1.42 $ .56 $ 1.36
--------- -------- ---------
--------- -------- ---------
Fully diluted $ 1.41 $ .55 $ 1.36
--------- -------- ---------
--------- -------- ---------
Weighted average shares outstanding(000's):
Primary 42,002 15,778 45,852
--------- -------- ---------
--------- -------- ---------
Fully diluted 42,431 15,937 46,281
--------- -------- ---------
--------- -------- ---------
</TABLE>
7
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
WINTHROP RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
--------------------------- -----------------------
TCF STANDARD ADJUSTMENTS COMBINED WINTHROP ADJUSTMENTS COMBINED
-------- -------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 486,140 $ 93,554 $ (1,162) (1) $ 578,532 $ - $ - $ 578,532
Lease financings - - - - 29,914 - 29,914
Loans held for sale 17,080 469 - 17,549 - - 17,549
Securities available for sale 75,303 61,265 (15,246) (2) 121,322 1 - 121,323
Investments 4,338 2,208 - 6,546 109 - 6,655
--------- -------- --------- --------- ------- ------- ---------
Total interest income 582,861 157,496 (16,408) 723,949 30,024 - 753,973
--------- -------- --------- --------- ------- ------- ---------
Interest expense:
Deposits 171,375 73,955 (10,317) (1) 235,013 - - 235,013
Borrowings 71,346 19,980 519 (3) 91,845 15,595 - 107,440
--------- -------- --------- --------- ------- ------- ---------
Total interest expense 242,721 93,935 (9,798) 326,858 15,595 - 342,453
--------- -------- --------- --------- ------- ------- ---------
Net interest income 340,140 63,561 (6,610) 397,091 14,429 - 411,520
Provision for credit losses 19,820 2,500 - 22,320 1,426 - 23,746
--------- -------- --------- --------- ------- ------- ---------
Net interest income after provision
for credit losses 320,320 61,061 (6,610) 374,771 13,003 - 387,774
--------- -------- --------- --------- ------- ------- ---------
Non-interest income:
Fee and service charge revenues 100,422 3,825 - 104,247 - - 104,247
ATM network revenues 11,480 535 - 12,015 - - 12,015
Title insurance revenues 13,492 - - 13,492 - - 13,492
Commissions on sales of annuities 9,134 271 - 9,405 - - 9,405
Leasing revenues - - - - 23,814 - 23,814
Gain on sale of loans held for sale 5,038 1,386 - 6,424 - - 6,424
Gain on sale of securities available
for sale 85 1,578 - 1,663 1 - 1,664
Gain on sale of loans 5,443 - - 5,443 - - 5,443
Gain on sale of branches 2,747 - - 2,747 - - 2,747
Other 9,956 1,285 - 11,241 - - 11,241
--------- -------- --------- --------- ------- ------- ---------
Total non-interest income 157,797 8,880 - 166,677 23,815 - 190,492
--------- -------- --------- --------- ------- ------- ---------
Non-interest expense:
Compensation and employee benefits 151,745 20,629 - 172,374 5,809 - 178,183
Occupancy and equipment 51,136 8,728 (607) (4) 59,257 822 - 60,079
Advertising and promotions 16,711 1,745 - 18,456 303 - 18,759
Federal deposit insurance premiums
and assessments 12,019 3,992 - 16,011 - - 16,011
Amortization of goodwill and other
intangibles 3,167 135 9,015 (5) 12,317 564 - 12,881
Provision for real estate losses 433 - - 433 - - 433
FDIC special assessment 34,803 9,577 - 44,380 - - 44,380
Other 71,056 7,159 227 (1) 78,442 4,959 - 83,401
--------- -------- --------- --------- ------- ------- ---------
Total non-interest expense 341,070 51,965 8,635 401,670 12,457 - 414,127
--------- -------- --------- --------- ------- ------- ---------
Income before income tax expense
and extraordinary item 137,047 17,976 (15,245) 139,778 24,361 - 164,139
Income tax expense 51,384 6,064 (3,669) 53,779 9,647 - 63,426
--------- -------- --------- --------- ------- ------- ---------
Income before extraordinary item $ 85,663 $ 11,912 $ (11,576) $ 85,999 $14,714 $ - $ 100,713
--------- -------- --------- --------- ------- ------- ---------
--------- -------- --------- --------- ------- ------- ---------
Per common share (6)(7):
Income before extraordinary item:
Primary $ 2.42 $ .76 $ 2.19 $ 1.76 $ 2.20
--------- -------- --------- ------- ---------
--------- -------- --------- ------- ---------
Fully diluted $ 2.40 $ .75 $ 2.18 $ 1.76 $ 2.19
--------- -------- --------- ------- ---------
--------- -------- --------- ------- ---------
Weighted average shares
outstanding (000's):
Primary 35,342 15,635 39,192 8,369 45,776
--------- -------- --------- ------- ---------
--------- -------- --------- ------- ---------
Fully diluted 35,773 15,882 39,623 8,375 46,214
--------- -------- --------- ------- ---------
--------- -------- --------- ------- ---------
</TABLE>
8
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
WINTHROP RESOURCES CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Pursuant to the Agreement and the Winthrop Merger Agreement, and consistent
with GAAP, certain adjustments will be recorded, primarily to accrue for
specific, identified costs related to the acquisition of Standard. The amounts
of the merger-related costs are preliminary estimates and are subject to
revision as economic conditions change or as more information becomes available.
TCF did not record any merger-related charges relating to the acquisition of
Winthrop.
TCF expects to achieve operating cost savings primarily through reductions
in staff and the consolidation of certain functions such as data processing,
investments and other back office operations at Standard. The operating cost
savings are expected to be achieved in various amounts at various times during
the years subsequent to the acquisition of Standard and not ratably over, or at
the beginning or end of, such periods. No adjustment has been reflected in the
Unaudited Pro Forma Combined Statements of Operations for the year ended
December 31, 1996 or for the six months ended June 30, 1997 and 1996 for the
anticipated cost savings.
(1) Represents amortization of the Standard mark-to-market adjustments under
the purchase method of accounting.
(2) Represents amortization of the Standard mark-to-market adjustments, and the
foregone interest income resulting from the planned sale of $211.5 million
of securities available for sale.
(3) Represents amortization of the Standard mark-to-market adjustments, and the
net interest cost of funding the acquisition of Standard.
(4) Represents the reduction in occupancy and equipment expenses resulting from
the write-off of certain Standard fixed assets and duplicative data
processing hardware and software.
(5) Represents amortization of the Standard goodwill and deposit base
intangibles balances.
(6) The pro forma combined per common share data for TCF and Standard has been
computed based on the pro forma combined historical income before
extraordinary item and on the historical weighted average common and common
equivalent shares outstanding of TCF combined with the issuance of
3,850,000 shares of TCF Common Stock with respect to the acquisition of
Standard.
(7) The pro forma combined per common share data for TCF, Standard and Winthrop
has been computed based on the pro forma combined historical income before
extraordinary item and on the combined historical weighted average common
and common equivalent shares outstanding for TCF and Winthrop, and the
issuance of 3,850,000 shares of TCF Common Stock with respect to the
acquisition of Standard. For purposes of this calculation, Winthrop's
weighted average common and common equivalent shares outstanding were
multiplied by the exchange ratio of 0.7766 used in the acquisition of
Winthrop.
9
