<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
------------------
Commission File
No. 0-16431
------------------
TCF FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1591444
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 Marquette Avenue, Mail Code 100-01-A, Minneapolis, Minnesota 55402
----------------------------------------------------------------------
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (612) 661-6500
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at
- ---------------------------- April 30, 1998
Common Stock, $.01 par value 91,211,522 shares
1
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Pages
-----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at March 31, 1998 and December 31, 1997........................ 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1997..................... 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997..................... 5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1997 and for the
Three Months Ended March 31, 1998.............................. 6
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1998 and 1997................... 9-22
Supplementary Information........................................ 23-24
Part II. Other Information
Items 1-6.............................................................. 25-27
Signatures...................................................................... 28
Index to Exhibits............................................................... 29
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
At At
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 363,200 $ 297,010
Interest-bearing deposits with banks 2,116 20,572
Federal funds sold 135,000 --
U.S. Government and other marketable securities
held to maturity (fair value of $4,122 and $4,061) 4,122 4,061
Federal Reserve Bank stock, at cost 23,061 22,977
Federal Home Loan Bank stock, at cost 82,065 82,002
Securities available for sale (amortized cost of $1,293,381
and $1,411,979) 1,306,853 1,426,131
Loans held for sale 252,807 244,612
Loans and leases:
Residential real estate 3,622,164 3,623,845
Commercial real estate 844,171 859,916
Commercial business 250,121 240,207
Consumer 1,945,244 1,976,699
Lease financing 374,946 368,521
----------- -----------
Total loans and leases 7,036,646 7,069,188
Allowance for loan and lease losses (82,511) (82,583)
----------- -----------
Net loans and leases 6,954,135 6,986,605
Premises and equipment 170,809 165,790
Other real estate owned 13,498 18,353
Accrued interest receivable 53,281 54,336
Due from brokers 26,655 126,662
Goodwill 173,415 177,700
Deposit base intangibles 18,925 19,821
Mortgage servicing rights 20,276 19,512
Other assets 64,631 78,516
----------- -----------
$ 9,664,849 $ 9,744,660
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $ 1,618,308 $ 1,468,657
Passbook and statement 1,195,878 1,134,678
Money market 695,765 698,312
Certificates 3,415,073 3,605,663
----------- -----------
Total deposits 6,925,024 6,907,310
----------- -----------
Securities sold under repurchase agreements and federal
funds purchased 68,000 112,444
Federal Home Loan Bank advances 1,302,406 1,339,578
Discounted lease rentals 214,067 228,596
Subordinated debt 28,750 34,998
Collateralized obligations 2,373 2,539
Other borrowings 15,425 8,997
----------- -----------
Total borrowings 1,631,021 1,727,152
Accrued interest payable 21,010 23,510
Accrued expenses and other liabilities 139,724 133,008
----------- -----------
Total liabilities 8,716,779 8,790,980
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share, 30,000,000
shares authorized; none issued and outstanding -- --
Common stock, par value $.01 per share, 140,000,000 shares
authorized; 92,922,416 and 92,821,529 shares issued 929 928
Additional paid-in capital 464,727 460,684
Unamortized deferred compensation (26,753) (25,457)
Retained earnings, subject to certain restrictions 537,295 508,969
Accumulated other comprehensive income 8,144 8,556
Treasury stock, at cost, 1,127,400 shares in 1998 (36,272) --
----------- -----------
Total stockholders' equity 948,070 953,680
----------- -----------
$ 9,664,849 $ 9,744,660
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
3
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Interest income:
Loans $148,327 $119,077
Lease financing 12,521 8,205
Loans held for sale 3,681 3,513
Securities available for sale 24,164 21,383
Investments 2,783 1,202
-------- --------
Total interest income 191,476 153,380
-------- --------
Interest expense:
Deposits 56,372 42,158
Borrowings 25,952 21,131
-------- --------
Total interest expense 82,324 63,289
-------- --------
Net interest income 109,152 90,091
Provision for credit losses 5,934 1,498
-------- --------
Net interest income after provision for credit losses 103,218 88,593
-------- --------
Non-interest income:
Fee and service charge revenues 26,931 22,825
ATM network revenues 10,111 6,349
Leasing revenues 7,693 6,358
Title insurance revenues 4,536 2,749
Commissions on sales of annuities 2,224 1,934
Gain on sale of loans held for sale 2,154 877
Gain on sale of securities available for sale 502 1,385
Gain on sale of joint venture interest 5,580 --
Gain on sale of branches 2,048 --
Gain on sale of loan servicing -- 1,622
Other 4,161 2,656
-------- --------
Total non-interest income 65,940 46,755
-------- --------
Non-interest expense:
Compensation and employee benefits 52,763 41,461
Occupancy and equipment 17,305 13,822
Advertising and promotions 5,266 4,993
Federal deposit insurance premiums and assessments 1,395 1,071
Amortization of goodwill and other intangibles 2,916 1,193
Other 21,724 18,600
-------- --------
Total non-interest expense 101,369 81,140
-------- --------
Income before income tax expense 67,789 54,208
Income tax expense 27,895 21,181
-------- --------
Net income $ 39,894 $ 33,027
-------- --------
-------- --------
Net income per common share:
Basic $ .44 $ .41
-------- --------
-------- --------
Diluted $ .43 $ .40
-------- --------
-------- --------
Dividends declared per common share $ .125 $ .09375
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
4
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1998 1997
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 39,894 $ 33,027
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,896 5,399
Amortization of goodwill and other intangibles 2,916 1,193
Amortization of fees, discounts and premiums 537 200
Proceeds from sales of loans held for sale 169,196 124,739
Principal collected on loans held for sale 2,429 2,594
Originations and purchases of loans held for sale (228,296) (122,679)
Net decrease in other assets and liabilities,
and accrued interest 19,252 6,290
Provision for credit losses 5,934 1,498
Gain on sale of securities available for sale (502) (1,385)
Gain on sale of joint venture interest (5,580) --
Gain on sale of branches (2,048) --
Gain on sale of loan servicing -- (1,622)
Other, net (2,242) 764
--------- -----------
Total adjustments (31,508) 16,991
--------- -----------
Net cash provided by operating activities 8,386 50,018
--------- -----------
Cash flows from investing activities:
Principal collected on loans and leases 733,894 389,655
Originations and purchases of loans (655,575) (385,826)
Purchases of equipment for lease financing (39,938) (51,089)
Proceeds from sales of loans 6,907 --
Net decrease in interest-bearing deposits with banks 18,456 380,494
Proceeds from sales of securities available for sale 122,881 154,095
Proceeds from maturities of and principal collected on
securities available for sale 130,130 40,086
Purchases of securities available for sale (35,643) (364,536)
Proceeds from redemption of FHLB stock 1,187 15,251
Proceeds from sale of joint
venture interest 6,351 --
Net (increase) decrease in short-term federal funds sold (135,000) 45,000
Purchases of premises and equipment (15,591) (5,155)
Acquisition of BOC Financial Corporation, net of cash acquired -- (24,093)
Sales of deposits, net of cash paid (56,771) --
Other, net 14,457 7,065
--------- -----------
Net cash provided by investing activities 95,745 200,947
--------- -----------
Cash flows from financing activities:
Net increase in deposits 78,200 148,606
Proceeds from securities sold under repurchase agreements
and federal funds purchased 486,930 2,788,088
Payments on securities sold under repurchase agreements
and federal funds purchased (531,374) (2,752,843)
Proceeds from FHLB advances 200,000 156,770
Payments on FHLB advances (237,003) (667,503)
Proceeds from discounted lease rentals 10,831 38,718
Proceeds from other borrowings 82,237 105,080
Payments on collateralized obligations and other borrowings (75,991) (82,079)
Payments on subordinated debt (6,248) --
Repurchases of common stock (36,272) (27,316)
Payments of dividends on common stock (11,568) (6,825)
Other, net 2,317 4,588
--------- -----------
Net cash used by financing activities (37,941) (294,716)
--------- -----------
Net increase (decrease) in cash and due from banks 66,190 (43,751)
Cash and due from banks at beginning of period 297,010 236,446
--------- -----------
Cash and due from banks at end of period $ 363,200 $ 192,695
--------- -----------
--------- -----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 82,776 $ 60,707
--------- -----------
--------- -----------
Income taxes $ 8,636 $ 4,697
--------- -----------
--------- -----------
</TABLE>
See accompanying notes to consolidated financial statements. Annual financial
statements are subject to audit.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unamor-
tized
Additional Deferred
Number of Common Common Paid-in Compen-
Shares Issued Stock Capital sation
---------------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 85,242,232 $852 $ 274,320 $ (7,693)
Net income -- -- -- --
Dividends on common stock -- -- -- --
Issuance of 1,400,000 shares of
common stock from treasury, net -- -- 2,532 --
Issuance of 7,700,000 shares of
common stock to effect purchase
acquisition, of which
1,194,268 were from treasury 6,505,732 65 162,937 --
Purchase of 1,295,800 shares to
be held in treasury -- -- -- --
Issuance of 929,200 shares of
restricted stock, of which
869,200 shares were from
treasury 60,000 -- 10,102 (25,270)
Grant of 23,984 shares of
restricted stock to outside
directors from treasury -- -- 421 (840)
Cancellation of shares of
restricted stock (2,000) -- (58) 15
Issuance of 133,784 shares of
treasury stock to employee
benefit plans -- 1 374 --
Repurchase and cancellation
of shares (86) -- (2) --
Amortization of deferred
compensation -- -- -- 8,331
Exercise of stock options, of
which 44,600 shares were
from treasury 176,585 2 2,917 --
Issuance of common stock on
conversion of convertible
debentures 839,066 8 7,141 --
Payments on Loan to Executive
Deferred Compensation Plan -- -- -- --
Change in unrealized gain (loss)
on securities available for
sale, net of tax and
reclassification adjustment -- -- -- --
---------------- ------ ---------- --------
Balance, December 31, 1997 92,821,529 928 460,684 (25,457)
Net income -- -- -- --
Dividends on common stock -- -- -- --
Purchase of 1,127,400 shares to
be held in treasury -- -- -- --
Issuance of shares of
restricted stock 47,200 1 2,727 (2,728)
Cancellation of shares of
restricted stock (8,000) -- (124) 102
Amortization of deferred
compensation -- -- -- 1,330
Exercise of stock options 61,687 -- 1,440 --
Change in unrealized gain (loss)
on securities available for
sale, net of tax and
reclassification adjustment -- -- -- --
---------------- ------ ---------- --------
Balance, March 31, 1998 92,922,416 $929 $ 464,727 $(26,753)
---------------- ------ ---------- --------
---------------- ------ ---------- --------
<CAPTION>
Loan to
Executive Accumulated
Deferred Other
Compen- Compre-
Retained sation hensive Treasury
Earnings Plan Income Stock Total
--------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 402,109 $(68) $ 2,376 $(41,209) $ 630,687
Net income 145,061 -- -- -- 145,061
Dividends on common stock (38,201) -- -- -- (38,201)
Issuance of 1,400,000 shares of
common stock from treasury, net -- -- -- 26,734 29,266
Issuance of 7,700,000 shares of
common stock to effect purchase
acquisition, of which
1,194,268 were from treasury -- -- -- 22,805 185,807
Purchase of 1,295,800 shares to
be held in treasury -- -- -- (27,316) (27,316)
Issuance of 929,200 shares of
restricted stock, of which
869,200 shares were from
treasury -- -- -- 15,168 --
Grant of 23,984 shares of
restricted stock to outside
directors from treasury -- -- -- 419 --
Cancellation of shares of
restricted stock -- -- -- -- (43)
Issuance of 133,784 shares of
treasury stock to employee
benefit plans -- -- -- 2,555 2,930
Repurchase and cancellation
of shares -- -- -- -- (2)
Amortization of deferred
compensation -- -- -- -- 8,331
Exercise of stock options, of
which 44,600 shares were
from treasury -- -- -- 844 3,763
Issuance of common stock on
conversion of convertible
debentures -- -- -- -- 7,149
Payments on Loan to Executive
Deferred Compensation Plan -- 68 -- -- 68
Change in unrealized gain (loss)
on securities available for
sale, net of tax and
reclassification adjustment -- -- 6,180 -- 6,180
--------- --------- ----------- -------- ---------
Balance, December 31, 1997 508,969 -- 8,556 -- 953,680
Net income 39,894 -- -- -- 39,894
Dividends on common stock (11,568) -- -- -- (11,568)
Purchase of 1,127,400 shares to
be held in treasury -- -- -- (36,272) (36,272)
Issuance of shares of
restricted stock -- -- -- -- --
Cancellation of shares of
restricted stock -- -- -- -- (22)
Amortization of deferred
compensation -- -- -- -- 1,330
Exercise of stock options -- -- -- -- 1,440
Change in unrealized gain (loss)
on securities available for
sale, net of tax and
reclassification adjustment -- -- (412) -- (412)
--------- --------- ----------- -------- ---------
Balance, March 31, 1998 $ 537,295 $-- $ 8,144 $(36,272) $ 948,070
--------- --------- ----------- -------- ---------
--------- --------- ----------- -------- ---------
</TABLE>
See accompanying notes to consolidated financial statements. Annual financial
statements are subject to audit.
6
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore
do not include all information and notes necessary for complete
financial statements in conformity with generally accepted accounting
principles. The material under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is written
with the presumption that the users of the interim financial statements
have read or have access to the most recent Annual Report on Form 10-K
of TCF Financial Corporation ("TCF" or the "Company"), which contains
the latest audited financial statements and notes thereto, together
with Management's Discussion and Analysis of Financial Condition and
Results of Operations as of December 31, 1997 and for the year then
ended. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made
to prior period financial statements to conform to the current period
presentation. For consolidated statements of cash flows purposes, cash
and cash equivalents include cash and due from banks.
(2) COMPREHENSIVE INCOME
--------------------
Effective January 1, 1998, TCF adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." The statement establishes standards for reporting and display
of comprehensive income and its components in a full set of
general-purpose financial statements. The statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be disclosed in the financial
statements.
Comprehensive income is defined as the change in equity during a period
from transactions and other events from nonowner sources. Comprehensive
income is the total of net income and other comprehensive income, which
for TCF is comprised entirely of unrealized gains and losses on
securities available for sale.
7
<PAGE>
The following table summarizes the components of comprehensive income
for the periods noted:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(In thousands) MARCH 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Net income $39,894 $33,027
Other comprehensive income, net of tax:
Unrealized holding losses arising during the
period on securities available for sale
(net of tax benefit of $70 and $4,195,
respectively) (108) (6,072)
Reclassification adjustment for gains included
in net income (net of tax expense of $198
and $566, respectively) (304) (819)
-------- -------
Total other comprehensive income (412) (6,891)
-------- -------
Comprehensive income $39,482 $26,136
-------- -------
-------- -------
</TABLE>
(3) EARNINGS PER COMMON SHARE
-------------------------
The weighted average number of common and common equivalent shares
outstanding used to compute basic earnings per common share were
90,914,027 and 80,778,560 for the three months ended March 31, 1998
and 1997, respectively. The weighted average number of common and
common equivalent shares outstanding used to compute diluted earnings
per common share were 91,816,480 and 82,971,011 for the three months
ended March 31, 1998 and 1997, respectively.
(4) ACQUISITION
-----------
On January 30, 1998, TCF National Bank Illinois ("TCF Illinois")
completed its acquisition of 76 branches in Jewel-Osco stores in the
Chicago area previously operated by Bank of America. TCF Illinois
converted existing deposits by offering TCF Illinois products to Bank
of America customers and acquired the related fixed assets and 178
automated teller machines ("ATM") located in Jewel-Osco stores. TCF
accounted for the acquisition using the purchase method of accounting.
8
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
TCF reported net income of $39.9 million for the first quarter of 1998, up
from $33 million for the same 1997 period. Basic earnings per common share
were 44 cents for the first quarter of 1998, compared with 41 cents for the
first quarter of 1997. Diluted earnings per common share were 43 cents for
the first quarter of 1998, compared with 40 cents for the first quarter of
1997. Diluted cash earnings per common share, which exclude amortization and
reduction of goodwill and deposit base intangibles, were 49 cents and 41
cents for the first quarter of 1998 and 1997, respectively. Return on average
assets was 1.66% for the first quarter of 1998, compared with 1.82% for the
same 1997 period. Return on average realized common equity was 16.99% for the
first quarter of 1998, compared with 21.26% for the same 1997 period. As
TCF's September 4, 1997 acquisition of Standard Financial, Inc. ("Standard")
was accounted for as a purchase transaction, TCF's results for periods prior
to the acquisition have not been restated. Since Standard's performance
ratios were lower than TCF's, the Company's performance ratios for 1998 were
negatively impacted by the acquisition of Standard. The Company's performance
ratios for 1998 will continue to be negatively impacted due to the inclusion
of Standard for the entire year.
On January 30, 1998, TCF Illinois completed its acquisition of 76 branches
and 178 ATMs in Jewel-Osco stores in the Chicago area previously operated by
Bank of America. TCF Illinois opened an additional four branches in
Jewel-Osco stores in the first quarter of 1998 and plans to open branches in
seven more Jewel-Osco stores in 1998, and 25 branches per year in subsequent
years until branches have been installed in all targeted stores. TCF
anticipates that the 1998 cost of this expansion will be weighted more
heavily in the first half of 1998. The Jewel-Osco supermarket expansion
negatively impacted earnings per share by approximately 3% in the first
quarter of 1998. Further detail on the acquisition is provided in Note 4 of
Notes to Consolidated Financial Statements.
NET INTEREST INCOME
- -------------------
Net interest income for the first quarter of 1998 was $109.2 million, up
21.2% from $90.1 million for the first quarter of 1997. The net interest
margin for the first quarter of 1998 was 4.94%, compared with 5.31% for the
same 1997 period and 4.93% for the fourth quarter of 1997. TCF's net interest
income increased primarily due to the acquisition of Standard and the growth
of lower interest-cost retail deposits. TCF's net interest margins for the
first quarter of 1998 and fourth quarter of 1997 were negatively impacted by
the acquisition of Standard due to the impact of Standard's lower net
interest margin. Changes in net interest income are dependent upon the
movement of interest rates, the volume and the mix of interest-earning assets
and interest-bearing liabilities, and the level of non-performing assets.
Achieving net interest margin growth is dependent on TCF's ability to
generate higher-yielding assets and lower-cost retail deposits. The current
interest rate environment and the resulting increase in prepayment activity
has made it more difficult for TCF to increase the balance of such
higher-yielding assets. Competition for checking, savings and money market
deposits, an important source of lower cost funds for TCF, has intensified
among depository and other financial institutions. TCF may experience
compression in its net interest margin if the rates paid on deposits
increase. See "Market Risk - Interest-Rate Risk" and "Financial Condition
- -Deposits."
9
<PAGE>
The following rate/volume analysis details the increases (decreases) in net
interest income resulting from interest rate and volume changes during the
first quarter of 1998 as compared to the same period last year. Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
VERSUS SAME PERIOD IN 1997
--------------------------------
INCREASE (DECREASE) DUE TO
--------------------------------
<S> <C> <C> <C>
(In thousands) Volume Rate Total
-------- ------- --------
Securities available for sale $ 3,359 $ (578) $ 2,781
-------- ------- --------
Loans held for sale 302 (134) 168
-------- ------- --------
Loans and leases:
Residential real estate 26,575 (2,333) 24,242
Commercial real estate (237) 40 (197)
Commercial business 1,335 (160) 1,175
Consumer 5,496 (1,466) 4,030
Lease financing 1,775 2,541 4,316
-------- ------- --------
Total loans and leases 34,944 (1,378) 33,566
-------- ------- --------
Investments:
Interest-bearing deposits with banks (150) 21 (129)
Federal funds sold 853 3 856
U.S. Government and other marketable
securities held to maturity 2 5 7
FHLB stock 530 (27) 503
FRB stock 344 -- 344
-------- ------- --------
Total investments 1,579 2 1,581
-------- ------- --------
Total interest income 40,184 (2,088) 38,096
-------- ------- --------
Deposits:
Checking 358 (53) 305
Passbook and statement 1,408 (144) 1,264
Money market 421 (178) 243
Certificates 13,799 (1,397) 12,402
-------- ------- --------
Total deposits 15,986 (1,772) 14,214
-------- ------- --------
Borrowings:
Securities sold under repurchase agreements
and federal funds purchased (5,245) 362 (4,883)
FHLB advances 9,212 165 9,377
Discounted lease rentals 853 (143) 710
Subordinated debt (176) 430 254
Collateralized obligations (778) 202 (576)
Other borrowings (93) 32 (61)
-------- ------- --------
Total borrowings 3,773 1,048 4,821
-------- ------- --------
Total interest expense 19,759 (724) 19,035
-------- ------- --------
Net interest income $ 20,425 $(1,364) $ 19,061
-------- ------- --------
-------- ------- --------
</TABLE>
10
<PAGE>
PROVISIONS FOR CREDIT LOSSES
- ----------------------------
TCF provided $5.9 million for credit losses in the first quarter of 1998,
compared with $1.5 million for the same prior-year period. The increase from
the 1997 first quarter is primarily due to higher levels of net charge-offs
at TCF's consumer finance subsidiaries and lower commercial loan recoveries.
At March 31, 1998, the allowance for loan and lease losses and industrial
revenue bond reserves totaled $83.9 million, compared with $84 million at
year-end 1997. See "Financial Condition - Allowance for Loan and Lease Losses
and Industrial Revenue Bond Reserves."
NON-INTEREST INCOME
- -------------------
Non-interest income is a significant source of revenues for TCF and an
important factor in TCF's results of operations. Providing a wide range of
retail banking services is an integral component of TCF's business philosophy
and a major strategy for generating additional non-interest income. Excluding
the 1998 gains on sales of branches and a joint venture interest,
non-interest income increased $11.6 million, or 24.7%, to $58.3 million for
the first quarter of 1998, compared with $46.8 million for the same period in
1997. The increases were primarily due to increased deposit, leasing, ATM and
title insurance revenues, and reflects TCF's expanded retail banking
activities including the acquisition of Standard.
Fee and service charge revenues totaled $26.9 million for the first quarter
of 1998, representing an increase of 18% from $22.8 million for the same 1997
period. This increase is primarily due to expanded retail banking activities.
Leasing revenues totaled $7.7 million for the first quarter of 1998,
representing an increase of 21% from $6.4 million for the same 1997 period.
Leasing revenues can fluctuate as a result of changes in the mix of leases
classified as sales-type, direct financing or operating leases in accordance
with generally accepted accounting principles. In addition, leasing revenues
may be negatively impacted by a decline in economic activity and a resulting
decrease in demand for leased equipment.
ATM network revenues totaled $10.1 million for the first quarter of 1998,
representing an increase of 59.3% from $6.3 million for the same 1997 period.
This increase reflects TCF's effort to provide banking services through its
ATM network. TCF expanded its network of ATMs to 1,360 at March 31, 1998, an
increase of 204 ATMs during the first quarter of 1998. As previously noted,
on January 30, 1998, TCF acquired 178 ATMs in connection with its acquisition
of 76 branches in Jewel-Osco stores. The Company anticipates installing
additional ATMs during the remainder of 1998.
Title insurance revenues totaled $4.5 million for the first quarter of 1998,
representing an increase of 65% from $2.7 million for the same 1997 period.
Title insurance revenues are cyclical in nature and are largely dependent on
industry levels of residential real estate loan originations and refinancings.
Gains on sales of loans held for sale totaled $2.2 million for the first
quarter of 1998, representing an increase of $1.3 million from the $877,000
recognized during the same period in 1997. Gains on sales of securities
available for sale totaled $502,000 for the first quarter of 1998, compared
with $1.4 million for the comparable 1997 period. Gains or losses on sales of
loans held for sale and securities available for sale may fluctuate
significantly from period to period due to changes in interest rates and
volumes, and results in any period related to these transactions may not be
indicative of results which will be obtained in future periods.
11
<PAGE>
Results for the first quarter of 1997 included a pretax gain of $1.6 million
on the sale of $144.7 million of third-party loan servicing rights. TCF
periodically sells and purchases loan servicing rights depending on market
conditions. TCF's third-party residential loan servicing portfolio totaled
$4.3 billion at March 31, 1998, compared with $4.4 billion at December 31,
1997.
During the first quarter of 1998, TCF recognized a $5.6 million gain on the
sale of its joint venture interest in Burnet Home Loans, and recognized gains
of $2 million on the sales of two Minnesota branches.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense totaled $101.4 million for the first quarter of 1998, up
24.9% from $81.1 million for the same 1997 period. Compensation and employee
benefits expense totaled $52.8 million for the 1998 first quarter, compared
with $41.5 million for the comparable period in 1997. Occupancy and equipment
expenses totaled $17.3 million for the first quarter of 1998, compared with
$13.8 million for the same 1997 period. The increased expenses in 1998 were
primarily due to the costs associated with expanded retail banking
activities, including the acquisitions of Standard and the 76 branches in
Jewel-Osco stores.
Amortization of goodwill and other intangibles totaled $2.9 million for the
first quarter of 1998, compared with $1.2 million for the same 1997 period.
The increase is primarily due to the amortization of goodwill and deposit
base intangibles resulting from the acquisition of Standard. Reductions of
goodwill associated with branch sales, which are reported as a component of
gains on sales of branches, totaled $2.3 million for the first quarter of
1998.
TCF, like most owners of computer software, will be required to ascertain
that its computer systems will function properly in the year 2000. TCF has
established a year 2000 task force and has evaluated its data processing and
other systems to determine whether they are year 2000 compliant. Remediation
of certain software applications has already begun, and TCF expects
substantially all remediation work to be complete by the end of 1998, leaving
1999 for testing. Many of TCF's data processing applications are supplied by
third-party software vendors. TCF is also evaluating whether such vendor
supplied applications are or will be year 2000 compliant. TCF estimates the
total additional costs to be incurred prior to 2000 to range from
approximately $5 million to $6 million. In addition, a significant amount of
existing internal resources will be allocated to this project. Maintenance or
modification costs will be expensed as incurred, while the costs of new
software will be capitalized and amortized over the software's useful life.
See "Financial Condition - Forward-Looking Information."
INCOME TAXES
- ------------
TCF recorded income tax expense of $27.9 million for the first quarter of
1998, or 41.1% of income before income tax expense, compared with $21.2
million, or 39.1%, for the comparable 1997 period. The higher tax rates in
1998 reflect the impact of relatively higher non-deductible expenses,
including goodwill amortization resulting from the acquisition of Standard,
and higher state taxes due to business expansion.
12
<PAGE>
MARKET RISK - INTEREST-RATE RISK
TCF's results of operations are dependent to a large degree on its net
interest income, which is the difference between interest income and interest
expense, and the Company's ability to manage its interest-rate risk. Although
TCF manages other risks, such as credit and liquidity risk, in the normal
course of its business, the Company considers interest-rate risk to be its
most significant market risk. TCF, like most financial institutions, has a
material interest-rate risk exposure to changes in both short-term and
long-term interest rates as well as variable index interest rates (e.g.,
prime).
Like most financial institutions, TCF's interest income and cost of funds are
significantly affected by general economic conditions and by policies of
regulatory authorities. The mismatch between maturities and interest-rate
sensitivities of assets and liabilities results in interest-rate risk.
Although the measure is subject to a number of assumptions and is only one of
a number of measurements, management believes the interest-rate gap
(difference between interest-earning assets and interest-bearing liabilities
repricing within a given period) is an important indication of TCF's exposure
to interest-rate risk and the related volatility of net interest income in a
changing interest rate environment. In addition to the interest-rate gap
analysis, management also utilizes a simulation model to measure and manage
TCF's interest-rate risk.
For an institution with a negative interest-rate gap for a given period, the
amount of its interest-bearing liabilities maturing or otherwise repricing
within such period exceeds the amount of its interest-earning assets
repricing within the same period. In a rising interest-rate environment,
institutions with negative interest-rate gaps will generally experience more
immediate increases in the cost of their liabilities than in the yield of
their assets. Conversely, the yield on assets of institutions with negative
interest-rate gaps will generally decrease more slowly than the cost of their
funds in a falling interest-rate environment.
TCF's Asset/Liability Management Committee manages TCF's interest-rate risk
based on interest rate expectations and other factors. The principal
objective of TCF's asset/liability management activities is to provide
maximum levels of net interest income while maintaining acceptable levels of
interest-rate risk and liquidity risk and facilitating the funding needs of
the Company. Management's estimates and assumptions could be significantly
affected by external factors such as prepayment rates other than those
assumed, early withdrawals of deposits, changes in the correlation of various
interest-bearing instruments, competition and a general rise in interest
rates. Decisions by management to purchase or sell assets, or retire debt
could change the maturity/repricing and spread relationships. TCF's one-year
interest-rate gap was a negative $117.3 million, or (1)% of total assets, at
March 31, 1998, compared with a negative $184.7 million, or (2)% of total
assets, at December 31, 1997.
FINANCIAL CONDITION
INVESTMENTS
- -----------
Total investments increased $116.8 million from year-end 1997 to $246.4
million at March 31, 1998. The increase is primarily due to an increase of
$135 million in federal funds sold, partially offset by a decrease of $18.5
million in interest-bearing deposits with banks.
13
<PAGE>
SECURITIES AVAILABLE FOR SALE
Securities available for sale are carried at fair value with the unrealized
gains or losses, net of deferred income taxes, reported as accumulated other
comprehensive income, which is a separate component of stockholders' equity.
Securities available for sale decreased $119.3 million from year-end 1997 to
$1.3 billion at March 31, 1998. The decrease reflects sales of $122.4 million
of securities available for sale and payment and prepayment activity,
partially offset by purchases of $35.6 million. At March 31, 1998, TCF's
securities available-for-sale portfolio included $878.5 million and $428.4
million of fixed-rate and adjustable-rate mortgage-backed securities,
respectively. The following table summarizes securities available for sale:
<TABLE>
<CAPTION>
At March 31, 1998 At December 31, 1997
-------------------- -----------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 654,708 $ 664,040 $ 701,195 $ 710,799
FNMA 441,180 444,333 466,820 469,900
GNMA 41,248 42,078 43,079 43,993
Private issuer 155,148 155,337 199,738 200,325
Collateralized mortgage
obligations 1,097 1,065 1,147 1,114
---------- ---------- ---------- -----------
$1,293,381 $1,306,853 $1,411,979 $1,426,131
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
LOANS HELD FOR SALE
Education and residential real estate loans held for sale are carried at the
lower of cost or market. Education loans held for sale increased $11 million
and residential real estate loans held for sale decreased $2.8 million from
year-end 1997, respectively, and totaled $146.3 million and $106.5 million at
March 31, 1998.
TCF originated $95.4 million in education loans for the year ended December
31, 1997 and $39.8 million for the quarter ended March 31, 1998. TCF's
education lending activity will be adversely affected in the event
legislation is not enacted to limit the impact of existing legislation
scheduled to take effect July 1, 1998 which would significantly reduce the
yield on loans made under the Federal Family Education Loan Program. The U.S.
House of Representatives recently approved a bill which would limit the
reduction in yield in current legislation and a similar proposal is pending
in the U.S. Senate. The ultimate disposition of these legislative initiatives
and its impact on TCF's education lending activities is uncertain at this
time.
14
<PAGE>
LOANS AND LEASES
The following table sets forth information about loans and leases held in
TCF's portfolio, excluding loans held for sale:
<TABLE>
<CAPTION>
At At
March 31, December 31,
(In thousands) 1998 1997
----------- -----------
<S> <C> <C>
Residential real estate $ 3,617,136 $ 3,619,527
Unearned premiums and deferred loan fees 5,028 4,318
----------- -----------
3,622,164 3,623,845
Commercial real estate:
Apartments 270,885 294,231
Other permanent 481,252 481,759
Construction and development 94,178 86,174
Unearned discounts and deferred loan fees (2,144) (2,248)
----------- -----------
844,171 859,916
----------- -----------
Total real estate 4,466,335 4,483,761
----------- -----------
Commercial business 249,608 239,728
Deferred loan costs 513 479
----------- -----------
250,121 240,207
----------- -----------
Consumer:
Home equity 1,516,984 1,519,644
Automobile 420,078 444,903
Loans secured by deposits 9,196 10,112
Other secured 19,810 19,955
Unsecured 38,797 44,607
Unearned discounts and deferred loan fees (59,621) (62,522)
----------- -----------
1,945,244 1,976,699
----------- -----------
Lease financing:
Direct financing leases 351,526 344,889
Sales-type leases 40,532 40,592
Lease residuals 28,361 28,789
Unearned income and deferred lease costs (45,473) (45,749)
----------- -----------
374,946 368,521
----------- -----------
$ 7,036,646 $ 7,069,188
----------- -----------
----------- -----------
</TABLE>
Loans and leases decreased $32.5 million from year-end 1997 to $7 billion at
March 31, 1998, reflecting growth in prepayment activity due to lower
long-term interest rates. Unearned discounts and deferred fees totaled $101.7
million at March 31, 1998 and $105.7 million at December 31, 1997.
Consumer loans, comprised of bank originated and consumer finance originated
loans, decreased $31.5 million from year-end 1997 to $1.9 billion at March
31, 1998, reflecting decreases of $24.8 million and $5.8 million in
automobile loans and unsecured loans, respectively. TCF continues its
emphasis on expanding its home equity portfolio.
TCF had 57 consumer finance offices in 16 states as of March 31, 1998. TCF's
consumer finance loan portfolio totaled $510.1 million at March 31, 1998,
compared with $521.5 million at December 31, 1997. The Company is seeking to
increase outstanding consumer finance loan portfolio balances and improve the
profitability of its consumer finance subsidiaries. See "Forward-Looking
Information."
15
<PAGE>
The consumer finance subsidiaries primarily originate home equity loans and
purchase automobile loans. The average individual balance of consumer finance
automobile loans and home equity loans were $8,000 and $32,000, respectively,
at March 31, 1998. At March 31, 1998 and December 31, 1997, automobile loans
comprised $285.3 million, or 55.9%, and $292.6 million, or 56.1%,
respectively, of total consumer finance loans. At March 31, 1998 and December
31, 1997, home equity loans comprised $220.1 million, or 43.2%, and $218.8
million, or 42%, respectively, of total consumer finance loans. TCF's
consumer finance subsidiaries are seeking to increase the percentage of home
equity loans to total consumer finance loans over time. Home equity loans
originated by the Company's consumer finance subsidiaries are generally
closed-end.
Through their purchases of automobile loans, TCF's consumer finance
subsidiaries provide indirect financing. Included in the consumer finance
loans at March 31, 1998 are $224.1 million of sub-prime automobile loans
which carry a higher level of credit risk and higher interest rates. The term
sub-prime refers to the Company's assessment of credit risk and bears no
relationship to the prime rate of interest or persons who are able to borrow
at that rate. There can be no assurances that the Company's sub-prime lending
criteria are the same as those utilized by other lenders. Loans classified as
sub-prime are generally made to borrowers who are unable to obtain credit
from traditional sources because of significant past credit problems or
limited credit histories.
Although competition in the sub-prime lending market has increased, the
Company believes that sub-prime borrowers represent a substantial market and
their demand for financing has not been adequately served by traditional
lending sources. The underwriting criteria for loans originated by TCF's
consumer finance subsidiaries generally have been less stringent than those
historically adhered to by TCF's bank subsidiaries and, as a result, these
loans carry a higher level of credit risk and higher interest rates. The
consumer finance portfolio also carries an increased risk of loss in the
event of adverse economic developments such as a recession. TCF believes that
important determinants of success in sub-prime automobile financing include
the ability to control borrower and dealer misrepresentations at the point of
origination; the evaluation of the creditworthiness of sub-prime borrowers;
and the maintenance of an active program to monitor performance and collect
payments. Sub-prime lending is inherently more risky than traditional lending
and there can be no assurance that all appropriate underwriting criteria have
been identified or weighted properly in the assessment of credit risk, or
will afford adequate protection against the higher risks inherent in lending
to sub-prime borrowers.
16
<PAGE>
Many of the consumer finance offices are relatively new and are outside TCF's
traditional market areas. The geographic location of consumer finance loans
may change significantly in future periods. The following table sets forth
the geographic locations (based on the location of the office originating or
purchasing the loan) of TCF's consumer finance loan portfolio:
<TABLE>
<CAPTION>
At March 31, 1998 At December 31, 1997
--------------------- ----------------------
Loan Loan
(Dollars in thousands) Balance Percent Balance Percent
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Illinois $122,129 23.9% $126,505 24.3%
Minnesota 97,015 19.0 98,701 18.9
Florida 42,721 8.4 41,808 8.0
Michigan 36,824 7.2 35,955 6.9
Georgia 34,899 6.8 35,506 6.8
Wisconsin 29,871 5.9 31,097 6.0
North Carolina 28,796 5.7 29,829 5.7
Missouri 24,434 4.8 27,258 5.2
Tennessee 18,051 3.5 19,218 3.7
Ohio 17,086 3.4 16,415 3.1
Mississippi 15,384 3.0 15,676 3.0
Other 42,881 8.4 43,561 8.4
-------- ----- -------- -----
Total consumer finance loans $510,091 100.0% $521,529 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
TCF's bank and consumer finance subsidiaries have also initiated the
origination of home equity loans with loan-to-value ratios in excess of 80%,
and on a limited basis up to 100%, that carry no private mortgage insurance.
These loans carry a higher level of credit risk and are made at higher
interest rates.
Commercial real estate loans decreased $15.7 million from year-end 1997 to
$844.2 million at March 31, 1998. Commercial business loans increased $9.9
million in the first three months of 1998 to $250.1 million at March 31,
1998. TCF is seeking to expand its commercial business lending activity and,
to a lesser extent, its commercial real estate lending activity to borrowers
located in its primary midwestern markets in an attempt to maintain the size
of these lending portfolios and, where feasible under local economic
conditions, achieve some growth in these lending categories over time. These
loans generally have larger individual balances and a greater inherent risk
of loss. The risk of loss is difficult to quantify and, in the case of
commercial real estate loans, is subject to fluctuations in real estate
values. At March 31, 1998, approximately 92% of TCF's commercial real estate
loans outstanding were secured by properties located in its primary markets.
At March 31, 1998, the average individual balance of commercial real estate
loans and commercial business loans was $506,000 and $311,000, respectively.
At March 31, 1998, there were no commercial real estate loans with terms that
have been modified in troubled debt restructurings included in performing
loans, compared with $1.3 million at December 31, 1997.
At March 31, 1998, the recorded investment in loans that are considered to be
impaired was $8.9 million for which the related allowance for credit losses
was $3.2 million. All of the impaired loans were on non-accrual status. The
average recorded investment in impaired loans during the three months ended
March 31, 1998 was $8.8 million.
17
<PAGE>
Lease financings increased $6.4 million from year-end 1997 to $374.9 million at
March 31, 1998, reflecting a $6.6 million increase in direct financing leases.
TCF is seeking to expand its leasing activity to achieve growth over time. TCF
internally funds certain Value Added Leases, which typically range from $250,000
to $20 million, and consequently retains the credit risk on such leases. TCF and
Winthrop also internally fund Small Ticket Leases, which typically are less than
$250,000, and which generally carry a higher level of credit risk and higher
implicit interest rates.
TCF has in place experienced personnel and acceptable standards for maintaining
the credit quality of its lease portfolio, but no assurance can be given as to
the level of future delinquencies and lease charge-offs.
ALLOWANCE FOR LOAN AND LEASE LOSSES AND INDUSTRIAL REVENUE BOND RESERVES
A summary of the activity of the allowance for loan and lease losses and
industrial revenue bond reserves, and selected statistics follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
(Dollars in thousands) MARCH 31, 1998 MARCH 31, 1997
------------------------------------ ---------------------------------------
Industrial Industrial
Allowance for Loan and Lease Allowance for Revenue Allowance for Revenue
Losses and Industrial Revenue Loan and Bond Loan and Bond
Bond Reserves: Lease Losses Reserves Total Lease Losses Reserves Total
------------- ---------- ----- ------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 82,583 $ 1,460 $ 84,043 $ 71,865 $ 1,660 $ 73,525
Acquired balance -- -- -- 1,653 -- 1,653
Provision for credit losses 5,984 (50) 5,934 1,548 (50) 1,498
Charge-offs (7,620) -- (7,620) (5,320) -- (5,320)
Recoveries 1,564 -- 1,564 3,127 -- 3,127
-------- ------- -------- -------- ------- --------
Net charge-offs (6,056) -- (6,056) (2,193) -- (2,193)
-------- ------- -------- -------- ------- --------
Balance at end of period $ 82,511 $ 1,410 $ 83,921 $ 72,873 $ 1,610 $ 74,483
-------- ------- -------- -------- ------- --------
-------- ------- -------- -------- ------- --------
Ratio of annualized net loan and
lease charge-offs to average loans
and leases outstanding, excluding
loans held for sale .34% .16%
Allowance for loan and lease losses as
a percentage of gross loan and lease
balances, excluding loans held for 1.16% 1.33%
sale
</TABLE>
TCF has experienced an increase in the level of net loan charge-offs related to
its consumer finance portfolio. As a result, net loan charge-offs as a
percentage of average loans outstanding for TCF's consumer finance portfolio
were 3.85% for the three months ended March 31, 1998, compared with 2.83% for
the same period of 1997 and 3.23% for the three months ended December 31, 1997.
In addition, the net loan charge-offs as a percentage of average loans
outstanding for TCF's indirect consumer finance portfolio were 5.66% for the
three months ended March 31, 1998, compared with 4.33% for the same period in
1997 and 4.64% for the three months ended December 31, 1997.
On an ongoing basis, TCF's loan and lease portfolios are reviewed and analyzed
as to credit risk, performance, collateral value and quality. The allowance for
loan and lease losses is maintained at a level believed to be adequate by
management to provide for estimated loan and lease losses. Management's judgment
as to the adequacy of the allowance is a result of ongoing review of larger
individual loans and leases, the overall risk characteristics of the portfolios,
changes in the character or size of the portfolios, the level of non-performing
assets, net charge-offs, geographic location and prevailing economic conditions.
The allowance for loan and lease losses is established for known or anticipated
problem loans and leases, as well as for loans and leases which are not
currently known to require specific allowances. Loans and leases are charged off
to the extent they are deemed to be uncollectible. The unallocated portion of
TCF's
18
<PAGE>
allowance for loan and lease losses totaled $27.2 million at March 31,
1998, compared with $29.4 million at December 31, 1997.
TCF guarantees certain industrial development and housing revenue bonds
issued by municipalities to finance commercial and multi-family real estate
owned by third parties. The balance of such financial guarantees at March 31,
1998 was $11.8 million, unchanged from December 31, 1997. Management has
considered these guarantees in its review of the adequacy of the industrial
revenue bond reserves, which are included in accrued expenses and other
liabilities in the Consolidated Statements of Financial Condition.
The adequacy of the allowance for loan and lease losses and industrial revenue
bond reserves is highly dependent upon management's estimates of variables
affecting valuation, appraisals of collateral, evaluations of performance and
status, and the amounts and timing of future cash flows expected to be received
on impaired loans. Such estimates, appraisals, evaluations and cash flows may be
subject to frequent adjustments due to changing economic prospects of borrowers,
lessees or properties. These estimates are reviewed periodically and
adjustments, if necessary, are reported in the provision for credit losses in
the periods in which they become known. Management believes the allowance for
loan and lease losses and industrial revenue bond reserves are adequate.
NON-PERFORMING ASSETS
Non-performing assets (principally non-accrual loans and leases and other real
estate owned) totaled $53.6 million at March 31, 1998, down $5.1 million from
the December 31, 1997 total of $58.7 million. Approximately 69% of
non-performing assets at March 31, 1998 consist of, or are secured by, real
estate. The accrual of interest income is generally discontinued when loans and
leases become 90 days or more past due with respect to either principal or
interest unless such loans and leases are adequately secured and in the process
of collection. Non-performing assets are summarized in the following table:
<TABLE>
<CAPTION>
At At
March 31, December 31,
(Dollars in thousands) 1998 1997
--------- -----------
<S> <C> <C>
Non-accrual loans and leases (1):
Consumer:
Bank lending $ 3,566 $ 3,495
Consumer finance lending 16,348 17,542
------- -------
19,914 21,037
Residential real estate 8,140 8,451
Commercial real estate 5,652 3,818
Commercial business 3,212 3,370
Lease financing 171 117
------- -------
37,089 36,793
Other real estate owned and other assets (2) 16,519 21,953
------- -------
Total non-performing assets $53,608 $58,746
------- -------
------- -------
Non-performing assets as a percentage
of net loans and leases .77% .84%
Non-performing assets as a percentage
of total assets .55 .60
</TABLE>
(1) Included in total loans and leases in the Consolidated Statements of
Financial Condition.
(2) Includes residential real estate of $11.8 million and $11.2 million,
commercial real estate of $1.6 million and $6.7 million and automobiles of
$2.6 million and $2.6 million at March 31, 1998 and December 31, 1997,
respectively.
19
<PAGE>
TCF had no accruing loans and leases 90 days or more past due at March 31, 1998.
The over 30-day delinquency rate on TCF's loans and leases (excluding loans held
for sale and non-accrual loans and leases) was .59% of gross loans and leases
outstanding at March 31, 1998, compared with .72% at year-end 1997. TCF's
delinquency rates are determined using the contractual method. The following
table sets forth information regarding TCF's over 30-day delinquent loan and
lease portfolio, excluding loans held for sale and non-accrual loans and leases:
<TABLE>
<CAPTION>
At March 31, 1998 At December 31, 1997
-------------------------------------------------
Principal Percentage Principal Percentage
(Dollars in thousands) Balances of portfolio Balances of portfolio
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Consumer:
Bank lending $ 7,332 .51% $ 9,646 .66%
Consumer finance lending 23,132 4.21 28,964 5.13
------- -------
30,464 1.53 38,610 1.91
Residential real estate 8,200 .23 10,567 .29
Commercial real estate 1,857 .22 1,173 .14
Commercial business 1,127 .46 396 .17
Lease financing 290 .07 886 .21
------- -------
$41,938 .59 $51,632 .72
------- -------
------- -------
</TABLE>
TCF's over 30-day delinquency rate on gross consumer loans was 1.53% at March
31, 1998, down from 1.91% at year-end 1997. Management continues to monitor the
consumer loan portfolio, which will generally have higher delinquencies,
especially consumer finance loans. TCF's over 30-day delinquency rate on gross
consumer finance loans was 4.21% at March 31, 1998, compared with 5.13% at
December 31, 1997. TCF's over 30-day delinquency rate on gross automobile and
home equity consumer finance loans was 5.41% and 2.35% at March 31, 1998,
compared with 6.81% and 2.40%, respectively, at December 31, 1997. Consumer
finance lending is generally considered to involve a higher level of credit
risk. TCF believes that it has in place experienced personnel and acceptable
standards for maintaining credit quality that are consistent with its goals for
expanding its portfolio of these higher-yielding loans, but no assurance can be
given as to the level of future delinquencies and loan charge-offs.
In addition to the non-accrual loans and leases, there were commercial real
estate and commercial business loans with an aggregate principal balance of
$16.2 million outstanding at March 31, 1998 for which management has concerns
regarding the ability of the borrowers to meet existing repayment terms. This
amount consists of loans that were classified for regulatory purposes as
substandard, doubtful or loss, or were to borrowers that currently are
experiencing financial difficulties or that management believes may experience
financial difficulties in the future. This compares with $23.6 million of such
loans at December 31, 1997. Although these loans are secured by commercial real
estate or other corporate assets, they may be subject to future modifications of
their terms or may become non-performing. Management is monitoring the
performance and classification of such loans and the financial condition of
these borrowers.
20
<PAGE>
DEPOSITS
Deposits totaled $6.9 billion at March 31, 1998, up $17.7 million from
December 31, 1997. The increase included $62.6 million as a result of TCF's
expansion into the Jewel-Osco stores. This increase was partially offset by
the sale of two rural Minnesota branches during the 1998 first quarter with
$56.1 million in deposits. Lower interest-cost checking, savings and money
market deposits totaled $3.5 billion, up $208.3 million from year-end 1997,
and comprised 50.7% of total deposits at March 31, 1998. Checking, savings
and money market deposits are an important source of lower cost funds and fee
income for TCF. The Company's weighted average-rate for deposits, including
non-interest bearing deposits, decreased to 3.23% at March 31, 1998, from
3.42% at December 31, 1997.
BORROWINGS
Borrowings totaled $1.6 billion as of March 31, 1998, down $96.1 million from
year-end 1997. The decrease was primarily due to decreases of $44.2 million in
securities sold under repurchase agreements, $37.2 million in FHLB advances and
$14.5 million in discounted lease rentals. The weighted-average rate on
borrowings decreased to 6.31% at March 31, 1998, from 6.43% at December 31,
1997. At March 31, 1998, borrowings with a maturity of one year or less totaled
$591 million.
STOCKHOLDERS' EQUITY
Stockholders' equity at March 31, 1998 was $948.1 million, or 9.8% of total
assets, down from $953.7 million, or 9.8% of total assets, at December 31, 1997.
The decrease in stockholders' equity is primarily due to the repurchase of
1,127,400 shares of TCF's common stock at a cost of $36.3 million and the
payment of $11.6 million in common stock dividends, partially offset by net
income of $39.9 million for the quarter.
On January 19, 1998, TCF's Board of Directors authorized the repurchase of up to
5% of TCF's common stock, or approximately 4.6 million shares. The repurchased
shares will become treasury shares.
On April 28, 1998, TCF declared a quarterly dividend of 16.25 cents per common
share, payable on May 29, 1998 to shareholders of record as of May 8, 1998.
On April 29, 1998, TCF's shareholders approved an increase in the number of
authorized shares of TCF common stock from 140,000,000 to 280,000,000.
At March 31, 1998, TCF and its bank subsidiaries exceeded their regulatory
capital requirements and are considered "well-capitalized" under guidelines
established by the Federal Reserve Board and the Federal Deposit Insurance
Corporation Improvement Act of 1991.
RECENT ACCOUNTING DEVELOPMENTS
In its March 1998 meeting, the Emerging Issues Task Force ("EITF" or "Task
Force") discussed EITF Issue No. 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested," and
reached tentative conclusions that such deferred compensation plans should be
consolidated in a company's financial statements and in certain circumstances
changes in fair value of rabbi trust assets should be recognized in earnings in
the period in which the changes occur. The Task Force did not reach a tentative
conclusion on the method of implementation. Since a consensus was not reached,
it is too early to predict what effect, if any, this issue will have on TCF's
financial statements.
21
<PAGE>
FORWARD-LOOKING INFORMATION
There are a number of important factors which could cause TCF's future
results to differ materially from historical performance. These include but
are not limited to possible legislative changes; adverse economic
developments which may increase default and delinquency risks in TCF's loan
and lease portfolios; shifts in interest rates which may result in shrinking
interest margins; deposit outflows; interest rates on competing investments;
demand for financial services and loan and lease products; increases
generally in competitive pressure in the banking and financial services
industry; changes in accounting policies or guidelines, or monetary and
fiscal policies of the federal government; changes in the quality or
composition of TCF's loan, lease and investment portfolios; results of
litigation or other significant uncertainties. TCF's year 2000 compliance
initiatives are subject to certain uncertainties which may delay or increase
the cost of achieving compliance. To some extent, TCF's operations will be
dependent on the year 2000 compliance achieved by outside vendors, borrowers
and government agencies or instrumentalities such as the Federal Reserve
System, and also on the cooperation of such parties in testing the
effectiveness of compliance initiatives. TCF's recently completed
acquisitions of Standard and the Jewel-Osco branches (and its commitment to
construct additional Jewel-Osco branches in future periods) are subject to
additional uncertainties, including the possible failure to fully realize or
realize within the expected time frame benefits from the transactions.
Significant uncertainties in such transactions include lower than expected
income or revenue following the transactions; or higher than expected
operating costs; business disruption relating to the transactions; greater
than expected costs or difficulties related to the integration, retention and
attraction of employees or management of the acquired business operations
with those of TCF; and other unanticipated occurrences which may increase the
costs related to the transactions or decrease the expected financial benefits
of the transactions.
22
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
At At At At At
(Dollars in thousands March 31, Dec. 31, Sept. 30, June 30, March 31,
except per-share data) 1998 1997 1997 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $9,664,849 $9,744,660 $9,796,154 $7,403,760 $7,317,584
Investments (1) 246,364 129,612 130,261 82,098 60,458
Securities available for sale 1,306,853 1,426,131 1,628,126 1,181,126 1,242,457
Loans and leases 7,036,646 7,069,188 7,052,032 5,382,356 5,354,941
Deposits 6,925,024 6,907,310 6,976,687 5,243,574 5,291,894
Borrowings 1,631,021 1,727,152 1,754,445 1,349,369 1,273,411
Stockholders' equity 948,070 953,680 919,952 701,063 626,716
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- --------------------------------------------------------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
1998 1997 1997 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income $191,476 $198,739 $173,253 $157,242 $153,380
Interest expense 82,324 87,725 73,399 64,605 63,289
-------- -------- -------- -------- --------
Net interest income 109,152 111,014 99,854 92,637 90,091
Provision for credit losses 5,934 5,859 6,341 4,097 1,498
-------- -------- -------- -------- --------
Net interest income after provision for
credit losses 103,218 105,155 93,513 88,540 88,593
-------- -------- -------- -------- --------
Non-interest income:
Gain on sale of loans -- 145 -- -- --
Gain on sale of loan servicing -- -- -- -- 1,622
Gain on sale of securities available for sale 502 3,179 2,852 1,093 1,385
Gain on sale of joint venture interest 5,580 -- -- -- --
Gain on sale of branches 2,048 742 10,635 2,810 --
Other non-interest income 57,810 55,489 53,917 49,051 43,748
-------- -------- -------- -------- --------
Total non-interest income 65,940 59,555 67,404 52,954 46,755
-------- -------- -------- -------- --------
Non-interest expense:
Amortization of goodwill and other intangibles 2,916 2,844 10,559 1,161 1,193
Other non-interest expense 98,453 95,082 87,794 82,982 79,947
-------- -------- -------- -------- --------
Total non-interest expense 101,369 97,926 98,353 84,143 81,140
-------- -------- -------- -------- --------
Income before income tax expense 67,789 66,784 62,564 57,351 54,208
Income tax expense 27,895 26,895 25,354 22,416 21,181
-------- -------- -------- -------- --------
Net income $ 39,894 $ 39,889 $ 37,210 $ 34,935 $ 33,027
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per common share:
Basic earnings $ .44 $ .44 $ .44 $ .43 $ .41
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted earnings $ .43 $ .43 $ .43 $ .42 $ .40
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Dividends declared $ .125 $ .125 $ .125 $ .125 $ .09375
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
FINANCIAL RATIOS:
Return on average assets (2) 1.66% 1.63% 1.80% 1.90% 1.82%
Return on average realized common equity (2) 16.99 17.28 19.37 21.35 21.26
Return on average common equity (2) 16.83 17.10 19.20 21.37 21.26
Average total equity to average assets 9.83 9.53 9.38 8.91 8.56
Net interest margin (2)(3) 4.94 4.93 5.24 5.41 5.31
</TABLE>
- -------------------
(1) Includes interest-bearing deposits with banks, federal funds sold, U.S.
Government and other marketable securities held to maturity, FRB stock
and FHLB stock.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
23
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
Interest Interest
Average Yields and Average Yields and
(Dollars in thousands) Balance Interest(1) Rates (2) Balance Interest(1) Rates (2)
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Securities available
for sale (3) $1,379,260 $ 24,164 7.01% $1,188,043 $ 21,383 7.20%
---------- ----------- ---------- -----------
Loans held for sale 210,065 3,681 7.01 193,046 3,513 7.28
---------- ----------- ---------- -----------
Loans and leases:
Residential real
estate 3,649,026 68,094 7.46 2,232,293 43,852 7.86
Commercial real estate 845,724 18,916 8.95 855,708 19,113 8.93
Commercial business 243,632 5,252 8.62 181,924 4,077 8.96
Consumer 1,962,011 56,065 11.43 1,753,395 52,035 11.87
Lease financings 370,562 12,521 13.52 310,329 8,205 10.58
---------- ----------- ---------- -----------
Total loans and
leases (4) 7,070,955 160,848 9.10 5,333,649 127,282 9.55
---------- ----------- ---------- -----------
Investments:
Interest-bearing
deposits with banks 3,935 56 5.69 14,701 185 5.03
Federal funds sold 66,166 907 5.48 3,940 51 5.18
U.S. Government and
other marketable
securities held
to maturity 4,079 57 5.59 3,913 50 5.11
FHLB stock 81,494 1,419 6.96 51,149 916 7.16
FRB stock 23,049 344 5.97 - - -
---------- ----------- ---------- -----------
Total investments 178,723 2,783 6.23 73,703 1,202 6.52
---------- ----------- ---------- -----------
Total interest-
earning assets 8,839,003 191,476 8.67 6,788,441 153,380 9.04
----------- ---------- ----------- ----------
Other assets(5) 802,280 470,745
---------- ----------
Total assets $9,641,283 $7,259,186
---------- ----------
---------- ----------
Liabilities and
Stockholders' Equity:
Noninterest-bearing
deposits $ 879,272 $ 714,709
---------- ----------
Interest-bearing
deposits:
Checking 650,854 1,695 1.04 515,196 1,390 1.08
Passbook and statement 1,111,188 4,937 1.78 795,936 3,673 1.85
Money market 697,615 5,145 2.95 641,739 4,902 3.06
Certificates 3,533,458 44,595 5.05 2,442,543 32,193 5.27
---------- ----------- ---------- -----------
Total interest-
bearing
deposits 5,993,115 56,372 3.76 4,395,414 42,158 3.84
---------- ----------- ---------- -----------
Borrowings:
Securities sold under
repurchase
agreements and
federal funds sold 96,246 1,429 5.94 450,959 6,312 5.60
FHLB advances 1,284,403 18,773 5.85 653,208 9,396 5.75
Discounted lease
rentals 235,066 4,609 7.84 191,876 3,899 8.13
Subordinated debt 32,846 936 11.40 42,143 682 6.47
Collateralized
obligations 2,360 54 9.15 40,350 630 6.25
Other borrowings 8,324 151 7.26 13,709 212 6.19
---------- ----------- ---------- -----------
Total borrowings 1,659,245 25,952 6.26 1,392,245 21,131 6.07
---------- ----------- ---------- -----------
Total interest-
bearing
liabilities 7,652,360 82,324 4.30 5,787,659 63,289 4.37
----------- ---------- ----------- ----------
Other liabilities(5) 161,603 135,341
---------- ----------
Total liabilities 8,693,235 6,637,709
---------- ----------
Stockholders' equity:(5)
Preferred equity - -
Common equity 948,048 621,477
---------- ----------
Total stockholders'
equity 948,048 621,477
---------- ----------
Total liabilities
and stockholders'
equity $9,641,283 $7,259,186
---------- ----------
---------- ----------
Net interest income $109,152 $ 90,091
----------- -----------
----------- -----------
Net interest-rate spread 4.37% 4.67%
---------- ----------
---------- ----------
Net interest margin 4.94% 5.31%
---------- ----------
---------- ----------
</TABLE>
(1) Tax-exempt income was not significant and thus has not been presented
on a tax equivalent basis. Tax-exempt income of $40,000 and $56,000 was
recognized during the three months ended March 31, 1998 and 1997,
respectively.
(2) Annualized.
(3) Average balance and yield of securities
available for sale is based upon the historical amortized cost balance.
(4) Average balance of loans and leases includes non-accrual loans and leases,
and is presented net of unearned income.
(5) Average balance is based upon month-end balances.
24
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, TCF is a party to legal proceedings arising out of its
general lending and operating activities. TCF is and expects to become
engaged in a number of foreclosure proceedings and other collection actions
as part of its loan collection activities. From time to time, borrowers have
also brought actions against TCF, in some cases claiming substantial amounts
in damages. TCF is also from time to time involved in litigation relating to
its retail banking, consumer credit and mortgage banking operations and
related consumer financial services, including class action litigation.
Management, after review with its legal counsel, believes that the ultimate
disposition of its litigation will not have a material effect on TCF's
financial condition.
On November 2, 1993, TCF National Bank Minnesota ("TCF Minnesota") filed a
complaint in the United States Court of Federal Claims seeking monetary
damages from the United States for breach of contract, taking of property
without just compensation and deprivation of property without due process.
TCF Minnesota's claim is based on the government's breach of contract in
connection with TCF Minnesota's acquisitions of certain savings institutions
prior to the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), which contracts allowed TCF Minnesota to
treat the "supervisory goodwill" created by the acquisitions as an asset that
could be counted toward regulatory capital, and provided for other favorable
regulatory accounting treatment. The United States has not yet answered TCF
Minnesota's complaint. TCF Minnesota's complaint involves approximately $80.3
million in supervisory goodwill.
In August 1995, Great Lakes National Bank Michigan ("Great Lakes Michigan")
filed with the United States Court of Federal Claims a complaint seeking
monetary damages from the United States for breach of contract, taking of
property without just compensation and deprivation of property without due
process. Great Lakes Michigan's claim is based on the government's breach of
contract in connection with Great Lakes Michigan's acquisitions of certain
savings institutions prior to the enactment of FIRREA in 1989, which
contracts allowed Great Lakes Michigan to treat the "supervisory goodwill"
created by the acquisitions as an asset that could be counted toward
regulatory capital, and provided for other favorable regulatory accounting
treatment. The United States has not yet answered Great Lakes Michigan's
complaint. Great Lakes Michigan's complaint involves approximately $87.3
million in supervisory goodwill.
On July 1, 1996, the United States Supreme Court issued a decision affirming
the August 30, 1995 decision of the United States Court of Appeals for the
Federal Circuit, which decision had affirmed the Court of Federal Claims'
liability determinations in three other "supervisory goodwill" cases,
consolidated for review under the title WINSTAR CORP. V. UNITED STATES, 116
S.Ct. 2432 (1996). In rejecting the United States' consolidated appeal from
the Court of Federal Claims' decisions, the Supreme Court held in WINSTAR
that the United States had breached contracts it had entered into with the
plaintiffs which provided for the treatment of supervisory goodwill, created
through the plaintiffs' acquisitions of failed or failing savings
institutions, as an asset that could be counted toward regulatory capital.
Two of the three cases consolidated in the Supreme Court proceedings are now
proceeding to trials before the Court of Federal Claims on the issue of
damages. One of these trials commenced on February 24, 1997, and the
submission of evidence at trial was completed in April 1998. The Court of
Federal Claims has not yet determined the amount, if any, that the plaintiff
may recover in damages from the government's breach of contract. The other
trial is currently scheduled to begin in May 1998. In connection with
the trials in those cases, the Court of Federal Claims in December of 1996
denied the government's motion seeking to preclude the plaintiffs in these
cases from offering evidence regarding the scope and extent of any lost
profits they suffered as a result of the government's breach.
25
<PAGE>
On December 22, 1997, the Court of Federal Claims issued a decision finding
the existence of contracts and governmental breaches of those contracts in
four other "supervisory goodwill" cases, consolidated for purposes of that
decision only under the title CALIFORNIA FEDERAL BANK V. UNITED STATES, Nos.
92-138C, et al. In reaching its decision, the Court of Federal Claims
rejected a number of "common issue" defenses that the government has raised
in a number of "supervisory goodwill" cases.
There are a variety of contracts and contract provisions in the TCF Minnesota
and Great Lakes Michigan transactions. The government has indicated that it
will have a number of affirmative defenses against goodwill litigation filed
against it. There can be no assurance that the U.S. Supreme Court decision in
WINSTAR or the Court of Federal Claims' recent decision in CALIFORNIA FEDERAL
will mean that a similar result would be obtained in the actions filed by TCF
Minnesota and Great Lakes Michigan. There also can be no assurance that the
government will be determined liable in connection with the loss of
supervisory goodwill by either TCF Minnesota or Great Lakes Michigan or, even
if a determination favorable to TCF Minnesota or Great Lakes Michigan is made
on the issue of the government's liability, that a measure of damages will be
employed that will permit any recovery on TCF Minnesota's or Great Lakes
Michigan's claim. Because of the complexity of the issues involved in both
the liability and damages phases of this litigation, and the usual risks
associated with litigation, the Company cannot predict the outcome of TCF
Minnesota's or Great Lakes Michigan's cases, and investors should not
anticipate any recovery.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 29, 1998, the Annual Meeting of the shareholders of TCF was held to
obtain the approval of shareholders of record as of March 13, 1998 in
connection with the two matters indicated below. Following is a brief
description of each matter voted on at the meeting, and the number of votes
cast for, against or withheld, as well as the number of abstentions and
broker nonvotes, as to each such matter:
<TABLE>
<CAPTION>
Vote
------------------------------------------------------------
Against or Broker
For Withheld Abstain Nonvote
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
1. Election of Directors:
Robert E. Evans 81,752,503 882,445 N/A N/A
Luella G. Goldberg 81,779,907 855,041 N/A N/A
George G. Johnson 81,791,946 843,002 N/A N/A
David H. Mackiewich 81,619,325 1,015,623 N/A N/A
Lynn A. Nagorske 81,785,519 849,429 N/A N/A
Ralph Strangis 81,223,998 1,410,950 N/A N/A
2. Approval of an increase in the number of authorized
shares of TCF Common Stock 78,020,650 4,245,417 368,881 0
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits on page 29 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated January 20, 1998, was filed in
connection with TCF's announcement that it had authorized the
repurchase of up to 5% of the Company's outstanding shares through
open market or privately negotiated transactions. A Current Report
on Form 8-K, dated January 30, 1998, was filed in connection with
TCF's announcement that it had completed the acquisition of 76
branches in Jewel-Osco stores.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TCF FINANCIAL CORPORATION
/s/ Thomas A. Cusick
-------------------------------------------
Thomas A. Cusick, Vice Chairman of
the Board, Chief Operating Officer
and Director
/s/ Mark R. Lund
-------------------------------------------
Mark R. Lund, Senior Vice President,
Assistant Treasurer and Controller
(Principal Accounting Officer)
Dated: May 14, 1998
28
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
Exhibit Sequentially
Number Description Numbered Page
------ ----------- -------------
3(i) Restated Articles of Incorporation
4(a) Copies of instruments with respect to N/A
long-term debt will be furnished to the
Securities and Exchange Commission upon
request.
11 Computation of Earnings Per Common Share
29
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
TCF FINANCIAL CORPORATION
As amended through April 29, 1998.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
TCF FINANCIAL CORPORATION
(INCORPORATED APRIL 28, 1987)
Pursuant to Section 245
of the General Corporation Law
of Delaware
TCF Financial Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
ARTICLE 1. CORPORATE TITLE; RESTATEMENT
The name of the Corporation is TCF Financial Corporation. The date of
filing of its original Certificate of Incorporation with the Secretary of
State was April 28, 1987 with Restated Certificates of Incorporation filed on
June 29, 1987 and August 11, 1987. This Restatement was duly adopted by the
Board of Directors of TCF Financial Corporation pursuant to Section 245 of
the General Corporation Law of Delaware (the 'Delaware Corporation Law").
This restatement only restates and integrates and does not further amend the
provisions of the corporation's certificate of incorporation as heretofore
amended or supplemented, and there is no discrepancy between those provisions
and the provisions of this Restated Certificate.
ARTICLE 2. ADDRESS
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE 3. PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware
Corporation Law.
-1-
<PAGE>
ARTICLE 4. CAPITAL STOCK
A. AUTHORIZED SHARES
The total number of shares of all classes of stock which the Corporation
shall have the authority to issue is three hundred ten million (310,000,000)
shares, $.01 par value, divided into two classes of which two hundred eighty
million (280,000,000) shares shall be Common Stock (hereinafter the "Common
Stock") and thirty million (30,000,000) shares shall be Preferred Stock
(hereinafter the "Preferred Stock"). The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote without a separate
vote of the holders of Preferred Stock as a class.
B. COMMON STOCK
Subject to the rights of the holders of shares of any series of the
Preferred Stock, and except as may be expressly provided with respect to the
Preferred Stock or any series thereof herein or in a resolution of the Board
of Directors establishing such series or by law:
(1) the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of the Corporation's capital stock.
(2) Each share of Common stock shall be entitled to one vote for the
election of directors and on all other matters requiring stockholder action.
C. PREFERRED STOCK
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of the Preferred Stock
shall be as follows:
(1) The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, with such voting powers, full or limited
(including, without limitation, more than one vote, less than one vote or one
vote per share and the ability to vote separately as a class or together with
all or some of the other classes or series of capital stock on all or certain
of the matters to be voted on by the stockholders of the Corporation), or no
voting powers, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issuance thereof adopted by the
Board of Directors, including, but not limited to, the following:
-2-
<PAGE>
(a) the designation and number of shares constituting such
series;
(b) the dividend rate or rates of such series, if any, or the
manner of determining such rate or rates, if any, the conditions and dates
upon which such dividends shall be payable, the preference or relation which
such dividends shall bear to the dividends payable on any other class or
classes or of any other series of capital stock and whether such dividends
shall be cumulative or non-cumulative, and, if cumulative, from which date or
dates;
(c) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such redemption, the
times, prices and other terms and conditions of such redemption;
(d) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) whether the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes or of any other
series of any class or classes of capital stock of the Corporation, and, if
provision be made for conversion or exchange, the time, prices, rates,
adjustments and other terms and conditions of such conversion or exchange;
(f) the extent, if any, to which the holders of the shares of
such series shall be entitled to vote as a class or otherwise, and if so
entitled, the number of votes to which such holder is entitled, with respect
to the election of directors or otherwise;
(g) the restrictions, if any, on the issue or reissue of any
additional series of Preferred Stock; and
(h) the rights, if any, of the holders of the shares of such
series in the event of voluntary or involuntary liquidation, dissolution or
winding up.
(2) Subject to any limitations or restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting a series, the Board of Directors may by
resolution or resolutions likewise adopted increase or decrease (but not
below the number of shares of the series then outstanding) the number of
shares of the series subsequent to the issue of that series, and in case the
number of shares of any series shall be so decreased the shares constituting
the decrease shall resume that status which they had prior to the adoption of
the resolution originally fixing the number of shares.
ARTICLE 5. ACQUISITION OF STOCK
[Omitted]
-3-
<PAGE>
ARTICLE 6. INCORPORATOR
[Omitted]
ARTICLE 7. BOARD OF DIRECTORS
A. NUMBER OF DIRECTORS
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors (the "Board of Directors"). The
authorized number of directors shall consist of not fewer than seven nor more
than twenty-five directors. Within such limits, the exact number of
directors shall be fixed from time to time pursuant to a resolution adopted
by a majority of the Continuing Directors (as defined hereinafter in Article
8).
B. ELECTION OF DIRECTORS
Except as otherwise designated pursuant to the provisions of Article 4
relating to the rights of the holders of any class or series of Preferred
Stock, the directors of the Corporation shall be divided into three classes,
as nearly equal in number as possible: the first class, the second class and
the third class. Each director shall serve for a term ending on the third
annual meeting following the annual meeting at which such director was
elected; PROVIDED, HOWEVER, that the directors first elected to the first
class shall serve for a term ending upon the election of directors at the
annual meeting next following the end of the calendar year 1987, the
directors first elected to the second class shall serve for a term ending
upon the election of directors at the second annual meeting next following
the end of the calendar year 1987, and the directors first elected to the
third class shall serve for a term ending upon the election of directors at
the third annual meeting next following the end of the calendar year 1987.
At each annual election, the successors to the class of directors whose
term expires at that time shall be elected by the stockholders to hold office
for a term of three years (or until their successors are elected and
qualified) to succeed those directors whose term expires, so that the term of
one class of directors shall expire each year, unless, by reason of any
intervening changes in the authorized number of directors, the Board of
Directors shall have designated one or more directorships whose term then
expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes of directors.
Notwithstanding the requirement that the three classes of directors
shall be as nearly equal in number of directors as possible, in the event of
any change in the authorized number of directors, each director then
continuing to serve as such shall nevertheless continue as a director of the
class of which he or she is a member until the expiration of his or her
current term, or his or her prior resignation, disqualification, or removal
from office.
-4-
<PAGE>
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Except as otherwise designated pursuant to the provisions of Article 4
relating to the rights of the holders of any class or series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by the affirmative vote of a majority of the Continuing
Directors (as defined hereinafter in Article 8), or if there be no Continuing
Directors, by the affirmative vote of a majority of directors then in office,
although less than a quorum, or by the sole remaining director, or, in the
event of the failure of the Continuing Directors, the directors, or the sole
remaining director so to act, by the stockholders at the next election of
directors; PROVIDED THAT, if the holders of any class or classes of stock or
series thereof of the Corporation, voting separately, are entitled to elect
one or more directors, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a
sole remaining director so elected. Directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
the class to which they have been elected expires. A director elected to
fill a vacancy by reason of an increase in the number of directorships shall
be elected by a majority vote of the directors then in office, although less
than a quorum of the Board of Directors, to serve until the next election of
the class for which such director shall have been chosen. If the number of
directors is changed, any increase or decrease shall be apportioned among the
three classes so as to make all classes as nearly equal in number as
possible. If, consistent with the preceding requirement, the increase or
decrease may be allocated to more than one class, the increase or decrease
may be allocated to any such class the Board of Directors selects in its
discretion. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
D. REMOVAL
A director may be removed only for cause, as determined by the
affirmative vote of the holders of at least a majority of the shares then
entitled to vote in an election of directors, which vote may only be taken at
a meeting of stockholders (and not by written consent), the notice of which
meeting expressly states such purpose. Cause for removal shall be deemed to
exist only if the director whose removal is proposed has been convicted of a
felony by a court of competent jurisdiction or has been adjudged by a court
of competent jurisdiction to be liable for gross negligence or misconduct in
the performance of such director's duty to the Corporation and such
adjudication is no longer subject to direct appeal.
ARTICLE 8. CERTAIN BUSINESS COMBINATIONS
A. HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
In addition to any affirmative vote of holders of a class or series of
capital stock of the Corporation required by law or the provisions of this
Certificate of Incorporation, and except as otherwise expressly provided in
Paragraph B of this Article 8, a Business Combination (as hereinafter
defined) with, or upon a proposal by, a Related Person (as hereinafter
defined)
-5-
<PAGE>
shall be approved only upon the affirmative vote of the holders of at least
eighty percent (80%) of the Voting Stock (as hereinafter defined) of the
Corporation voting together as a single class, excluding all shares of Voting
Stock beneficially owned or controlled by a Related Person. Such affirmative
vote shall be required notwithstanding the fact that no vote may be required
by law or regulation, or that a lesser percentage may be specified, by law or
regulation.
B. WHEN HIGHER VOTE IS NOT REQUIRED
The provisions of Paragraph A of this Article 8 shall not be applicable
to any particular Business Combination and such Business Combination shall
require only such affirmative vote as is required by law, regulation or any
other provision of this Certificate of Incorporation, if all of the
conditions specified in any one of the following Subparagraphs (1), (2), or
(3) are met:
(1) Approval by directors. The Business Combination has been
approved by a vote of a majority of the Continuing Directors (as hereinafter
defined); or
(2) Combination with subsidiary. The Business Combination is
solely between the Corporation and a direct or indirect subsidiary of the
Corporation and such Business Combination does not have the direct or
indirect effect set forth in Paragraph C(2)(e) of this Article 8; or
(3) Price and procedural conditions. The proposed Business
Combination will be consummated within three years after the date the Related
Person became a Related Person (the "Determination Date") and all of the
following conditions have been met:
(a) The aggregate amount of cash and fair market value (as of
the date of the consummation of the Business Combination) of consideration
other than cash, to be received per share of Common Stock in such Business
Combination by holders thereof shall be at least equal to the highest of the
following: (i) the highest per share price (with appropriate adjustments for
recapitalizations, reclassifications (including stock splits and reverse
stock splits), and stock dividends), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Related Person for
any shares of Common Stock acquired by it, including those shares acquired by
the Related Person before the Determination Date, or (ii) the fair market
value of the common stock of the Corporation (as determined by the Continuing
Directors) on the date the Business Combination is first proposed (the
"Announcement Date").
(b) The aggregate amount of cash and fair market value (as of
the date of the consummation of the Business Combination) of consideration
other than cash, to be received per share of any class or series of Preferred
Stock in such Business Combination by holders thereof shall be at least equal
to the higher of the following: (i) the highest per share price (with
appropriate adjustments for recapitalizations, reclassifications (including
stock splits and reverse stock splits), and stock dividends), including any
brokerage commissions,
-6-
<PAGE>
transfer taxes and soliciting dealers' fees, paid by the Related Person for
any shares of such class or series of Preferred Stock acquired by it,
including those shares acquired by the Related Person before the
Determination Date; (ii) the fair market value of such class or series of
Preferred Stock of the Corporation (as determined by a majority of the
Continuing Directors) on the Announcement Date; and (iii) the highest
preferential amount per share of such class or series of Preferred Stock to
which the holders thereof would be entitled in the event of voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation (regardless of whether the Business Combination to be consummated
constitutes such an event).
(c) The consideration to be received by holders of a
particular class or series of outstanding Common or Preferred Stock shall be
in cash or in the same form as the Related Person has previously paid for
shares of such class or series of stock. If the Related Person has paid for
shares of any class or series of stock with varying forms of consideration,
the form of consideration given for such class of series of stock in the
Business Combination shall be either cash or the form used to acquire the
largest number of shares of such class or series of stock previously acquired
by it.
(d) No Extraordinary Event (as hereinafter defined) occurs
after the Related Person has become a Related Person and prior to the
consummation of the Business Combination.
(e) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) is mailed to
stockholders of the Corporation at least 30 days prior to the consummation
of such Business Combination (whether or not such proxy or information
statement is required pursuant to such Act or subsequent provisions, although
such proxy or information statement need be filed with the Securities and
Exchange Commission only if a filing is required by such Act or subsequent
provisions) and shall contain at the front thereof in a prominent place the
recommendations, if any, of a majority of the Continuing Directors as to the
advisability or inadvisability of the Business Combination and of any
investment banking firm selected by a majority of the Continuing Directors as
to the fairness of the Business Combination from the point of view of the
stockholders of the Corporation other than the Related Person.
C. CERTAIN DEFINITIONS
For purposes of this Article 8, and such other Articles of this Certificate
of Incorporation that specifically incorporate by reference the definitions
contained in this Article 8:
(1) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934
is in effect on January 1, 1987.
-7-
<PAGE>
(2) "Business Combination" shall mean any of the following
transactions, when entered into by the Corporation or a direct or indirect
subsidiary of the Corporation with, or upon a proposal by, a Related Person:
(a) the acquisition, merger or consolidation of the
Corporation or any direct or indirect subsidiary of the Corporation; or
(b) the sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one or a series of transactions) of any assets of the
Corporation or any direct or indirect subsidiary of the Corporation having an
aggregate fair market value of $10,000,000 or more; or
(c) the issuance or transfer by the Corporation or any direct
or indirect subsidiary of the Corporation (in one or a series of
transactions) of securities of this Corporation or that subsidiary having an
aggregate fair market value of $10,000,000 or more; or
(d) the adoption of a plan or proposal for the liquidation or
dissolution of the Corporation or any direct or indirect subsidiary of the
Corporation; or
(e) any reclassification of securities (including a stock
split or reverse stock split), recapitalization, consolidation or any other
transaction (whether or not involving a Related Person) which has the direct
or indirect effect of increasing the voting power, whether or not then
exercisable, of, a Related Person in any class or series of capital stock of
the Corporation or any direct or indirect subsidiary of the Corporation; or
(f) any agreement, contract or other arrangement providing
directly or indirectly for any of the foregoing or any amendment or repeal of
this Article 8.
(3) "Continuing Director" shall mean (a) if a Related Person
exists, any member of the Board of Directors of the Corporation who is not a
Related Person or an Affiliate or Associate of a Related Person and who was a
member of the Board of Directors immediately prior to the time that a Related
Person became a Related Person, and any successor to a Continuing Director
who is not a Related Person or an Affiliate or Associate of a Related Person
and is recommended to succeed a Continuing Director by a majority of the
Continuing Directors who are then members of the Board of Directors; and (b)
if a Related Person does not exist, any member of the Board of Directors.
(4) "Extraordinary Event" shall mean, as to any Business
Combination and Related Person, any of the following events that is not
approved by a majority of the Continuing Directors:
(a) any failure to declare and pay at the regular date therefor
any full
-8-
<PAGE>
quarterly dividend (whether or not cumulative) on outstanding Preferred
Stock; or
(b) any reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the Common
Stock); or
(c) any failure to increase the annual rate of dividends paid
on the Common Stock as necessary to reflect any reclassification (including a
stock split or reverse stock split), recapitalization, reorganization or any
similar transaction that has the effect of reducing the number of outstanding
shares of the Common Stock; or
(d) the receipt by the Related Person, after the
Determination Date, of a direct or indirect benefit (except proportionately
as a stockholder) from any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages provided by
the Corporation or any direct or indirect subsidiary of the Corporation,
whether in anticipation of or in connection with the Business Combination or
otherwise.
(5) The term "person" shall mean any individual, corporation,
partnership, bank, association, joint stock company, trust, syndicate,
unincorporated organization or similar company, or a group of "persons"
acting or agreeing to act together for the purpose of acquiring, holding,
voting or disposing of securities of the Corporation, including any group of
"persons" seeking to combine or pool their voting or other interests in the
equity securities of the Corporation for a common purpose, pursuant to any
contract, understanding, relationship, agreement or other arrangement whether
written or otherwise.
(6) "Related Person" shall mean any person (other than the
Corporation, a direct or indirect subsidiary of the Corporation, or any
profit sharing, employee stock ownership or other employee benefit plan of
the Corporation or a direct or indirect subsidiary of the Corporation or any
trustee of or fiduciary with respect to any such plan acting in such
capacity) that is the direct or indirect beneficial owner (as defined in Rule
13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934 as in effect
on January 1, 1987) of more than ten percent (10%) of the outstanding Voting
Stock of the Corporation, and any Affiliate or Associate of any such person.
(7) "Voting Stock" shall mean all outstanding shares of the Common
or Preferred Stock of the Corporation entitled to vote generally in the
election of directors.
(8) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash" as used in
Paragraphs B(3)(a) and B(3)(b) of this Article 8 shall include the shares of
Common Stock and/or the shares of any other class of Preferred Stock retained
by the holders of such shares.
(9) A majority of the Continuing Directors shall have the power to
make all determinations with respect to this Article 8, including, without
limitation, the transactions that
-9-
<PAGE>
are Business Combinations, the persons who are Related Persons, the time at
which a Related Person became a Related Person, and the fair market value of
any assets, securities or other property, and any such determinations of such
Continuing Directors shall be conclusive and binding.
D. NO EFFECT ON FIDUCIARY OBLIGATIONS OF RELATED PERSONS
Nothing contained in this Article 8 shall be construed to relieve any
Related Person from any fiduciary obligation imposed by law.
ARTICLE 9. ACTION BY WRITTEN CONSENT
Except for the removal of a director pursuant to Article 7 hereof, any
action required to be taken or which may be taken at any annual or special
meeting of the stockholders of the Corporation may be taken by written
consent without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the stockholders of the Corporation
entitled to vote thereon.
ARTICLE 10. SPECIAL MEETINGS
Special meetings of the stockholders may only be called by a majority of
the Continuing Directors (as defined in Article 8).
ARTICLE 11. BYLAWS
Bylaws may be adopted, amended or repealed by (i) the affirmative vote
of the holders of at least eighty percent (80%) of the total votes eligible
to be cast at a stockholders' meeting duly called and held or (ii) a
resolution adopted by the Board of Directors, including a majority of the
Continuing Directors (as defined in Article 8).
ARTICLE 12. LIMITATION OF DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Corporation Law, or
(iv) for any transaction from which the director derives any improper
personal benefit. If the Delaware Corporation Law is amended after the
formation of this Corporation to permit the further elimination or
-10-
<PAGE>
limitation of the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended. Any
repeal or modification of this Article 12 by the stockholders of the
Corporation shall not adversely affect any right or protection of a director
of the Corporation in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE 13. INDEMNIFICATION
A. Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a director or officer of the
Corporation or a subsidiary thereof or is or was serving at the request of
the Corporation, as a director, officer, partner, member or trustee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, partner, member or trustee or in any other capacity while
so serving, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware Corporation Law, as the same exists
or may hereinafter be amended (but, in the case of any such amendment to the
Delaware Corporation Law, the right to indemnification shall be retroactive
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law prior to such amendment
permitted the Corporation to provide), against all expense, liability, and
loss (including, without limitation, attorneys' fees and related
disbursements, judgments, fines, ERISA excise taxes or penalties, and amounts
paid or to be paid in settlement thereof) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall continue
as to a person who has ceased to be a director, officer, partner, member or
trustee and shall inure to the benefit of his or her heirs, executors and
administrators; PROVIDED, HOWEVER, that, except as provided in Paragraph B
hereof with respect to proceedings seeking to enforce rights to
indemnification, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated
by such person only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation. The right to indemnification
conferred in this Paragraph A shall be a contract right and shall include the
right to be paid the expenses incurred in defending any such proceeding in
advance of its final disposition; PROVIDED, HOWEVER, that, if the Delaware
Corporation Law so requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not
in any other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking, by or
on behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled
to be indemnified under this Paragraph A or otherwise. Such right to
indemnification and the payment of expenses incurred in defending a
proceeding in advance of the final disposition may be
-11-
<PAGE>
conferred upon any person who is or was an employee or agent of the
Corporation or a subsidiary thereof or is or was serving at the request of
the Corporation as an employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, if, and to the extent, authorized by the
Bylaws or the Board of Directors, and shall inure to the benefit or his or
her heirs, executors and administrators.
B. If a claim under Paragraph A of this Article 13 is not paid in
full by the Corporation within thirty (30) days after a written claim has
been received by the Corporation, the claimant may at any time thereinafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall also be entitled
to be paid the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition
where the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which
make it permissible under the Delaware Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including, without limitation, its Board of Directors, independent legal
counsel, or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware Corporation Law, nor an actual
determination by the Corporation (including without limitation, its Board of
Directors, independent legal counsel, or stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable standard
of conduct.
C. The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in
this Article 13 shall not be exclusive of any other right to which any person
may have or hereinafter acquire under any statute, provision of this
Certificate of Incorporation or by the Bylaws of the Corporation, agreement,
vote of stockholders or disinterested directors, or otherwise.
D. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware Corporation Law.
E. Any repeal or modification of the foregoing provisions of this
Article 13 shall not adversely affect any right or protection hereunder of
any person in respect of any act or omission occurring prior to the time of
such repeal or modification.
F. If this Article 13 or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director or officer of the Corporation as to any
expense (including attorneys' fees), judgment,
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<PAGE>
fine and amount paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article 13 that shall not have
been invalidated and to the full extent permitted by applicable law.
ARTICLE 14. AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereinafter prescribed by law. Notwithstanding the foregoing and in addition
to any separate requirements contained in this Certificate of Incorporation,
the affirmative vote of the holders of at least eighty percent (80%) of the
total votes eligible to be cast at a legal meeting shall be required to
amend, repeal or adopt any provisions inconsistent with, Articles 5, 7, 8, 9,
10, 11, 12, 13, and this Article 14.
THE UNDERSIGNED, being the Chief Executive Officer and Chairman of the
Board of the Corporation, does hereby certify that this Restated Certificate
of Incorporation merely restates and integrates and does not further amend
the Corporation's previous Restated Certificate of Incorporation, as amended,
and that this Restated Certificate of Incorporation has been duly adopted in
accordance with section 245 of the Delaware Corporation Law, and does hereby
make and file this Restated Certificate of Incorporation.
Dated: April 29, 1998.
/s/ William A. Cooper
-------------------------------
William A. Cooper
Chief Executive Officer and
Chairman of the Board of Directors
Attest: /s/ Gregory J. Pulles
-----------------------
Gregory J. Pulles
Secretary
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<PAGE>
Exhibit 11 - Computation of Earnings Per Common Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Computation of Basic Earnings Per Common Three Months Ended
Share for Statements of Operations: March 31,
- ---------------------------------------- ----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Income applicable to common shareholders $ 39,894 $ 33,027
----------- -----------
----------- -----------
Weighted average common shares outstanding 90,914,027 80,778,560
----------- -----------
----------- -----------
Basic earnings per common share $ .44 $ .41
----------- -----------
----------- -----------
Computation of Diluted Earnings Per Common
Share for Statements of Operations:
- ----------------------------------------
Net income $ 39,894 $ 33,027
Add:
Interest expense on 7 1/4% convertible
subordinated debentures, net of tax -- 79
----------- -----------
Income applicable to common shareholders
including effect of dilutive securities $ 39,894 $ 33,106
----------- -----------
----------- -----------
Weighted average number of common shares outstanding
adjusted for effect of dilutive securities:
Weighted average common shares outstanding used
in basic earnings per common share calculation 90,914,027 80,778,560
Net dilutive effect of:
Stock option plans 391,541 517,970
Restricted stock plans 510,912 835,847
Assumed conversion of 7 1/4% convertible
subordinated debentures -- 838,634
----------- -----------
91,816,480 82,971,011
----------- -----------
----------- -----------
Diluted earnings per common share $ .43 $ .40
----------- -----------
----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 1998 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 363,200
<INT-BEARING-DEPOSITS> 2,116
<FED-FUNDS-SOLD> 135,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,306,853
<INVESTMENTS-CARRYING> 4,122
<INVESTMENTS-MARKET> 4,122
<LOANS> 7,036,646
<ALLOWANCE> 82,511
<TOTAL-ASSETS> 9,664,849
<DEPOSITS> 6,925,024
<SHORT-TERM> 591,023
<LIABILITIES-OTHER> 160,734
<LONG-TERM> 1,039,998
0
0
<COMMON> 929
<OTHER-SE> 947,141
<TOTAL-LIABILITIES-AND-EQUITY> 9,664,849
<INTEREST-LOAN> 160,848
<INTEREST-INVEST> 26,947
<INTEREST-OTHER> 3,681
<INTEREST-TOTAL> 191,476
<INTEREST-DEPOSIT> 56,372
<INTEREST-EXPENSE> 82,324
<INTEREST-INCOME-NET> 109,152
<LOAN-LOSSES> 5,984
<SECURITIES-GAINS> 502
<EXPENSE-OTHER> 101,369
<INCOME-PRETAX> 67,789
<INCOME-PRE-EXTRAORDINARY> 39,894
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,894
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
<YIELD-ACTUAL> 4.94
<LOANS-NON> 37,089
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 16,200
<ALLOWANCE-OPEN> 82,583
<CHARGE-OFFS> 7,620
<RECOVERIES> 1,564
<ALLOWANCE-CLOSE> 82,511
<ALLOWANCE-DOMESTIC> 55,278
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 27,233
</TABLE>