<PAGE>
FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[x] Quarterly Report Pursuant to Section
13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended
June 30, 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.
Outstanding at
Class July 31, 1998
- ----------------------------- 89,301,059 shares
Common Stock, $.01 par value
1
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at June 30, 1998 and December 31, 1997....................................... 3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1998 and 1997.................................. 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997.......................................... 5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1997 and for the
Six Months Ended June 30, 1998............................................... 6
Notes to Consolidated Financial Statements..................................... 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Six Months Ended June 30, 1998 and 1997.......................... 9-20
Supplementary Information...................................................... 21-22
Part II. Other Information
Items 1-6........................................................................... 23-25
Signatures.................................................................................... 26
Index to Exhibits............................................................................. 27
</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
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 357,423 $ 297,010
Interest-bearing deposits with banks 13,143 20,572
U.S. Government and other marketable securities
held to maturity (fair value of $4,184 and $4,061) 4,184 4,061
Federal Reserve Bank stock, at cost 23,093 22,977
Federal Home Loan Bank stock, at cost 82,468 82,002
Securities available for sale (amortized cost of $1,111,068
and $1,411,979) 1,122,490 1,426,131
Loans held for sale 197,207 244,612
Loans and leases:
Residential real estate 3,678,432 3,623,845
Commercial real estate 839,151 859,916
Commercial business 282,533 240,207
Consumer 1,923,891 1,976,699
Lease financing 379,679 368,521
---------- ----------
Total loans and leases 7,103,686 7,069,188
Allowance for loan and lease losses (80,138) (82,583)
---------- ----------
Net loans and leases 7,023,548 6,986,605
Premises and equipment 172,462 165,790
Other real estate owned 13,640 18,353
Accrued interest receivable 52,524 54,336
Due from brokers 62,725 126,662
Goodwill 170,510 177,700
Deposit base intangibles 18,030 19,821
Mortgage servicing rights 20,719 19,512
Other assets 58,894 78,516
---------- ----------
$9,393,060 $9,744,660
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $1,684,008 $1,468,657
Passbook and statement 1,192,476 1,134,678
Money market 691,346 698,312
Certificates 3,173,458 3,605,663
---------- ----------
Total deposits 6,741,288 6,907,310
---------- ----------
Securities sold under repurchase agreements and federal
funds purchased 78,009 112,444
Federal Home Loan Bank advances 1,207,094 1,339,578
Discounted lease rentals 199,983 228,596
Subordinated debt 28,750 34,998
Other borrowings 103,404 11,536
---------- ----------
Total borrowings 1,617,240 1,727,152
Accrued interest payable 22,105 23,510
Accrued expenses and other liabilities 105,942 133,008
---------- ----------
Total liabilities 8,486,575 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, 280,000,000 shares
authorized; 92,920,216 and 92,821,529 shares issued 929 928
Additional paid-in capital 463,955 460,684
Unamortized deferred compensation (25,555) (25,457)
Retained earnings, subject to certain restrictions 562,692 508,969
Accumulated other comprehensive income 6,904 8,556
Treasury stock, at cost, 3,206,094 shares in 1998 (102,440) -
---------- --------
Total stockholders' equity 906,485 953,680
---------- ----------
$9,393,060 $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 Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $147,344 $121,708 $295,671 $240,785
Lease financing 11,983 8,684 24,504 16,889
Loans held for sale 3,572 3,679 7,253 7,192
Securities available for sale 20,929 21,824 45,093 43,207
Investments 3,075 1,347 5,858 2,549
-------- -------- -------- --------
Total interest income 186,903 157,242 378,379 310,622
-------- -------- -------- --------
Interest expense:
Deposits 54,096 43,198 110,468 85,356
Borrowings 25,510 21,407 51,462 42,538
-------- -------- -------- --------
Total interest expense 79,606 64,605 161,930 127,894
-------- -------- -------- --------
Net interest income 107,297 92,637 216,449 182,728
Provision for credit losses 2,882 4,097 8,816 5,595
-------- -------- -------- --------
Net interest income after provision for credit losses 104,415 88,540 207,633 177,133
-------- -------- -------- --------
Non-interest income:
Fee and service charge revenues 31,514 24,768 58,445 47,593
ATM network revenues 12,619 7,251 22,730 13,600
Leasing revenues 6,568 7,994 14,261 14,352
Title insurance revenues 5,007 3,274 9,543 6,023
Commissions on sales of annuities 2,199 2,110 4,423 4,044
Commissions on sales of mutual funds 1,404 947 2,735 1,982
Gain on sale of loans held for sale 1,208 529 3,362 1,406
Gain on sale of securities available for sale 1,787 1,093 2,289 2,478
Gain on sale of branches 4,260 2,810 6,308 2,810
Gain on sale of joint venture interest - - 5,580 -
Gain on sale of loan servicing - - - 1,622
Other 3,012 2,178 5,842 3,799
-------- -------- -------- --------
Total non-interest income 69,578 52,954 135,518 99,709
-------- -------- -------- --------
Non-interest expense:
Compensation and employee benefits 55,186 42,864 107,949 84,325
Occupancy and equipment 17,642 13,887 34,947 27,709
Advertising and promotions 5,458 5,113 10,724 10,106
Federal deposit insurance premiums and assessments 1,384 1,059 2,779 2,130
Amortization of goodwill and other intangibles 2,826 1,161 5,742 2,354
Other 23,187 20,059 44,911 38,659
-------- -------- -------- --------
Total non-interest expense 105,683 84,143 207,052 165,283
-------- -------- -------- --------
Income before income tax expense 68,310 57,351 136,099 111,559
Income tax expense 28,110 22,416 56,005 43,597
-------- -------- -------- --------
Net income $ 40,200 $ 34,935 $ 80,094 $ 67,962
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common share:
Basic $ .45 $ .43 $ .89 $ .84
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ .45 $ .42 $ .88 $ .82
-------- -------- -------- --------
-------- -------- -------- --------
Dividends declared per common share $ .1625 $ .125 $ .2875 $ .21875
-------- -------- -------- --------
-------- -------- -------- --------
</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>
Six Months Ended
June 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 80,094 $ 67,962
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,306 10,849
Amortization of goodwill and other intangibles 5,742 2,354
Amortization of fees, discounts and premiums 1,310 391
Proceeds from sales of loans held for sale 318,149 254,633
Principal collected on loans held for sale 5,238 4,827
Originations and purchases of loans held for sale (324,427) (281,231)
Net decrease (increase) in other assets and
liabilities, and accrued interest 6,815 (14,554)
Provision for credit losses 8,816 5,595
Gain on sale of securities available for sale (2,289) (2,478)
Gain on sale of joint venture interest (5,580) -
Gain on sale of branches (6,308) (2,810)
Gain on sale of loan servicing - (1,622)
Other, net (2,379) 2,178
----------- -----------
Total adjustments 19,393 (21,868)
----------- -----------
Net cash provided by operating activities 99,487 46,094
----------- -----------
Cash flows from investing activities:
Principal collected on loans and leases 1,485,211 829,794
Originations and purchases of loans (1,469,215) (857,437)
Purchases of equipment for lease financing (83,108) (89,737)
Proceeds from sales of loans 6,957 1,348
Net decrease in interest-bearing deposits with banks 7,429 371,860
Proceeds from sales of securities available for sale 149,215 194,883
Proceeds from maturities of and principal collected on
securities available for sale 261,251 85,438
Purchases of securities available for sale (45,684) (375,397)
Proceeds from redemption of FHLB stock 1,784 15,880
Purchases of FRB stock (116) (13,591)
Proceeds from sale of joint venture interest 6,351 -
Net decrease in short-term federal funds sold - 45,000
Purchases of premises and equipment (23,910) (15,901)
Acquisition of BOC Financial Corporation, net of cash acquired - (24,093)
Sales of deposits, net of cash paid (114,132) (42,246)
Other, net 18,844 14,015
----------- -----------
Net cash provided by investing activities 200,877 139,816
----------- -----------
Cash flows from financing activities:
Net (decrease) increase in deposits (43,266) 145,092
Proceeds from securities sold under repurchase agreements
and federal funds purchased 943,035 5,726,662
Payments on securities sold under repurchase agreements
and federal funds purchased (977,470) (5,678,909)
Proceeds from FHLB advances 230,000 356,765
Payments on FHLB advances (362,143) (856,775)
Proceeds from discounted lease rentals 25,281 101,017
Proceeds from other borrowings 260,863 274,058
Payments on other borrowings (169,027) (227,809)
Payments on subordinated debt (6,248) -
Repurchases of common stock (103,888) (27,316)
Payments of dividends on common stock (26,371) (15,994)
Proceeds from issuance of common stock - 29,266
Other, net (10,717) 2,975
----------- -----------
Net cash used by financing activities (239,951) (170,968)
----------- -----------
Net increase in cash and due from banks 60,413 14,942
Cash and due from banks at beginning of period 297,010 236,446
----------- -----------
Cash and due from banks at end of period $ 357,423 $ 251,388
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 157,967 $ 118,605
----------- -----------
----------- -----------
Income taxes $ 58,993 $ 45,386
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements. Annual financial
statements are subject to audit.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Loan to
Unamor- Executive Accumulated
tized Deferred Other
Additional Deferred Compen- Compre-
Number of Common Common Paid-in Compen- Retained sation hensive Treasury
Shares Issued Stock Capital sation Earnings Plan Income Stock Total
---------------- ------ ---------- --------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 85,242,232 $852 $ 274,320 $ (7,693) $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 - - 2,532 - - - - 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 6,505,732 65 162,937 - - - - 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 60,000 - 10,102 (25,270) - - - 15,168 -
Grant of 23,984 shares of
restricted stock to outside
directors from treasury - - 421 (840) - - - 419 -
Cancellation of shares of
restricted stock (2,000) - (58) 15 - - - - (43)
Issuance of 133,784 shares of
treasury stock to employee
benefit plans - 1 374 - - - - 2,555 2,930
Repurchase and cancellation
of shares (86) - (2) - - - - - (2)
Amortization of deferred
compensation - - - 8,331 - - - - 8,331
Exercise of stock options, of
which 44,600 shares were
from treasury 176,585 2 2,917 - - - - 844 3,763
Issuance of common stock on
conversion of convertible
debentures 839,066 8 7,141 - - - - - 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 92,821,529 928 460,684 (25,457) 508,969 - 8,556 - 953,680
Net income - - - - 80,094 - - - 80,094
Dividends on common stock - - - - (26,371) - - - (26,371)
Purchase of 3,248,200 shares to
be held in treasury - - - - - - - (103,796) (103,796)
Issuance of 48,200 shares of
restricted stock, of which
1,000 shares were from treasury 47,200 1 2,727 (2,760) - - - 32 -
Cancellation of shares of
restricted stock (10,200) - (199) 172 - - - - (27)
Grant of shares of restricted
stock to outside directors - - (13) (219) - - - - (232)
Amortization of deferred
compensation - - - 2,709 - - - - 2,709
Exercise of stock options, of which
41,106 shares were from treasury 61,687 - 756 - - - - 1,324 2,080
Change in unrealized gain (loss)
on securities available for
sale, net of tax and
reclassification adjustment - - - - - - (1,652) - (1,652)
---------- ---- --------- -------- -------- ----- --------- --------- ---------
Balance, June 30, 1998 92,920,216 $929 $ 463,955 $(25,555) $562,692 $ - $ 6,904 $(102,440) $ 906,485
---------- ---- --------- -------- -------- ----- --------- --------- ---------
---------- ---- --------- -------- -------- ----- --------- --------- ---------
</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 Six
Months Ended Months Ended
(In thousands) June 30, June 30,
--------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $40,200 $34,935 $80,094 $67,962
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising
during the period on securities available
for sale (net of tax expense (benefit) of
($104) and $5,352 for the three months ended
June 30, 1998 and 1997, respectively, and
($174) and $1,157 for the six months ended
June 30, 1998 and 1997, respectively) (159) 8,859 (267) 2,787
Reclassification adjustment for gains included
in net income (net of tax expense of
$706 and $161 for the three months ended
June 30, 1998 and 1997, respectively, and
$904 and $727 for the six months ended
June 30, 1998 and 1997, respectively) (1,081) (932) (1,385) (1,751)
------- ------- ------- -------
Total other comprehensive income (1,240) 7,927 (1,652) 1,036
------- ------- ------- -------
Comprehensive income $38,960 $42,862 $78,442 $68,998
------- ------- ------- -------
------- ------- ------- -------
</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 89,424,676
and 81,292,982 for the three months ended June 30, 1998 and 1997,
respectively, and 90,169,352 and 81,035,771 for the six months ended June
30, 1998 and 1997, respectively. The weighted average number of common and
common equivalent shares outstanding used to compute diluted earnings per
common share were 90,271,584 and 83,111,710 for the three months ended June
30, 1998 and 1997, respectively, and 91,044,032 and 83,041,361 for the six
months ended June 30, 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 $40.2 million and $80.1 million for the second
quarter and first six months of 1998, respectively, up from $34.9 million and
$68 million for the same 1997 periods. Basic earnings per common share were 45
cents and 89 cents for the second quarter and first six months of 1998,
respectively, compared with 43 cents and 84 cents for the same 1997 periods.
Diluted earnings per common share were 45 cents and 88 cents for the second
quarter and first six months of 1998, respectively, compared with 42 cents and
82 cents for the same 1997 periods. Return on average assets was 1.69% and 1.67%
for the second quarter and first six months of 1998, respectively, compared with
1.90% and 1.86% for the same 1997 periods. Return on average realized common
equity was 17.52% and 17.29% for the second quarter and first six months of
1998, respectively, compared with 21.35% and 21.28% for the same 1997 periods.
Diluted cash earnings per common share, which exclude amortization and reduction
of goodwill and deposit base intangibles, were 48 cents and 97 cents for the
second quarter and first six months of 1998, respectively, compared with 43
cents and 84 cents for the same 1997 periods. On the same basis, cash return on
average assets was 1.84% and 1.85% for the second quarter and first six months
of 1998, respectively, compared with 1.95% and 1.91% for the same 1997 periods,
and cash return on average tangible equity was 23.73% and 23.81% for the second
quarter and first six months of 1998, respectively, compared with 23.48% and
23.35% for the same periods in 1997. 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.
TCF has significantly expanded its retail banking franchise in recent periods
and had 304 retail banking branches at June 30, 1998. Since April 1, 1995, TCF
has opened 135 branches, of which 119 were supermarket branches. The cost of
this expansion resulted in a $2.3 million after-tax reduction in earnings for
the second quarter of 1998 and a $4.7 million after-tax reduction in earnings
for the first half of 1998. TCF anticipates opening 19 branches in the remainder
of 1998, and additional branches in subsequent years. See "Financial Condition -
Forward Looking Information."
Net Interest Income
Net interest income for the second quarter of 1998 was $107.3 million, up 15.8%
from $92.6 million for the second quarter of 1997. The net interest margin for
the second quarter of 1998 was 4.94%, compared with 5.41% for the same 1997
period and 4.94% for the first quarter of 1998. Net interest income for the
first six months of 1998 totaled $216.4 million, up 18.5% from $182.7 million
for the same 1997 period. The net interest margin for the first six months of
1998 was 4.94%, compared with 5.36% for the same period in 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
1998 were negatively impacted due to the impact of Standard's lower net interest
margin, and loan prepayments. 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
9
<PAGE>
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."
The following rate/volume analysis details the increases (decreases) in net
interest income resulting from interest rate and volume changes during the
second quarter and first six months of 1998 as compared to the same periods last
year. Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
Versus Same Period in 1997 Versus Same Period in 1997
------------------------------------- -------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------- -------------------------------------
(In thousands) Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale $ (275) $ (620) $ (895) $ 3,105 $(1,219) $ 1,886
-------- ------- -------- -------- ------- --------
Loans held for sale 27 (134) (107) 331 (270) 61
-------- ------- -------- -------- ------- --------
Loans and leases:
Residential real estate 27,122 (3,448) 23,674 53,645 (5,729) 47,916
Commercial real estate 74 (250) (176) (155) (218) (373)
Commercial business 1,521 (180) 1,341 2,861 (345) 2,516
Consumer 2,990 (2,193) 797 8,522 (3,695) 4,827
Lease financing 1,828 1,471 3,299 3,609 4,006 7,615
-------- ------- -------- -------- ------- --------
Total loans and leases 33,535 (4,600) 28,935 68,482 (5,981) 62,501
-------- ------- -------- -------- ------- --------
Investments:
Interest-bearing deposits
with banks (153) (10) (163) (306) 14 (292)
Federal funds sold 1,167 - 1,167 2,021 2 2,023
U.S. Government and other
marketable securities
held to maturity 3 3 6 5 8 13
FHLB stock 574 (11) 563 1,102 (36) 1,066
FRB stock - 155 155 501 (2) 499
-------- ------- -------- -------- ------- --------
Total investments 1,591 137 1,728 3,323 (14) 3,309
-------- ------- -------- -------- ------- --------
Total interest income 34,878 (5,217) 29,661 75,241 (7,484) 67,757
-------- ------- -------- -------- ------- --------
Deposits:
Checking 373 (70) 303 742 (134) 608
Passbook and statement 1,500 (323) 1,177 2,867 (426) 2,441
Money market 409 (197) 212 819 (364) 455
Certificates 10,602 (1,396) 9,206 24,404 (2,796) 21,608
-------- ------- -------- -------- ------- --------
Total deposits 12,884 (1,986) 10,898 28,832 (3,720) 25,112
-------- ------- -------- -------- ------- --------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased (4,596) 211 (4,385) (9,847) 579 (9,268)
FHLB advances 9,639 45 9,684 18,870 191 19,061
Discounted lease rentals (343) (45) (388) 534 (212) 322
Subordinated debt (254) 162 (92) (431) 593 162
Other borrowings (960) 244 (716) (1,830) 477 (1,353)
-------- ------- -------- -------- ------- --------
Total borrowings 3,486 617 4,103 7,296 1,628 8,924
-------- ------- -------- -------- ------- --------
Total interest expense 16,370 (1,369) 15,001 36,128 (2,092) 34,036
-------- ------- -------- -------- ------- --------
Net interest income $ 18,508 $(3,848) $ 14,660 $ 39,113 $(5,392) $ 33,721
-------- ------- -------- -------- ------- --------
-------- ------- -------- -------- ------- --------
</TABLE>
10
<PAGE>
PROVISIONS FOR CREDIT LOSSES
TCF provided $2.9 million for credit losses in the second quarter of 1998,
compared with $4.1 million for the same prior-year period. In the first six
months of 1998, TCF provided $8.8 million of credit losses, compared with $5.6
million for the same 1997 period. At June 30, 1998, the allowance for loan and
lease losses and industrial revenue bond reserves totaled $81.4 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 gains on sales
of branches, non-interest income increased $15.2 million, or 30.3%, to $65.3
million for the second quarter of 1998, from $50.1 million for the 1997 second
quarter. For the first six months of 1998, non-interest income, excluding gains
on sales of branches and a 1998 gain on sale of joint venture interest, totaled
$123.6 million, compared with $96.9 million for the same period in 1997. The
increases were primarily due to increased deposit, ATM and title insurance
revenues, and reflects TCF's expanded retail banking activities.
Fee and service charge revenues totaled $31.5 million and $58.4 million for the
second quarter and first six months of 1998, respectively, representing
increases of 27.2% and 22.8% from $24.8 million and $47.6 million for the same
1997 periods. These increases are primarily due to expanded retail banking
activities.
ATM network revenues totaled $12.6 million and $22.7 million for the second
quarter and first six months of 1998, respectively, representing increases of
74% and 67.1% from $7.3 million and $13.6 million for the same 1997 periods.
These increases reflect TCF's effort to provide banking services through its ATM
network. TCF expanded its network of ATMs to 1,409 at June 30, 1998, an increase
of 49 ATMs from March 31, 1998 and an increase of 253 ATMs from December 31,
1997. On January 30, 1998, TCF acquired 178 ATMs in connection with its
acquisition of 76 branches in Jewel-Osco stores. See Note 4 of Notes to
Consolidated Financial Statements. The Company anticipates installing additional
ATMs during the remainder of 1998.
Leasing revenues totaled $6.6 million and $14.3 million for the second quarter
and first six months of 1998, respectively, representing decreases of $1.4
million and $91,000 from $8 million and $14.4 million for the same 1997 periods.
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.
Title insurance revenues totaled $5 million and $9.5 million for the second
quarter and first six months of 1998, respectively, representing increases of
52.9% and 58.4% from $3.3 million and $6 million for the same 1997 periods.
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 $1.2 million and $3.4 million for
the second quarter and first six months of 1998, respectively, representing
increases of $679,000 and $2 million from the amounts recognized during the same
periods in 1997. Gains on sales of securities available for sale totaled $1.8
million and $2.3 million for the second quarter and first six months of 1998,
respectively, compared with $1.1 million and $2.5 million for the comparable
1997 periods. Gains or losses on sales of loans held for sale and
11
<PAGE>
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.
During the second quarter of 1998, TCF recognized a $4.3 million gain on the
sale of four branches, compared with a $2.8 million gain on the sale of two
branches during the same 1997 period. Results for the first six months of 1998
also include first quarter gains of $5.6 million on the sale of TCF's joint
venture interest in Burnet Home Loans and $2 million on the sales of two
branches.
Results for the first six months 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 $4.1
billion at June 30, 1998, compared with $4.4 billion at December 31, 1997.
TCF's non-interest income in future periods may be negatively impacted by
pending legislative proposals, which, if enacted, could limit loan, deposit or
other fees and service charges. See "Financial Condition - Loans Held for Sale"
and "Financial Condition - Forward Looking Information."
NON-INTEREST EXPENSE
Non-interest expense totaled $105.7 million for the second quarter of 1998, up
25.6% from $84.1 million for the same 1997 period. For the first six months of
1998, non-interest expense totaled $207.1 million, up 25.3% from $165.3 million
for the same 1997 period. Compensation and employee benefits expense totaled
$55.2 million and $107.9 million for the 1998 second quarter and first six
months, respectively, compared with $42.9 million and $84.3 million for the
comparable periods in 1997. Occupancy and equipment expenses totaled $17.6
million and $34.9 million for the second quarter and first six months of 1998,
respectively, compared with $13.9 million and $27.7 million for the same 1997
periods. The increased expenses in 1998 were primarily due to the costs
associated with expanded retail banking activities, including the acquisition of
Standard and the opening of 82 branches in Jewel-Osco stores.
Amortization of goodwill and other intangibles totaled $2.8 million and $5.7
million for the second quarter and first six months of 1998, respectively,
compared with $1.2 million and $2.4 million for the same 1997 periods. The
increases are 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 $974,000 and $3.3 million for the second quarter and
first six months of 1998, respectively.
TCF, like most owners of computer software, is 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 software
applications is moving forward as scheduled, 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."
12
<PAGE>
INCOME TAXES
TCF recorded income tax expense of $28.1 million and $56 million for the second
quarter and first six months of 1998, or 41.2% of income before income tax
expense, respectively, compared with $22.4 million and $43.6 million, or 39.1%,
for the comparable 1997 periods. 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.
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).
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 positive $4.9 million, or .1% of total assets, at June 30, 1998, compared
with a negative $184.7 million, or (2)% of total assets, at December 31, 1997.
FINANCIAL CONDITION
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 $303.6 million from year-end 1997 to
$1.1 billion at June 30, 1998. The decrease reflects sales of $146.9 million of
securities available for sale and payment and prepayment activity, partially
offset by purchases of $45.7 million. At June 30, 1998, TCF's securities
available-for-sale portfolio included $747.4 million and $375.1 million of
fixed-rate and adjustable-rate mortgage-backed securities, respectively. The
following table summarizes securities available for sale:
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997
----------------------------- ----------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 542,452 $ 550,140 $ 701,195 $ 710,799
FNMA 394,756 398,086 466,820 469,900
GNMA 38,674 39,526 43,079 43,993
Private issuer 134,190 133,742 199,738 200,325
Collateralized mortgage
obligations 996 996 1,147 1,114
---------- ---------- ---------- ----------
$1,111,068 $1,122,490 $1,411,979 $1,426,131
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
13
<PAGE>
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 $8.3 million
and residential real estate loans held for sale decreased $55.7 million from
year-end 1997, respectively, and totaled $143.6 million and $53.6 million at
June 30, 1998.
TCF originated $95.4 million in education loans for the year ended December 31,
1997 and $51.2 million for the first six months of 1998. TCF's education lending
activity will be adversely affected in the event legislation is not enacted to
limit the impact of existing legislation originally scheduled to take effect
July 1, 1998, but delayed until October 1, 1998 by enactment of federal
legislation, which would significantly reduce the yield on loans made under the
Federal Family Education Loan Program. The ultimate disposition of these
legislative initiatives and its impact on TCF's education lending activities is
uncertain at this time.
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
June 30, December 31,
(In thousands) 1998 1997
------------ ----------
<S> <C> <C>
Residential real estate $3,672,966 $3,619,527
Unearned premiums and deferred loan fees 5,466 4,318
---------- ----------
3,678,432 3,623,845
---------- ----------
Commercial real estate:
Apartments 275,191 294,231
Other permanent 477,427 481,759
Construction and development 88,464 86,174
Unearned discounts and deferred loan fees (1,931) (2,248)
---------- ----------
839,151 859,916
---------- ----------
Total real estate 4,517,583 4,483,761
---------- ----------
Commercial business 282,014 239,728
Deferred loan costs 519 479
---------- ----------
282,533 240,207
---------- ----------
Consumer:
Home equity 1,517,813 1,519,644
Automobile 399,498 444,903
Loans secured by deposits 8,825 10,112
Other secured 19,936 19,955
Unsecured 35,374 44,607
Unearned discounts and deferred loan fees (57,555) (62,522)
---------- ----------
1,923,891 1,976,699
---------- ----------
Lease financing:
Direct financing leases 357,536 344,889
Sales-type leases 38,283 40,592
Lease residuals 29,297 28,789
Unearned income and deferred lease costs (45,437) (45,749)
---------- ----------
379,679 368,521
---------- ----------
$7,103,686 $7,069,188
---------- ----------
---------- ----------
</TABLE>
14
<PAGE>
Loans and leases increased $34.5 million from year-end 1997 to $7.1 billion at
June 30, 1998, primarily reflecting increases of $54.6 million and $42.3 million
in residential real estate and commercial business loans, respectively,
partially offset by a decrease of $52.8 million in consumer loans. TCF's growth
in its loan and lease portfolios has been negatively impacted by growth in
prepayment activity due to lower long-term interest rates. Unearned discounts
and deferred fees totaled $98.9 million at June 30, 1998 and $105.7 million at
December 31, 1997.
Consumer loans, comprised of bank originated and consumer finance originated
loans, decreased $52.8 million from year-end 1997 to $1.9 billion at June 30,
1998, reflecting decreases of $45.4 million and $9.2 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 June 30, 1998. TCF's
consumer finance loan portfolio totaled $501.5 million at June 30, 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."
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 $33,000, respectively, at
June 30, 1998. At June 30, 1998 and December 31, 1997, automobile loans
comprised $271.7 million, or 54.2%, and $292.6 million, or 56.1%, respectively,
of total consumer finance loans. At June 30, 1998 and December 31, 1997, home
equity loans comprised $220.2 million, or 43.9%, 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 June 30,
1998 are $215.8 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.
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 $20.8 million from year-end 1997 to
$839.2 million at June 30, 1998. Commercial business loans increased $42.3
million in the first six months of 1998 to $282.5 million at June 30, 1998.
At June 30, 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 June 30, 1998, the recorded investment in loans that are considered to be
impaired was $8.5 million for which the related allowance for credit losses was
$2.7 million. All of the impaired loans were on non-accrual status. The average
recorded investment in impaired loans during the three and six months ended June
30, 1998 was $8.6 million and $8.7 million, respectively.
15
<PAGE>
Lease financings increased $11.2 million from year-end 1997 to $379.7 million at
June 30, 1998, reflecting a $12.6 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
also internally funds 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 Six Months Ended
(Dollars in thousands) June 30, 1998 June 30, 1998
------------------------------------- -----------------------------------------
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 $82,511 $1,410 $83,921 $82,583 $1,460 $84,043
Provision for credit losses 2,991 (109) 2,882 8,975 (159) 8,816
Charge-offs (7,173) - (7,173) (14,793) - (14,793)
Recoveries 1,809 - 1,809 3,373 - 3,373
------- ------ ------- ------- ------ -------
Net charge-offs (5,364) - (5,364) (11,420) - (11,420)
------- ------ ------- ------- ------ -------
Balance at end of period $80,138 $1,301 $81,439 $80,138 $1,301 $81,439
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Ratio of annualized net loan and lease
charge-offs to average loans and leases
outstanding, excluding loans held
for sale .30% .32%
Allowance for loan and lease losses as
a percentage of total loan and lease
balances, excluding loans held for sale 1.13% 1.13%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 1997 June 30, 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 $72,873 $1,610 $74,483 $71,865 $1,660 $73,525
Acquired balance - - - 1,653 - 1,653
Provision for credit losses 4,147 (50) 4,097 5,695 (100) 5,595
Charge-offs (6,626) - (6,626) (11,946) - (11,946)
Recoveries 2,072 - 2,072 5,199 - 5,199
------- ------ ------- ------- ------ -------
Net charge-offs (4,554) - (4,554) (6,747) - (6,747)
------- ------ ------- ------- ------ -------
Balance at end of period $72,466 $1,560 $74,026 $72,466 $1,560 $74,026
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Ratio of annualized net loan and lease
charge-offs to average loans and leases
outstanding, excluding loans held
for sale .34% .25%
Allowance for loan and lease losses as
a percentage of total loan and lease
balances, excluding loans held for sale 1.35% 1.35%
</TABLE>
16
<PAGE>
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 3.61% and 3.73% for the second quarter and six months ended June 30, 1998,
respectively, compared with 3.07% and 2.95% for the same periods of 1997 and
3.85% for the three months ended March 31, 1998. In addition, the net loan
charge-offs as a percentage of average loans outstanding for TCF's indirect
consumer finance portfolio were 4.40% and 5.04% for the second quarter and six
months ended June 30, 1998, compared with 4.34% for the same periods in 1997 and
5.66% for the three months ended March 31, 1998.
Management believes the allowance for loan and lease losses and industrial
revenue bond reserves are adequate. The unallocated portion of TCF's allowance
for loan and lease losses totaled $26.1 million at June 30, 1998, compared with
$29.4 million at December 31, 1997.
NON-PERFORMING ASSETS
Non-performing assets (principally non-accrual loans and leases and other real
estate owned) totaled $51.6 million at June 30, 1998, down $7.2 million from the
December 31, 1997 total of $58.7 million. Approximately 73% of non-performing
assets at June 30, 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
June 30, December 31,
(Dollars in thousands) 1998 1997
--------- --------
<S> <C> <C>
Non-accrual loans and leases (1):
Consumer:
Bank lending $ 4,195 $ 3,495
Consumer finance lending 14,051 17,542
------- -------
18,246 21,037
Residential real estate 8,840 8,451
Commercial real estate 5,380 3,818
Commercial business 3,089 3,370
Lease financing 156 117
------- -------
35,711 36,793
Other real estate owned and other assets (2) 15,856 21,953
------- -------
Total non-performing assets $51,567 $58,746
------- -------
------- -------
Non-performing assets as a percentage
of net loans and leases .73% .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 $12 million and $11.2 million,
commercial real estate of $1.7 million and $6.7 million and automobiles
of $1.9 million and $2.6 million at June 30, 1998 and December 31, 1997,
respectively.
17
<PAGE>
TCF had no accruing loans and leases 90 days or more past due at June 30, 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 .76% of gross loans and leases
outstanding at June 30, 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 June 30, 1998 At December 31, 1997
------------------------------ -------------------------------
Principal Percentage of Principal Percentage of
(Dollars in thousands) Balances Portfolio Balances Portfolio
--------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Consumer:
Bank lending $ 6,671 .47% $ 9,646 .66%
Consumer finance lending 30,319 5.62 28,964 5.13
------- -------
36,990 1.88 38,610 1.91
Residential real estate 13,452 .37 10,567 .29
Commercial real estate 3,053 .37 1,173 .14
Commercial business 238 .09 396 .17
Lease financing 464 .11 886 .21
------- -------
$54,197 .76 $51,632 .72
------- -------
------- -------
</TABLE>
TCF's over 30-day delinquency rate on gross consumer loans was 1.88% at June 30,
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 60-day delinquency rate on gross
consumer finance loans was 1.23% at June 30, 1998, compared with 1.25% at
December 31, 1997. TCF's over 60-day delinquency rate on gross automobile and
home equity consumer finance loans was 1.35% and 1.04% at June 30, 1998,
compared with 1.65% and .6%, 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, 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
$13.6 million outstanding at June 30, 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.
DEPOSITS
Deposits totaled $6.7 billion at June 30, 1998, down $166 million from December
31, 1997. The decrease reflects a $432.2 million decrease in higher-rate
certificates, and includes the effects of the previously described branch sales.
Lower interest-cost checking, savings and money market deposits totaled $3.6
billion, up $266.2 million from year-end 1997, and comprised 52.9% of total
deposits at June 30, 1998. Checking, savings and money market deposits are an
important source of lower cost funds and fee
18
<PAGE>
income for TCF. The Company's weighted-average rate for deposits, including
non-interest bearing deposits, decreased to 3.15% at June 30, 1998, from 3.42%
at December 31, 1997. This decrease reflects a lower proportion of higher-rate
certificates at June 30, 1998 than at December 31, 1997, primarily as a result
of the run-off of certificates acquired from Standard.
BORROWINGS
Borrowings totaled $1.6 billion as of June 30, 1998, down $109.9 million from
year-end 1997. The decrease was primarily due to decreases of $132.5 million in
FHLB advances, $34.2 million in securities sold under repurchase agreements and
$28.6 million in discounted lease rentals, partially offset by increases of
$51.1 million in TCF's bank line of credit and $41.1 million in treasury, tax
and loan notes. The weighted-average rate on borrowings decreased to 6.29% at
June 30, 1998, from 6.43% at December 31, 1997. At June 30, 1998, borrowings
with a maturity of one year or less totaled $625.9 million.
STOCKHOLDERS' EQUITY
Stockholders' equity at June 30, 1998 was $906.5 million, or 9.7% 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
3,248,200 shares of TCF's common stock at a cost of $103.8 million and the
payment of $26.4 million in common stock dividends, partially offset by net
income of $80.1 million for the first six months of 1998.
On January 19, 1998, TCF's Board of Directors (the "Board") authorized the
repurchase of up to 5% of TCF's common stock, or approximately 4.6 million
shares. On June 22, 1998, the Board authorized another repurchase of up to 5% of
TCF's common stock, or approximately 4.5 million shares. TCF has 1,396,353
shares remaining unpurchased from its 5% stock repurchase program, authorized by
the Board in January 1998, which the Company expects to repurchase before
initiating the new program. The repurchased shares will become treasury shares.
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.
On July 16, 1998, TCF announced a quarterly dividend of 16.25 cents per common
share, payable on August 31, 1998 to shareholders of record as of August 7,
1998.
At June 30, 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
At its May 21, 1998 meeting, the Emerging Issues Task Force ("EITF") reached a
consensus that for deferred compensation arrangements in which amounts earned by
an employee are invested in the employer's stock and placed in a rabbi trust,
the accounts of the rabbi trust should be consolidated with the accounts of the
employer. With regard to any assets held by the rabbi trust, the EITF reached a
consensus that employer stock should be classified and accounted for in equity
in a manner similar to the way in which treasury stock is accounted for (that
is, changes in fair value are not recognized). Any other assets held by the
rabbi trust should be accounted for in accordance with generally accepted
accounting principles for the particular asset. The EITF reached a consensus on
transition issues at its July 23, 1998 meeting. TCF is in the process of
evaluating the consensus, studying its plan designs and considering possible
changes to its plans to minimize the impact of the consensus. At this time, it
is too early to determine what impact this consensus will have on TCF.
19
<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 in
competition 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 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 anticipated benefits from the transactions. Significant
uncertainties in such transactions include lower than expected income or
revenue or higher than expected operating costs; greater than expected costs
or difficulties related to the integration and retention of employees of the
acquired business operations; and other unanticipated occurrences which may
increase the costs related to the transactions or decrease the expected
financial benefits of the transactions.
20
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
At At At At At At
(Dollars in thousands June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
except per-share data) 1998 1998 1997 1997 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $9,393,060 $9,664,849 $9,744,660 $9,796,154 $7,403,760 $7,317,584
Investments (1) 122,888 246,364 129,612 130,261 82,098 60,458
Securities available for sale 1,122,490 1,306,853 1,426,131 1,628,126 1,181,126 1,242,457
Loans and leases 7,103,686 7,036,646 7,069,188 7,052,032 5,382,356 5,354,941
Deposits 6,741,288 6,925,024 6,907,310 6,976,687 5,243,574 5,291,894
Borrowings 1,617,240 1,631,021 1,727,152 1,754,445 1,349,369 1,273,411
Stockholders' equity 906,485 948,070 953,680 919,952 701,063 626,716
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1998 1998 1997 1997 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income $186,903 $191,476 $198,739 $173,253 $157,242 $153,380
Interest expense 79,606 82,324 87,725 73,399 64,605 63,289
-------- -------- -------- -------- -------- --------
Net interest income 107,297 109,152 111,014 99,854 92,637 90,091
Provision for credit losses 2,882 5,934 5,859 6,341 4,097 1,498
-------- -------- -------- -------- -------- --------
Net interest income after provision for
credit losses 104,415 103,218 105,155 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 1,787 502 3,179 2,852 1,093 1,385
Gain on sale of joint venture interest - 5,580 - - - -
Gain on sale of branches 4,260 2,048 742 10,635 2,810 -
Other non-interest income 63,531 57,810 55,489 53,917 49,051 43,748
-------- -------- -------- -------- -------- --------
Total non-interest income 69,578 65,940 59,555 67,404 52,954 46,755
-------- -------- -------- -------- -------- --------
Non-interest expense:
Amortization of goodwill and other
intangibles 2,826 2,916 2,844 10,559 1,161 1,193
Other non-interest expense 102,857 98,453 95,082 87,794 82,982 79,947
-------- -------- -------- -------- -------- --------
Total non-interest expense 105,683 101,369 97,926 98,353 84,143 81,140
-------- -------- -------- -------- -------- --------
Income before income tax expense 68,310 67,789 66,784 62,564 57,351 54,208
Income tax expense 28,110 27,895 26,895 25,354 22,416 21,181
-------- -------- -------- -------- -------- --------
Net income $ 40,200 $ 39,894 $ 39,889 $ 37,210 $ 34,935 $ 33,027
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Per common share:
Basic earnings $ .45 $ .44 $ .44 $ .44 $ .43 $ .41
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Diluted earnings $ .45 $ .43 $ .43 $ .43 $ .42 $ .40
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Diluted cash earnings (3) $ .48 $ .49 $ .46 $ .51 $ .43 $ .41
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Dividends declared $ .1625 $ .125 $ .125 $ .125 $ .125 $ .09375
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
FINANCIAL RATIOS:
Return on average assets (2) 1.69% 1.66% 1.63% 1.80% 1.90% 1.82%
Cash return on average assets (2)(3) 1.84 1.86 1.73 2.13 1.95 1.87
Return on average realized common equity (2) 17.52 16.99 17.28 19.37 21.35 21.26
Return on average common equity (2) 17.37 16.83 17.10 19.20 21.37 21.26
Cash return on average tangible equity (2)(3) 23.73 23.78 23.09 25.94 23.48 23.35
Average total equity to average assets 9.75 9.83 9.53 9.38 8.91 8.56
Net interest margin (2)(4) 4.94 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) Excludes amortization and reduction of goodwill and deposit base
intangibles.
(4) Net interest income divided by average interest-earning assets.
21
<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>
Six Months Ended June 30,
--------------------------------------------------------------------------------------
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) $1,290,096 $ 45,093 6.99% $1,202,582 $ 43,207 7.19%
---------- -------- ---------- --------
Loans held for sale 204,923 7,253 7.08 195,729 7,192 7.35
---------- -------- ---------- --------
Loans and leases:
Residential real
estate 3,655,605 135,007 7.39 2,210,259 87,091 7.88
Commercial real estate 845,198 37,773 8.94 848,535 38,146 8.99
Commercial business 257,207 10,948 8.51 190,325 8,432 8.86
Consumer 1,945,361 111,943 11.51 1,782,502 107,116 12.02
Lease financings 374,245 24,504 13.10 313,477 16,889 10.78
---------- -------- ---------- --------
Total loans and
leases (4) 7,077,616 320,175 9.05 5,345,098 257,674 9.64
---------- -------- ---------- --------
Investments:
Interest-bearing
deposits with banks 3,179 90 5.66 14,011 382 5.45
Federal funds sold 75,332 2,075 5.51 1,959 52 5.31
U.S. Government and
other marketable
securities held
to maturity 4,116 115 5.59 3,925 102 5.20
FHLB stock 81,989 2,889 7.05 50,693 1,823 7.19
FRB stock 23,069 689 5.97 6,307 190 6.03
---------- -------- ---------- --------
Total investments 187,685 5,858 6.24 76,895 2,549 6.63
---------- -------- ---------- --------
Total interest-
earning assets 8,760,320 378,379 8.64 6,820,304 310,622 9.11
-------- ----- -------- -----
Other assets (5) 809,060 484,657
---------- ----------
Total assets $9,569,380 $7,304,961
---------- ----------
---------- ----------
Liabilities and
Stockholders' Equity:
Non-interest bearing
deposits $ 948,727 $ 743,388
---------- ----------
Interest-bearing
deposits:
Checking 661,852 3,419 1.03 520,357 2,811 1.08
Passbook and
statement 1,130,677 9,924 1.76 803,062 7,483 1.86
Money market 696,402 10,338 2.97 641,399 9,883 3.08
Certificates 3,398,524 86,787 5.11 2,445,335 65,179 5.33
---------- -------- ---------- --------
Total interest-
bearing
deposits 5,887,455 110,468 3.75 4,410,153 85,356 3.87
---------- -------- ---------- --------
Borrowings:
Securities sold under
repurchase agree-
ments and federal
funds purchased 101,458 3,018 5.95 433,323 12,286 5.67
FHLB advances 1,272,928 37,293 5.86 628,921 18,232 5.80
Discounted lease
rentals 220,595 8,908 8.08 207,395 8,586 8.28
Subordinated debt 30,786 1,656 10.76 40,958 1,494 7.30
Other borrowings 16,551 587 7.09 62,453 1,940 6.21
---------- -------- ---------- --------
Total borrowings 1,642,318 51,462 6.27 1,373,050 42,538 6.20
---------- -------- ---------- --------
Total interest-
bearing
liabilities 7,529,773 161,930 4.30 5,783,203 127,894 4.42
-------- ----- -------- ----
Other liabilities(5) 155,635 139,080
---------- ----------
Total liabilities 8,634,135 6,665,671
Stockholders' equity (5) 935,245 639,290
---------- ----------
Total liabilities
and stockholders'
equity $9,569,380 $7,304,961
---------- ----------
---------- ----------
Net interest income $216,449 $182,728
-------- --------
-------- --------
Net interest-rate spread 4.34% 4.69%
---- ----
---- ----
Net interest margin 4.94% 5.36%
---- ----
---- ----
</TABLE>
(1) Tax-exempt income was not significant and thus has not been presented on a
tax equivalent basis. Tax-exempt income of $77,000 and $109,000 was
recognized during the six months ended June 30, 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.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, TCF is a party to legal proceedings generally arising out of
its general lending, deposit 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, mortgage banking and deposit
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 have since been tried 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.
Post-trial briefing has now been completed, and final arguments will be heard in
September of this year. 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 case settled in June 1998. In connection with the
trials in those cases, the Court of Federal Claims in December of 1996 denied
the government's
23
<PAGE>
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.
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, 39 Fed Cl. 753
(1997). 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>
24
<PAGE>
ITEM 5. OTHER INFORMATION.
The Securities and Exchange Commission has amended its Rule 14a-4, which governs
the use by the Company of its discretionary voting authority with respect to
certain shareholder proposals. Pursuant to this amendment, the Company's proxy
card for its 1999 annual meeting of shareholders may confer discretionary
authority on any matter as to which the Company does not receive notice by
Februry 3, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits on page 27 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated June 23, 1998, was filed in
connection with TCF's announcement that it had authorized another
repurchase of up to 5% of the Company's outstanding shares through open
market or privately negotiated transactions.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TCF FINANCIAL CORPORATION
/s/ Ronald J. Palmer
----------------------------------------------
Ronald J. Palmer, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Mark R. Lund
----------------------------------------------
Mark R. Lund, Senior Vice President,
Assistant Treasurer and Controller
(Principal Accounting Officer)
Dated: August 13, 1998
26
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
------- ----------- -------------
<S> <C> <C>
4(a) Copies of instruments with respect N/A
to long-term debt will be furnished
to the Securities and Exchange
Commission upon request.
11 Computation of Earnings Per Common Share
</TABLE>
27
<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 Six Months Ended
Share for Statements of Operations: June 30, June 30,
- ---------------------------------------- ---------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income applicable to common shareholders $ 40,200 $ 34,935 $ 80,094 $ 67,962
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares outstanding 89,424,676 81,292,982 90,169,352 81,035,771
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per common share $ .45 $ .43 $ .89 $ .84
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Computation of Diluted Earnings Per Common
Share for Statements of Operations:
- ------------------------------------------
Net income $ 40,200 $ 34,935 $ 80,094 $ 67,962
Add: Interest expense on 7 1/4% convertible
subordinated debentures, net of tax - 53 - 132
----------- ----------- ----------- -----------
Income applicable to common shareholders
including effect of dilutive securities $ 40,200 $ 34,988 $ 80,094 $ 68,094
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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 89,424,676 81,292,982 90,169,352 81,035,771
Net dilutive effect of:
Stock option plans 357,462 429,002 374,501 473,486
Restricted stock plans 489,446 828,618 500,179 832,233
Assumed conversion of 7 1/4% convertible
subordinated debentures - 561,108 - 699,871
----------- ----------- ----------- -----------
90,271,584 83,111,710 91,044,032 83,041,361
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per common share $ .45 $ .42 $ .88 $ .82
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 1998 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 357,423
<INT-BEARING-DEPOSITS> 13,143
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,122,490
<INVESTMENTS-CARRYING> 4,184
<INVESTMENTS-MARKET> 4,184
<LOANS> 7,103,686
<ALLOWANCE> 80,138
<TOTAL-ASSETS> 9,393,060
<DEPOSITS> 6,741,288
<SHORT-TERM> 625,889
<LIABILITIES-OTHER> 128,047
<LONG-TERM> 991,351
0
0
<COMMON> 929
<OTHER-SE> 905,556
<TOTAL-LIABILITIES-AND-EQUITY> 9,393,060
<INTEREST-LOAN> 320,175
<INTEREST-INVEST> 50,951
<INTEREST-OTHER> 7,253
<INTEREST-TOTAL> 378,379
<INTEREST-DEPOSIT> 110,468
<INTEREST-EXPENSE> 161,930
<INTEREST-INCOME-NET> 216,449
<LOAN-LOSSES> 8,816
<SECURITIES-GAINS> 2,289
<EXPENSE-OTHER> 207,052
<INCOME-PRETAX> 136,099
<INCOME-PRE-EXTRAORDINARY> 80,094
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,094
<EPS-PRIMARY> .89
<EPS-DILUTED> .88
<YIELD-ACTUAL> 4.94
<LOANS-NON> 35,711
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 13,575
<ALLOWANCE-OPEN> 82,583
<CHARGE-OFFS> 14,793
<RECOVERIES> 3,373
<ALLOWANCE-CLOSE> 80,138
<ALLOWANCE-DOMESTIC> 54,088
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 26,050
</TABLE>
