<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 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
incorporation or organization) Identification No.)
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
________________________
Securities registered pursuant to Section 12(b) of the Act
(all registered on the New York Stock Exchange):
COMMON STOCK (PAR VALUE $.01 PER SHARE)
PREFERRED SHARE PURCHASE RIGHTS
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
9.50% WINTHROP RESOURCES CORPORATION SENIOR NOTES DUE 2003
(Title of class)
________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 17, 1999, the aggregate market value of the voting stock held
by nonaffiliates of the registrant, computed by reference to the average of the
high and low prices on such date as reported by the New York Stock Exchange, was
$1,962,929,304.
As of March 17, 1999, there were outstanding 84,287,203 shares of the
registrant's common stock, par value $.01 per share, its only outstanding class
of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Specific portions of the registrant's annual report to shareholders for the
year ended December 31, 1998 are incorporated by reference into Parts I, II and
IV hereof.
Specific portions of the registrant's definitive proxy statement dated
March 31, 1999 are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
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PART I
PAGE
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Forward-Looking Information. . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lending Activities . . . . . . . . . . . . . . . . . . . . . . 2
Investment Activities. . . . . . . . . . . . . . . . . . . . . 6
Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . 6
Other Information. . . . . . . . . . . . . . . . . . . . . . . 8
Activities of Subsidiaries of TCF Financial . . . . . . . . 8
Recent Accounting Developments. . . . . . . . . . . . . . . 8
Competition . . . . . . . . . . . . . . . . . . . . . . . . 9
Employees . . . . . . . . . . . . . . . . . . . . . . . . . 9
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 16
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters. . . . . . . . . . . . . . . . 16
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . 17
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 17
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 17
Item 12. Security Ownership of Certain Beneficial Owners and Management . 18
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . 20
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING INFORMATION
There are a number of important factors which could cause TCF Financial
Corporation's ("TCF" or the "Company") future results to differ materially
from historical performance and which make any forward-looking statements
about TCF's financial results subject to a number of risks and uncertainties.
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 or lead to other adverse developments;
increases in bankruptcy filings by TCF's loan and lease customers; adverse
credit losses or other unfavorable developments in the liquidation or other
disposition of TCF's consumer finance automobile loan portfolio; shifts in
interest rates which may result in shrinking interest margins, increased
borrowing costs or other adverse developments; 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; inflation; changes in the
quality or composition of TCF's loan, lease and investment portfolios;
adverse changes in securities markets; results of litigation or other
significant uncertainties. TCF's Year 2000 compliance initiatives or other
required technological changes are subject to certain uncertainties which may
delay or increase the cost of implementation. 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 1997 and 1998
acquisitions (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.
GENERAL
TCF, a Delaware corporation based in Minneapolis, Minnesota, with $10.2
billion in assets, is the holding company of four federally chartered
national banks, TCF National Bank Minnesota ("TCF Minnesota"), TCF National
Bank Illinois ("TCF Illinois"), TCF National Bank Wisconsin ("TCF Wisconsin")
and Great Lakes National Bank Michigan ("Great Lakes Michigan"), and one bank
holding company, TCF Colorado Corporation, which is the holding company of a
federally chartered national bank, TCF National Bank Colorado ("TCF
Colorado"). Unless otherwise indicated, references herein to TCF include its
direct and indirect subsidiaries. TCF Minnesota, TCF Illinois, TCF
Wisconsin, Great Lakes Michigan, and TCF Colorado are collectively referred
to herein as the "TCF Banks." References herein to the "Holding Company" or
"TCF Financial" refer to TCF Financial Corporation on an unconsolidated
basis. Where information is incorporated in this report by reference to
TCF's 1998 Annual Report, only those portions specifically identified are so
incorporated.
TCF has positioned the TCF Banks as "community banks" focusing on
lending, deposit products and other services offered in their local markets.
TCF's strategic emphasis on retail banking has allowed it to fund its assets
primarily with retail core deposits, minimize wholesale borrowings and lower
its interest-rate risk. In its local market and elsewhere, TCF Minnesota is
also engaged in commercial leasing.
TCF significantly expanded its retail banking franchise in recent
periods and had 311 retail banking branches at December 31, 1998. In the
past three years, TCF opened 147 new branches, of which 128 were supermarket
branches. This expansion includes TCF's January 30, 1998 acquisition of 76
branches and 178 automated teller machines ("ATM") in Jewel-Osco stores in
the Chicago area previously operated by Bank of America. TCF anticipates
opening approximately 40 new branches in 1999, and additional branches in
subsequent years, including approximately 25 Jewel-Osco supermarket branches
per year in subsequent years until branches have been installed in all
targeted stores, including newly constructed stores.
1
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TCF's marketing strategy emphasizes attracting deposits held in
checking, passbook and statement savings, and money market accounts, which
also provide TCF with a significant source of fee income. TCF engages in
commercial, residential and consumer lending activities, lease financing and
in the insurance services business, including the sale of single premium
tax-deferred annuities. It also has a broker dealer selling non-proprietary
mutual funds.
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. TCF's
non-interest income in future periods may be negatively impacted by pending
state and federal legislative proposals, which, if enacted, could limit loan,
deposit or other fees and service charges. See "FORWARD-LOOKING
INFORMATION," and "Financial Review -- Financial Condition - Legislative and
Regulatory Developments" on page 26 of TCF's 1998 Annual Report, incorporated
herein by reference, for additional information.
On January 30, 1998, 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 ATMs located in Jewel-Osco stores. TCF accounted for the acquisition
using the purchase method of accounting. Additional information concerning
this and other acquisitions is set forth in "Financial Review -- Results of
Operations - Performance Summary" on page 14 and in Note 2 of Notes to
Consolidated Financial Statements on page 37 of TCF's 1998 Annual Report,
incorporated herein by reference.
TCF operated 79 bank branches in Minnesota at December 31, 1998. The
Company also operated 128 bank branches in Illinois, 31 in Wisconsin, 64 in
Michigan and 9 in Colorado at December 31, 1998. TCF strives to develop
innovative banking products and services. Of TCF's 311 bank branches, 160
were "in-store" bank branches at December 31, 1998. These in-store bank
branches provide TCF with the opportunity to sell its consumer products and
services, including deposits and loans, at a relatively low entry cost and
feature extended hours, including Saturdays and Sundays. TCF's "Totally
Free"-SM- checking accounts and other deposit products provide it with a
significant source of low-interest cost funds and fee income. TCF has
expanded its ATM network to 1,431 machines at December 31, 1998, and offers
its customers an automated telephone banking system.
Federal legislation imposes numerous legal and regulatory requirements
on financial institutions. Among the most significant of these requirements
are minimum regulatory capital levels and enforcement actions that can be
taken by regulators when an institution's regulatory capital is deemed to be
inadequate. TCF and each of the TCF Banks currently exceed all of the current
minimum and well-capitalized regulatory capital requirements. See
"REGULATION."
As federally chartered national banks, the TCF Banks are subject to
regulation and examination by the Office of the Comptroller of the Currency
("OCC") and, in certain cases, by the Federal Deposit Insurance Corporation
("FDIC"). The TCF Banks' deposits are insured to $100,000 by the FDIC, and
as such these institutions are subject to regulations promulgated by the
FDIC. The TCF Banks are members of the Federal Home Loan Bank ("FHLB") of
Des Moines, Chicago, Topeka and/or Indianapolis, and are also member banks
within their respective Federal Reserve districts. TCF Financial is a bank
holding company and is subject to regulation and examination by the Federal
Reserve Board ("FRB"). See "REGULATION -- Regulation of TCF Financial and
Affiliate and Insider Transactions."
The executive offices of TCF Financial are located at 801 Marquette Avenue,
Minneapolis, Minnesota 55402.
The following description includes detailed information regarding the
business of TCF and its subsidiaries.
LENDING ACTIVITIES
GENERAL
TCF's lending activities reflect its community banking philosophy,
emphasizing loans to individuals and small to medium-sized businesses in its
primary market areas in Minnesota, Illinois, Wisconsin and Michigan. TCF is
also engaged in lease financing and has expanded its consumer lending
operations in recent years.
2
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See "Financial Review -- Financial Condition - Loans and Leases" on
pages 21 and 22, Note 7 of Notes to Consolidated Financial Statements on
pages 39 and 40 and "Other Financial Data" on pages 58 through 61 of TCF's
1998 Annual Report, incorporated herein by reference, for additional
information regarding TCF's loan and lease portfolios.
RESIDENTIAL REAL ESTATE LENDING
TCF's residential mortgage loan originations (first mortgage loans for
the financing of one- to four-family homes) are predominantly secured by
properties in Minnesota, Illinois, Wisconsin and Michigan. TCF engages in
both adjustable-rate and fixed-rate residential real estate lending.
Adjustable-rate residential real estate loans held in TCF's portfolio totaled
$2.1 billion at December 31, 1998, compared with $2.2 billion at December 31,
1997. Loan originations by TCF Mortgage Corporation ("TCF Mortgage"), a
wholly owned subsidiary of TCF Minnesota, include loans purchased from loan
correspondents.
TCF sells certain residential real estate loans in the secondary market,
primarily on a nonrecourse basis. TCF retains servicing rights for the
majority of the loans it sells into the secondary market. These sales
provide additional funds for loan originations and also generate fee income.
TCF may also from time to time purchase or sell servicing rights on
residential real estate loans. At December 31, 1998 and 1997, TCF serviced
for others $3.7 billion and $4.4 billion, respectively, in residential real
estate loans. During 1998 and 1997, TCF sold servicing rights on $200.4
million and $144.7 million of loans serviced for others at net gains of $2.4
million and $1.6 million, respectively. There were no sales of servicing
rights on loans serviced for others during 1996.
Adjustable-rate residential real estate loans originated by TCF have
various adjustment periods and generally provide for limitations on the
amount the rate may adjust on each adjustment date, as well as the total
amount of adjustments over the lives of the loans. Accordingly, while this
portfolio of loans is rate sensitive, it may not be as rate sensitive as
TCF's cost of funds. In addition to such interest-rate risk, TCF faces credit
risks resulting from potential increased costs to borrowers as a result of
rate adjustments on adjustable-rate loans in its portfolio, which will depend
upon the magnitude and frequency of shifts in market interest rates. Some
adjustable-rate residential real estate loans originated by TCF in prior
periods did not provide for limitations on rate adjustments. Credit risk may
also result from declines in the values of underlying real estate collateral.
See "-- Classified Assets, Loan and Lease Delinquencies and Defaults."
TCF Mortgage and the TCF Banks generally adhere to Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Veterans Administration ("VA") or Federal Housing Administration
("FHA") guidelines in originating residential real estate loans. TCF
generally requires that all conventional first mortgage real estate loans
with loan-to-value ratios in excess of 80% carry private mortgage insurance.
CONSUMER LENDING
TCF makes consumer loans for personal, family or household purposes,
such as debt consolidation or the financing of home improvements,
automobiles, vacations and education. Total consumer loans for the TCF Banks
totaled $1.9 billion at December 31, 1998, with $903.2 Million, or 48%,
having fixed interest rates and $973.4 million, or 52%, having adjustable
interest rates. The following discussion provides additional information on
TCF's consumer lending operations.
The consumer lending activities of the TCF Banks include a full range of
consumer-oriented products including real estate secured loans, loans secured
by personal property and unsecured personal loans. Each of these loan types
can be made on an open- or closed-end basis. Consumer loans having
adjustable interest rates present a credit risk similar to that posed by
residential real estate loans as a result of increased costs to borrowers in
the event of a rise in rates (see discussion above under "-- Residential Real
Estate Lending"). Consumer loans secured by real estate may present
additional credit risk in the event of a decline in the value of real estate
collateral.
In December 1998, TCF restructured its consumer finance company
operations, including the discontinuation of indirect automobile lending, the
consolidation of offices and a renewed focus on home equity lending. TCF
recorded a pretax charge of $1.8 million for the reorganization and increased
the provision for credit losses by $3.9 million from the 1997 fourth quarter,
primarily in connection with the finance company automobile loan portfolio.
In the states where the Company's banks operate (Minnesota, Illinois,
Wisconsin, Michigan and Colorado), the finance company operations were
combined with the banks, and 25 of the 30 finance company offices were
closed. Of the 23 offices in other states,
3
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17 remain open as loan production offices of TCF Minnesota and the remainder
were closed. Additionally, TCF reorganized its loan collection operations
related to the remaining consumer finance automobile loan portfolio.
Previously such collection activities were handled centrally in Pensacola,
Florida for loans up to 30-days delinquent and by the branch from which the
loans were originated for loans over 30-days delinquent. Beginning in
December 1998, all collection operations for these loans were centralized in
Minneapolis, Minnesota and Pensacola, Florida. At December 31, 1998,
consumer finance automobile loans totaled $233.9 million, compared with
$292.6 million at December 31, 1997. For additional information on consumer
lending, including TCF's consumer finance company operations, see "Financial
Review -- Financial Condition - Loans and Leases" on pages 21 and 22 of TCF's
1998 Annual Report, incorporated herein by reference.
TCF originates student loans for resale. TCF had $138.3 million of
education loans held for sale at December 31, 1998, compared with $135.3
million at December 31, 1997. TCF generally retains the student loans it
originates until they are fully disbursed. Under a forward commitment
agreement with the Student Loan Marketing Association ("SLMA"), TCF can sell
the student loans to SLMA once they are fully disbursed, but must sell the
student loans to SLMA before they go into repayment status. These loans are
originated in accordance with designated guarantor and U.S. Department of
Education guidelines and do not involve any independent credit underwriting
by TCF. TCF's future student loan origination activity will be dependent on
continued support of guaranteed student loan programs by the U.S. Government
and TCF's ability to continue to sell such loans to SLMA or other parties.
Recent federal legislation has limited the role of private lenders in
originating student loans, and this may reduce the volume of TCF's student
loan originations in future periods.
COMMERCIAL REAL ESTATE LENDING
TCF currently originates longer-term loans on commercial real estate
and, to a lesser extent, shorter-term construction loans. TCF is endeavoring
to increase its originations of commercial real estate loans to creditworthy
borrowers based in its primary markets. TCF may also engage in commercial
real estate loan brokerage activity. At December 31, 1998, adjustable-rate
loans represented 83% of commercial real estate loans outstanding. At
December 31, 1998, TCF had a total of 1,549 outstanding commercial real
estate loans secured by properties located in its primary markets. Of this
total, 219 loans totaling $474.1 million had balances exceeding $1 million.
See "Financial Review -- Financial Condition - Loans and Leases" on pages 21
and 22 of TCF's 1998 Annual Report, incorporated herein by reference, for
information regarding the types of properties securing TCF's commercial real
estate loans.
At December 31, 1998, TCF's commercial construction and development loan
portfolio totaled $92.4 million. Construction and permanent commercial real
estate lending is generally considered to involve a higher level of risk than
single-family residential lending due to the concentration of principal in a
limited number of loans and borrowers. In addition, the nature of these
loans is such that they are generally less predictable and more difficult to
evaluate and monitor.
COMMERCIAL BUSINESS LENDING
TCF engages in general commercial business lending. Commercial business
loans may be secured by various types of business assets, including
commercial real estate, and in some cases may be made on an unsecured basis.
TCF is seeking to expand its commercial business lending activity by lending
to small and medium-sized businesses. TCF's commercial business lending
activities encompass loans with a broad variety of purposes, including
corporate working capital loans and loans to finance the purchase of
equipment or other acquisitions. TCF also makes loans to individuals who use
the funds for business or personal purposes. As part of its commercial
business and commercial real estate lending activities, TCF also issues
standby letters of credit. At December 31, 1998, TCF had 81 such standby
letters of credit outstanding in the aggregate amount of $45.3 million.
Recognizing the generally increased risks associated with commercial
business lending, TCF originates commercial business loans in order to
increase its short-term, variable-rate asset base and to contribute to its
profitability through the higher rates earned on these loans and the
marketing of other bank products. TCF concentrates on originating commercial
business loans primarily to middle-market companies based in its primary
markets with borrowing requirements of less than $15 million. Substantially
all of TCF's commercial business loans outstanding at December 31, 1998 were
to borrowers based in its primary markets.
4
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LEASE FINANCING
TCF provides a range of comprehensive lease finance products addressing
the financing needs of diverse companies through three product groups. The
Value Added Lease, which has been TCF's primary focus, generally has a term
from two to five years and is entered into with large organizations
(generally corporations with revenue of $50 million or more). Such leases
typically range from $250,000 to $20 million and cover high-technology and
other business-essential equipment. These leases are flexible in structure
to accommodate equipment additions and upgrades to meet customers' changing
needs. Small Ticket Leases are typically less than $250,000, have lease
terms of between two and five years, and cover business-essential equipment.
Leasing to small, growing businesses is inherently more risky than leasing to
large, established corporations. The Enterprise Lease is designed to meet
the needs of large corporations with influence over multiple business
entities (for example, franchise operations). The Enterprise Lease
integrates the Value Added Lease and the Small Ticket Lease for organizations
in need of enterprise-wide equipment and systems solutions.
TCF enters into standard lease agreements with each customer. TCF's
leases are noncancelable "net" leases which contain provisions under which
the customer, upon acceptance of the equipment, must make all lease payments
regardless of any defects in the equipment and which require the customer to
maintain and service the equipment, insure the equipment against casualty
loss and pay all property, sales and other taxes related to the equipment.
TCF typically retains ownership of the equipment it leases and, in the event
of default by the customer, TCF, or the financial institution that has
provided non-recourse financing for a particular lease, may declare the
customer in default, accelerate all lease payments due under the lease and
pursue other available remedies, including repossession of the equipment.
Upon completion of the initial term of the lease, the customer may return the
equipment to TCF, renew the lease for an additional term, or in certain
circumstances purchase the equipment. If the equipment is returned to TCF,
it is either re-leased to another customer or sold into the secondary-user
marketplace.
TCF internally funds certain leases, and consequently retains the credit
risk on such leases. At December 31, 1998, TCF internally funded 53.7% of
its lease portfolio, compared with 37.6% at December 31, 1997. TCF may
arrange permanent financing of Value Added Leases through non-recourse
discounting of lease rentals with various other financial institutions at
fixed interest rates. The proceeds from the assignment of the lease rentals
are equal to the present value of the remaining lease payments due under the
lease, discounted at the interest rate charged by the other financial
institutions. Interest rates obtained under this type of financing are
negotiated on a transaction-by-transaction basis and reflect the financial
strength of the lease customer, the term of the lease and the prevailing
interest rates. For a lease discounted on a non-recourse basis, the other
financial institution has no recourse against TCF unless TCF is in default of
the terms of the agreement under which the lease and the leased equipment are
assigned to the other financial institution as collateral. The other
financial institution may, however, take title to the collateral in the event
the customer fails to make lease payments or certain other defaults by the
lease customer occur under the terms of the lease.
TCF believes that it 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.
CLASSIFIED ASSETS, LOAN AND LEASE DELINQUENCIES AND DEFAULTS
TCF has established a classification system for individual commercial
loans or other assets based on OCC regulations under which all or part of a
loan or other asset may be classified as "substandard," "doubtful," "loss" or
"special mention." It has also established overall ratings for various
credit portfolios. A loan or other asset is placed in the substandard
category when it is considered to have a well-defined weakness. A loan or
other asset is placed in the doubtful category when some loss is likely but
there is still sufficient uncertainty to permit the asset to remain on the
books at its full value. All or a portion of a loan or other asset is
classified as loss when it is considered uncollectible, in which case it is
generally charged off. In some cases, loans or other assets for which there
is perceived some possible exposure to credit loss are classified as special
mention. Loans and other assets that are classified are subject to periodic
review of their appropriate regulatory classifications.
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The following table summarizes information about TCF's non-accrual,
restructured and past due loans and leases:
<TABLE>
<CAPTION>
AT DECEMBER 31,
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1998 1997 1996 1995 1994
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(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans and leases $33.7 $36.8 $26.4 $44.3 $33.8
Restructured loans - 1.3 3.0 1.6 4.3
------ ------ ------ ------ ------
Total non-accrual and restructured
loans and leases $33.7 $38.1 $29.4 $45.9 $38.1
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Accruing loans and leases 90 days or
more past due $ - $ - $ - $ .7 $ 2.4
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
The allowance for loan and lease losses is based upon management's
periodic analysis of TCF's loan and lease portfolios. Although appropriate
levels of reserves have been estimated based upon factors and trends
identified by management, there can be no assurance that the levels are
adequate. Economic stagnation or reversals in the economy could give rise to
increasing risk of credit losses and necessitate an increase in the required
level of reserves. The expansion of the Company's consumer lending operation,
and the December 1998 reorganization of its consumer finance company
operations, create increased exposure to increases in delinquencies,
repossessions, foreclosures and losses that generally occur during economic
downturns or recessions.
Adverse economic developments are also likely to adversely affect
commercial lending operations and increase the risk of loan defaults and
credit losses on such loans. Carrying values of foreclosed commercial real
estate properties are based on appraisals, prepared by certified appraisers,
whenever possible. TCF reviews each external commercial real estate
appraisal it receives for accuracy, completeness and reasonableness of
assumptions used. Renewed weaknesses in real estate markets may result in
further declines in property values and the sale of properties at less than
previously estimated values, resulting in additional charge-offs. TCF
recognizes the effect of such events in the periods in which they occur.
Additional information concerning TCF's allowance for loan and
lease losses is set forth in "Financial Review -- Financial Condition -
Allowance for Loan and Lease Losses" on pages 22 and 23, in Note 1 of Notes
to Consolidated Financial Statements on pages 35 through 37 of TCF's 1998
Annual Report and in Note 8 of Notes to Consolidated Financial Statements on
page 40 of TCF's 1998 Annual Report, incorporated herein by reference.
INVESTMENT ACTIVITIES
The TCF Banks have authority to invest in various types of liquid
assets, including United States Treasury obligations and securities of
various federal agencies, deposits of insured banks, bankers' acceptances and
federal funds. Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in relation to
the return on loans and leases. The TCF Banks must also meet reserve
requirements of the FRB, which are imposed based on amounts on deposit in
various types of deposit categories.
Information regarding the carrying values and fair values of TCF's
investments and securities available for sale is set forth in Notes 4 and 5
of Notes to Consolidated Financial Statements on page 38 of TCF's 1998 Annual
Report, incorporated herein by reference. Additional information regarding
investments and securities available for sale is set forth in "Other
Financial Data" on pages 58 through 61 of TCF's 1998 Annual Report,
incorporated herein by reference.
SOURCES OF FUNDS
DEPOSITS
Deposits are the primary source of TCF's funds for use in lending and
for other general business purposes. Deposit inflows and outflows are
significantly influenced by economic conditions, interest rates, money market
conditions and other factors. Higher-cost borrowings may be used to
compensate for reductions in normal sources of funds, such as deposit inflows
at less than projected levels or net deposit outflows, or to support expanded
activities.
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Consumer and commercial deposits are attracted principally from within
TCF's primary market areas through the offering of a broad selection of
deposit instruments including consumer and commercial demand deposit
accounts, Negotiable Order of Withdrawal or "NOW" (interest-bearing checking)
accounts, money market accounts, regular savings accounts, certificates of
deposit and retirement savings plans.
The composition of TCF's deposits has a significant impact on its cost
of funds. TCF's marketing strategy emphasizes attracting deposits held in
checking, regular savings and money market accounts. These accounts provide
significant fee income and are a source of low-interest cost funds.
Checking, savings and money market accounts comprised 56% of total deposits
at December 31, 1998, up from 48% of total deposits at December 31, 1997.
The increase reflects the impact of the Company's significant expansion of
its retail banking franchise, including the acquisition of the Jewel-Osco
branches. In addition, there were approximately 1.4 million retail checking,
savings and money market accounts at December 31, 1998, compared with
approximately 1.3 million and 1.1 million such accounts at December 31, 1997
and 1996, respectively.
Information concerning TCF's deposits is set forth in "Financial
Review -- Financial Condition - Deposits" on page 25 and in Note 10 of Notes
to Consolidated Financial Statements on page 42 of TCF's 1998 Annual Report,
incorporated herein by reference.
BORROWINGS
The FHLB System functions as a central reserve bank providing credit for
financial institutions through a regional bank located within a particular
financial institution's assigned region. TCF Banks are members of the FHLB
System, and are required to own a minimum level of FHLB capital stock and are
authorized to apply for advances on the security of such stock and certain of
their loans and other assets (principally securities which are obligations
of, or guaranteed by, the United States Government), provided certain
standards related to creditworthiness have been met. TCF's FHLB advances
totaled $1.8 billion at December 31, 1998, compared with $1.3 billion at
December 31, 1997. FHLB advances are made pursuant to several different
credit programs. Each credit program has its own interest rates and range of
maturities. The FHLB prescribes the acceptable uses to which the advances
pursuant to each program may be made as well as limitations on the size of
advances. Acceptable uses prescribed by the FHLB have included expansion of
residential mortgage lending and meeting short-term liquidity needs. In
addition to the program limitations, the amounts of advances for which an
institution may be eligible are generally based on the FHLB's assessment of
the institution's creditworthiness. As a result of the failure of a number
of savings institutions and reductions in outstanding loans to its members,
the FHLB system has become less profitable and its continued viability may
depend upon its ability to attract new members.
As an additional source of funds, TCF may sell securities subject to its
obligation to repurchase these securities under repurchase agreements
("reverse repurchase agreements") with the FHLMC or major investment bankers
utilizing government securities or mortgage-backed securities as collateral.
Reverse repurchase agreements totaled $367.3 million at December 31, 1998,
compared with $112.2 million at December 31, 1997. Generally, securities
with a value in excess of the amount borrowed are required to be deposited as
collateral with the counterparty to a reverse repurchase agreement. The
creditworthiness of the counterparty is important in establishing that the
overcollateralized amount of securities delivered by TCF is protected and it
is TCF's policy to enter into reverse repurchase agreements only with
institutions with a satisfactory credit history.
The use of reverse repurchase agreements may expose TCF to certain risks
not associated with other sources of funds, including possible requirements
to provide additional collateral and the possibility that such agreements may
not be renewed. If for some reason TCF were no longer able to obtain reverse
repurchase agreement financing, it would be necessary for TCF to obtain
alternative sources of short-term funds. Such alternative sources of funds,
if available, may be higher-cost substitutes for the reverse repurchase
agreement funds.
Information concerning TCF's FHLB advances, reverse repurchase
agreements and other borrowings is set forth in "Financial Review --
Financial Condition - Borrowings" on page 25 and in Note 11 of Notes to
Consolidated Financial Statements on pages 43 and 44 TCF's 1998 Annual
Report, incorporated herein by reference.
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OTHER INFORMATION
ACTIVITIES OF SUBSIDIARIES OF TCF FINANCIAL
TCF's business operations include those conducted by direct and indirect
subsidiaries of TCF Financial. During the year ended December 31, 1998,
TCF's subsidiaries were principally engaged in the following activities:
Mortgage Banking
TCF Mortgage and Standard Financial Mortgage Corporation, a subsidiary
of TCF Illinois, originate, purchase, sell and service residential mortgage
loans. A subsidiary of TCF Mortgage was involved in a joint venture known as
Burnet Home Loans with Burnet Mortgage Corporation, an affiliate of Burnet
Realty Inc., for the origination of residential mortgage loans from offices
of Burnet Realty. TCF sold its interest in the joint venture on February 13,
1998.
Leasing
Winthrop Resources Corporation ("Winthrop"), a subsidiary of TCF
Minnesota, provides a range of comprehensive lease finance products.
Winthrop leases high-technology and other business-essential equipment to
customers ranging from large corporations to small, growing businesses.
Annuities and Investment Services
TCF Financial Insurance Agency, Inc., TCF Financial Insurance Agency
Illinois, Inc., TCF Financial Insurance Agency Wisconsin, Inc., TCF Financial
Insurance Agency Michigan, Inc., and TCF Financial Insurance Agency,
Colorado, Inc. are insurance agencies engaging in the sale of fixed-rate,
single premium tax-deferred annuities. TCF Securities, Inc. engages in the
sale of non-proprietary mutual fund products, and in the sale of
variable-rate, single premium tax-deferred annuities.
Insurance, Title Insurance and Appraisal Services
TCF Agency Minnesota, Inc., TCF Agency Wisconsin, Inc., TCF Agency
Illinois, Inc., TCF Agency Colorado, Inc., TCF Agency Insurance Services,
Inc. and Lakeland Group Insurance Agency, Inc. provide various types of
insurance, principally credit-related, marketed primarily to TCF's customers.
North Star Title, Inc. is a title insurance agent for several title
insurance underwriters, operating primarily in Minnesota, Illinois, Wisconsin
and Michigan, providing title insurance, real estate abstracting, and closing
services to affiliates and third parties. North Star Real Estate Services,
Inc. provides real estate appraisal services to its affiliates and to third
parties.
RECENT ACCOUNTING DEVELOPMENTS
There has been an ongoing review over many years of the accounting
principles and practices used by financial institutions. This review is
expected to continue by banking regulators, the Securities and Exchange
Commission ("SEC"), the Financial Accounting Standards Board ("FASB"), the
American Institute of Certified Public Accountants ("AICPA") and other
organizations. As a result of this process, there have been new accounting
pronouncements which have had an impact on TCF. Further developments may be
forthcoming in light of this ongoing review process.
In June 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." Additional
information on SFAS No. 130 is set forth in Note 1 of Notes to Consolidated
Financial Statements on pages 35 through 37 of TCF's 1998 Annual Report,
incorporated herein by reference.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." Additional information on SFAS
No. 131 is set forth in Note 1 of Notes to Consolidated Financial Statements
on pages 35 through 37 and Note 20 of Notes to Consolidated Financial
Statements on pages 54 through 56 of TCF's 1998 Annual Report, incorporated
herein by reference.
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In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." Additional information on
SFAS No. 132 is set forth in Note 1 of Notes to Consolidated Financial
Statements on pages 35 through 37 and Note 18 of Notes to Consolidated
Financial Statements on pages 51 and 52 of TCF's 1998 Annual Report,
incorporated herein by reference.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Additional information on SFAS No. 133
is set forth in "Financial Review -- Financial Condition - Recent Accounting
Developments" on page 25 of TCF's 1998 Annual Report, incorporated herein by
reference.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise - an amendment of SFAS
No. 65." Additional information on SFAS No. 134 is set forth in "Financial
Review -- Financial Condition - Recent Accounting Developments" on page 25 of
TCF's 1998 Annual Report, incorporated herein by reference.
COMPETITION
TCF Minnesota is the third largest depository institution headquartered
in Minnesota. TCF Illinois, TCF Wisconsin, TCF Colorado and Great Lakes
Michigan compete with a number of larger depository institutions in their
market areas. The TCF Banks experience significant competition in attracting
and retaining deposits and in lending funds. TCF believes the primary
factors in competing for deposits are the ability to offer attractive rates
and products, convenient office locations and supporting data processing
systems and services. Direct competition for deposits comes primarily from
other commercial banks, credit unions and savings institutions. Additional
significant competition for deposits comes from institutions selling money
market mutual funds and corporate and government securities. The primary
factors in competing for loans are interest rates, loan origination fees and
the range of services offered. TCF competes for origination of loans with
commercial banks, mortgage bankers, mortgage brokers, consumer finance
companies, credit unions, insurance companies and savings institutions. TCF
also competes nationwide with other leasing companies in the financing of
high-technology and business-essential equipment.
EMPLOYEES
As of December 31, 1998, TCF had approximately 7,000 employees,
including 2,100 part-time employees. TCF provides its employees with a
comprehensive program of benefits, some of which are on a contributory basis,
including comprehensive medical and dental plans, life insurance, accident
insurance, short- and long-term disability coverage, a pension plan and a
shared contribution stock ownership-401(k) plan.
REGULATION
The banking industry is generally subject to extensive regulatory
oversight. TCF Financial, as a publicly held bank holding company, and the
TCF Banks, as national banks with deposits insured by the FDIC, are subject
to a number of laws and regulations. Many of these laws and regulations have
undergone significant change in recent years. These laws and regulations
impose restrictions on activities, minimum capital requirements, lending and
deposit restrictions and numerous other requirements. Future changes to
these laws and regulations are likely and cannot be predicted with certainty.
RECENT DEVELOPMENTS
Federal legislation enacted in September 1996 addressed a funding
shortfall that had resulted in a significant deposit insurance premium
disparity between deposits insured under the Bank Insurance Fund ("BIF") and
deposits insured under the Savings Association Insurance Fund ("SAIF"). This
new legislation imposed a one-time special assessment on SAIF-insured
institutions and provided a reduction in deposit insurance premiums in
subsequent periods and other regulatory reforms. In other federal
legislation enacted in 1996, the reserve method of accounting for thrift bad
debt reserves was repealed, eliminating the recapture of a thrift's bad debt
reserve under certain circumstances, including a thrift institution's
conversion to a bank or similar charter changes. As a result of these
legislative changes and to reflect TCF's community banking strategies, TCF's
management elected to seek the conversion of the TCF Banks from federal
savings banks to national banks.
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In April 1997, the TCF Banks became national banks (collectively, the
"Bank Conversion") regulated by the OCC and TCF Financial became a bank
holding company regulated by the FRB. As a result of these changes, TCF
Financial and the TCF Banks ceased to be regulated by the Office of Thrift
Supervision ("OTS"). Among other changes that took place in connection with
the Bank Conversion, TCF Illinois and TCF Wisconsin became direct
subsidiaries of TCF Financial as opposed to TCF Minnesota, and TCF's annuity
and mutual fund sales operations became subsidiaries of the TCF Banks as
opposed to TCF Financial.
REGULATORY CAPITAL REQUIREMENTS
TCF Financial and the TCF Banks are subject to risk-based and leverage
capital requirements of the FRB and the OCC, respectively. These
requirements are described below. In addition, these regulatory agencies are
required by law to take prompt action when institutions do not meet certain
other minimum capital standards. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") defines five levels of capital condition,
the highest of which is "well-capitalized," and requires that regulatory
authorities subject undercapitalized institutions to various restrictions
such as limitations on dividends or other capital distributions, limitations
on growth or activity restrictions. Undercapitalized banks must also develop
a capital restoration plan and the parent bank holding company is required to
guarantee compliance with the plan. TCF Financial and the TCF Banks believe
they would be considered "well-capitalized" under the FDICIA capital
standards.
The FRB's risk-based capital guidelines include among their objectives
making regulatory capital requirements more sensitive to differences in risk
profiles of banking organizations, factoring off-balance-sheet exposures into
the assessment of capital adequacy and minimizing disincentives to holding
liquid, low-risk assets. Under these guidelines, a bank holding company's
assets and certain off-balance sheet items are assigned to one of four risk
categories, each weighted differently in accordance with the perceived level
of risk posed by such assets or off-balance-sheet items.
FRB guidelines also prescribe two "tiers" of capital. "Tier 1" capital
includes common stockholders' equity; qualifying noncumulative perpetual
preferred stock (including related surplus); qualifying cumulative perpetual
preferred stock (including related surplus), subject to certain limitations;
and minority interests in the equity accounts of consolidated subsidiaries.
Tier 1 capital excludes goodwill and certain other intangible and other
assets.
"Supplementary" or "Tier 2" capital consists of the allowance for loan
and lease losses, subject to certain limitations; perpetual preferred stock
and related surplus, subject to certain conditions; hybrid capital
instruments (i.e., those with characteristics of both equity and debt),
perpetual debt and mandatory convertible debt securities; and term
subordinated debt and intermediate-term preferred stock (including related
surplus), subject to certain limitations. The maximum amount of Tier 2
capital that is allowed to be included in an institution's qualifying total
capital is 100% of Tier 1 capital, net of goodwill and other intangible
assets required to be deducted.
TCF Financial is currently required to maintain (i) Tier 1 capital equal
to at least four percent of its risk-weighted assets and (ii) total capital
(the sum of Tier 1 and Tier 2 capital) equal to eight percent of
risk-weighted assets. The FRB also requires bank holding companies to
maintain a minimum Tier 1 "leverage ratio" (measuring Tier 1 capital as a
percentage of adjusted total assets) of at least three percent. Higher
leverage ratio requirements (minimum additional capital of 100 to 200 basis
points) are imposed for institutions that do not have the highest regulatory
rating or that fail to meet certain other criteria. At December 31, 1998,
TCF believes it met all these requirements. See Note 14 of Notes to
Consolidated Financial Statements on page 47 of TCF's 1998 Annual Report,
incorporated herein by reference. The FRB has not advised TCF of any
specific minimum Tier 1 leverage ratio applicable to it.
The FRB's guidelines indicate that the FRB expects that bank holding
companies experiencing internal growth or making acquisitions should maintain
stronger capital positions, substantially above the minimum supervisory
levels, without significant reliance on intangible assets. In addition, the
guidelines provide that the FRB will use Tier 1 leverage guidelines in its
inspection and supervisory process and as part of its analysis of
applications to be approved by the FRB (this would include applications
relating to bank holding company activities, acquisitions or other matters).
The guidelines also indicate that the FRB will review the Tier 1 leverage
measure periodically and will consider adjustments needed to reflect
significant changes in the economy, financial markets and banking practices.
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The OCC also imposes on the TCF Banks regulatory capital requirements
that are substantially similar to those imposed by the FRB, and TCF believes
each of the TCF Banks complied with OCC regulatory capital requirements at
December 31, 1998.
The FRB and the OCC also have adopted rules that could permit them to
quantify and account for interest-rate risk exposure and market risk from
trading activity and reflect these risks in higher capital requirements. New
legislation, additional rulemaking, or changes in regulatory policies may
affect future regulatory capital requirements applicable to TCF Financial and
the TCF Banks. The ability of TCF Financial and the TCF Banks to comply with
regulatory capital requirements may be adversely affected by legislative
changes or future rulemaking or policies of their regulatory authorities, or
by unanticipated losses or lower levels of earnings.
RESTRICTIONS ON DISTRIBUTIONS
Dividends or other capital distributions from the TCF Banks to TCF
Financial are an important source of funds to enable TCF Financial to pay
dividends on its common stock, to make payments on TCF Financial's other
borrowings, or for its other cash needs. The TCF Banks' ability to pay
dividends is heavily dependent on regulatory policies and regulatory capital
requirements. The ability to pay such dividends in the future may be
adversely affected by new legislation or regulations, or by changes in
regulatory policies. In general, the TCF Banks may not declare or pay a
dividend to TCF Financial in excess of 100% of their net profits during a
year combined with their retained net profits for the preceding two years
without prior approval of the OCC. The TCF Banks' ability to make any
capital distributions in the future may require regulatory approval and may
be restricted by their regulatory authorities. The TCF Banks' ability to
make any such distributions may also depend on their earnings and ability to
meet minimum regulatory capital requirements in effect during future periods.
These capital adequacy standards may be higher than existing minimum capital
requirements. The OCC also has the authority to prohibit the payment of
dividends by a national bank when it determines such payments would
constitute an unsafe and unsound banking practice. In addition, tax
considerations may limit the ability of the TCF Banks to make dividend
payments in excess of their current and accumulated tax "earnings and
profits" ("E&P"). Annual dividend distributions in excess of E&P could
result in a tax liability based on the amount of excess earnings distributed
and current tax rates.
REGULATION OF TCF FINANCIAL AND AFFILIATE AND INSIDER TRANSACTIONS
TCF Financial is subject to regulation as a bank holding company. It is
required to register with the FRB and is subject to FRB regulations,
examinations and reporting requirements relating to bank holding companies.
As subsidiaries of a bank holding company, the TCF Banks are subject to
certain restrictions in their dealings with TCF Financial and with other
companies affiliated with TCF Financial, and also with each other.
As a result of FDICIA, TCF Financial may be required to make up certain
capital deficiencies of the TCF Banks. Under FRB policy, a bank holding
company must serve as a source of strength for its subsidiary banks. Under
this policy, the FRB may require a holding company to contribute additional
capital to an undercapitalized subsidiary bank. In addition, Section 55 of
the National Bank Act may permit the OCC to order the pro rata assessment of
shareholders of a national bank where the capital of the bank has become
impaired. If a shareholder fails to pay such an assessment within three
months, the OCC may order the sale of the shareholder's stock to cover a
deficiency in the capital of a subsidiary bank. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank
would be assumed by the bankruptcy trustee and may be entitled to priority
over other creditors.
Under the Bank Holding Company Act ("BHCA"), a bank holding company must
obtain FRB approval before acquiring more than 5% control, or substantially
all of the assets, of another bank or bank holding company, or merging or
consolidating with another bank holding company. The BHCA also generally
prohibits a bank holding company, with certain exceptions, from acquiring
direct or indirect ownership or control of more than 5% of the voting shares
of any company which is not a bank or bank holding company, or from engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks, providing services for its subsidiaries, or conducting
activities permitted by the FRB as being closely related and proper incidents
to the business of banking.
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RESTRICTIONS ON CHANGE IN CONTROL
Federal and state laws and regulations contain a number of provisions
which impose restrictions on changes in control of financial institutions
such as the TCF Banks, and which require regulatory approval prior to any
such changes in control. The Restated Certificate of Incorporation of TCF
Financial and a Shareholder Rights Plan adopted by TCF Financial in 1989,
among other items, contain features which may inhibit a change in control of
TCF Financial.
ACQUISITIONS AND INTERSTATE OPERATIONS
Under federal law, interstate merger transactions may be approved by
federal bank regulators without regard to whether such transactions are
prohibited by the law of any state, unless the home state of one of the banks
opted out of the Riegle-Neal Interstate Banking and Branching Act of 1994
(the "Act") by adopting a law after the date of enactment of the Act and
prior to June 1, 1997 which applies equally to all out-of-state banks and
expressly prohibits merger transactions involving out-of-state banks.
Interstate acquisitions of branches by banks are permitted only if the law of
the state in which the branch is located permits such acquisitions.
Interstate mergers and branch acquisitions may also be subject to certain
nationwide and statewide insured deposit maximum concentration levels.
INSURANCE OF ACCOUNTS; DEPOSITOR PREFERENCE
The deposits of the TCF Banks are insured by the FDIC up to $100,000 per
insured depositor. Substantially all of TCF's deposits are SAIF-insured, but
TCF also has deposits insured by the BIF. The FDIC has established a
risk-based deposit insurance assessment under which deposit insurance
assessments are based upon an institution's capital strength and supervisory
condition, as determined by the institution's primary regulator. The annual
insurance premiums on bank deposits insured by the BIF and SAIF may vary
between $0 per $100 of deposits for banks classified in the highest capital
and supervisory evaluation categories to $.27 per $100 of deposits for banks
classified in the lowest capital and supervisory evaluation categories.
In addition to risk-based deposit insurance assessments, assessments may
be imposed on deposits insured by either the BIF or the SAIF to pay for the
cost of Financing Corporation ("FICO") funding. FICO assessment rates for
1998 ranged from $.0116 to $.0124 per $100 of deposits annually for
BIF-assessable deposits and from $.0582 to $.0622 per $100 of deposits
annually for SAIF-assessable deposits.
An increase in deposit insurance rates assessed against one of the TCF
Banks could have a material adverse effect on TCF, depending on the amount
and duration of the increase. In addition, the FDIC is authorized to
terminate a depository institution's deposit insurance if it finds that the
institution is being operated in an unsafe and unsound manner or has violated
any rule, regulation, order or condition administered by the institution's
regulatory authorities. Any such termination of deposit insurance is likely
to have a material adverse effect on TCF, the severity of which would depend
on the amount of deposits affected by such a termination.
Under federal law, deposits and certain claims for administrative
expenses and employee compensation against an insured depository institution
are afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the
liquidation or other resolution of such an institution by any receiver
appointed by regulatory authorities. Such priority creditors would include
the FDIC.
EXAMINATIONS AND REGULATORY SANCTIONS
TCF is subject to periodic examination by the FRB, OCC and the FDIC.
Bank regulatory authorities may impose on institutions found to operating in
an unsafe or unsound manner a number of restrictions or new requirements,
including but not limited to growth limitations, dividend restrictions,
individual increased regulatory capital requirements, increased loan and real
estate loss reserve requirements, increased supervisory assessments, activity
limitations or other restrictions that could have an adverse effect on such
institutions, their holding companies or holders of their debt and equity
securities. Various enforcement remedies, including civil money penalties,
may be assessed against an institution or an institution's directors,
officers, employees, agents or independent contractors.
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Subsidiaries of TCF are also subject to state and/or self-regulatory
organization licensing, regulation and examination requirements in connection
with certain insurance, mortgage banking, securities brokerage and consumer
finance activities.
NATIONAL BANK INVESTMENT LIMITATIONS
Permissible investments by national banks are limited by the National
Bank Act and by rules of the OCC. The OCC adopted regulations in December
1996 that permit national banks to establish operating subsidiaries engaged
in any activity that the OCC determines is incidental to banking. This rule
would permit national bank subsidiaries to engage in activities that are
traditionally associated with the business of banking, and would also permit
certain activities not traditionally associated with banking. The OCC's
operating subsidiary rule imposes certain supervisory limitations on
subsidiaries engaged in activities that are not permitted for the parent
bank, including notice and comment procedures for activities not previously
approved, corporate governance requirements and certain supervisory
requirements, including a regulatory capital deduction requirement and
application of transactions with affiliates limitations.
FUTURE LEGISLATIVE AND REGULATORY CHANGE; LITIGATION AND ENFORCEMENT ACTIVITY
There are a number of respects in which future legislative or regulatory
change, or changes in enforcement practices or court rulings, could adversely
affect TCF, and it is generally not possible to predict when or if such
changes may have an impact on TCF. Legislative proposals for tax reform have
sought the elimination of certain tax benefits for single premium annuities,
which, if adopted, could impair TCF's ability to market annuity products.
Recent legislation and administrative action has limited the role of private
lenders in education loans and has adversely affected the profitablilty of
student lending activity. TCF's non-interest income in future periods may be
negatively impacted by pending state and federal legislative proposals which,
if enacted, could limit loan, deposit or other fees and service charges.
Financial institutions have also increasingly been the subject of private
class action lawsuits challenging escrow account practices, private mortgage
insurance requirements, the use of loan brokers and other practices.
The Community Reinvestment Act ("CRA") and other fair lending laws and
regulations impose nondiscriminatory lending requirements on financial
institutions. In recent periods, federal regulatory agencies, including the
FRB and the Department of Justice ("DOJ"), have sought a more rigorous
enforcement of the CRA and other fair lending laws and regulations. The DOJ
is authorized to use the full range of its enforcement authority under the
fair lending laws. The DOJ has authority to commence pattern or practice
investigations of possible lending discrimination on its own initiative or
through referrals from the federal financial institutions regulatory
agencies, and to file lawsuits in federal court where there is reasonable
cause to believe that such violations have occurred. The DOJ is also
authorized to bring suit based on individual complaints filed with the
Department of Housing and Urban Development where one of the parties to the
complaint elects to have the case heard in federal court. A successful
challenge to an institution's performance under the CRA and related laws and
regulations could result in a wide variety of sanctions, including the
required payment of damages and civil money penalties, prospective and
retrospective injunctive relief and the imposition of restrictions on mergers
and acquisitions activity. Private parties may also have the ability to
challenge an institution's performance under fair lending laws in private
class action litigation. The ultimate effects of the foregoing or other
possible legal and regulatory developments cannot be predicted but may have
an adverse impact on TCF.
OTHER LAWS AND REGULATIONS
TCF is subject to a wide array of other laws and regulations, both
federal and state, including, but not limited to, usury laws, the CRA and
related regulations, the Equal Credit Opportunity Act and Regulation B,
Regulation D reserve requirements, Regulation E Electronic Funds transfer
requirements, the Truth-in-Lending Act and Regulation Z, the Real Estate
Settlement Procedures Act and Regulation X, and the Truth-in-Savings Act and
Regulation DD. TCF is also subject to laws and regulations that may impose
liability on lenders and owners for clean-up costs and other costs stemming
from hazardous waste located on property securing real estate loans made by
lenders or on real estate that is owned by lenders following a foreclosure or
otherwise. Although TCF's lending procedures include measures designed to
limit lender liability for hazardous waste clean-up or other related
liability, TCF has engaged in significant commercial lending activity, and
lenders may be held liable for clean up costs relating to hazardous wastes
under certain circumstances.
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TAXATION
FEDERAL TAXATION
Bad Debt Reserves
TCF files consolidated federal income tax returns and is an accrual
basis taxpayer. The TCF Banks are subject to federal income tax under the
Internal Revenue Code of 1986 (the "Code") in the same general manner as
other corporations. Prior to 1996, savings institutions were subject to
special bad debt reserve rules and certain other rules. During this period of
time, a savings institution that held 60% or more of its assets in
"qualifying assets" (as defined in the Code) was permitted to maintain
reserves for bad debts and to make annual additions to such reserves that
qualified as deductions from taxable income.
Beginning in 1996, the favorable bad debt method described above was
repealed putting savings institutions on the same tax bad debt method as
commercial banks. This legislation requires recapture of the amount of the
tax bad debt reserves to the extent that they exceed the adjusted base year
reserve ("the applicable excess reserves"). The applicable excess reserves
are recaptured over a six-year period. This recapture period can be deferred
for a period of up to two years to the extent that a certain residential
lending test is met. TCF has previously provided taxes for the applicable
excess reserves.
IRS Audit History
TCF's consolidated tax returns are closed through 1994.
See "Financial Review -- Results of Operations - Income Taxes" on page
20, Note 1 of Notes to Consolidated Financial Statements on pages 35 through
37 and Note 12 of Notes to Consolidated Financial Statements on pages 45 and
46 of TCF's 1998 Annual Report, incorporated herein by reference, for
additional information regarding TCF's income taxes.
STATE TAXATION
TCF and its subsidiaries that operate in Minnesota are subject to
Minnesota state taxation. A Minnesota corporation's income or loss is
allocated based on a three-factor apportionment of the corporation's
Minnesota gross receipts, payroll and property over the total gross receipts,
and payroll and property of all corporations in the unitary group. The
corporate tax rate in Minnesota is 9.8%. The Minnesota Alternative Minimum
Tax rate is 5.8%.
TCF and its subsidiaries that operate in Illinois are subject to
Illinois state taxation. The Illinois corporate tax rate is 7.3%. All TCF
entities are included in a single unitary return and income is allocated
using only the sales factor in accordance with Illinois financial
organization tax law.
TCF and its subsidiaries that operate in Wisconsin are subject to
Wisconsin state taxation. The Wisconsin state tax rate is 7.9%, and is
computed on a separate company basis. For all TCF entities operating in
Wisconsin, except the TCF Banks, the three-factor apportionment method is
used. For the TCF Banks, income is allocated using only the sales and
payroll factors in accordance with Wisconsin financial organization tax law.
TCF and its subsidiaries that operate in Michigan are subject to
Michigan state taxation. The corporate tax rate in Michigan is 2.3% and is
computed on taxable business activity in Michigan. For all TCF entities
operating in Michigan, except for the TCF Banks, the three-factor
apportionment method is used. For the TCF Banks, taxable business activity
is allocated using only the sales factor in accordance with Michigan
financial organization tax law.
Currently, TCF and its subsidiaries file state tax returns in all 50
states, and local tax returns in certain cities.
14
<PAGE>
ITEM 2. PROPERTIES
OFFICES
At December 31, 1998, TCF owned the buildings and land for 113 of its
bank branch offices, owned the buildings but leased the land for 5 of its
bank branch offices and leased the remaining 193 bank branch offices, all of
which are well maintained. The properties related to the bank branch offices
owned by TCF had a depreciated cost of approximately $90.5 million at
December 31, 1998. At December 31, 1998, the aggregate net book value of
leasehold improvements associated with leased bank branch office facilities
was $13.6 million. In addition to the above-referenced branch offices, TCF
owned and leased other facilities with an aggregate net book value of $16.9
million at December 31, 1998. See Note 9 of Notes to Consolidated Financial
Statements on pages 40 and 41 of TCF's 1998 Annual Report, incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
From time to time, TCF is a party to legal proceedings arising out of
its general lending and operating activities. TCF is and expects to become
engaged in a number of foreclosure proceedings and other collection actions
as part of its loan collection activities. From time to time, borrowers have
also brought actions against TCF, in some cases claiming substantial amounts
in damages. Some financial services companies have recently been subjected to
significant exposure in connection with class actions and/or suits seeking
punitive damages. While the Company is not aware of any actions or
allegations which should reasonably give rise to any material adverse effect,
it is possible that the Company could be subjected to such a claim in an
amount which could be material. 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 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 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,
and the third was settled without trial. One of these trials commenced on
February 24, 1997, the submission of evidence at trial was completed in April
1998, post-trial briefing was completed in the summer of 1998, and final
arguments were heard in September of 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 case which went
to trial was settled in June 1998. In connection with the trials in those
cases, the Court of Federal Claims in December
15
<PAGE>
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.
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. In
November 1998, the Court of Federal Claims issued another decision in the
CALIFORNIA FEDERAL case prohibiting the plaintiff in that case from offering
evidence as to a lost profits theory of damages. A two-month trial regarding
the plaintiff's other damages theories in that case was concluded in early
March 1999. No damages decision in that case has yet been rendered. In
addition, the Court of Federal Claims has issued favorable liability
decisions to the plaintiffs in several other "supervisory goodwill" cases,
and a number of such cases are currently engaged in or about to commence
trials on damages issues.
The government has indicated that it will have a number of affirmative
defenses against goodwill litigation filed against it. The TCF Minnesota and
Great Lakes Michigan actions involve a variety of different types of
transactions, contracts and contract provisions. There can be no assurance
that the U.S. Supreme Court decision in WINSTAR or the Court of Federal
Claims' recent decisions in CALIFORNIA FEDERAL and other cases 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
TCF's common stock trades on the New York Stock Exchange under the
symbol "TCB." The following table sets forth the high and low prices and
dividends declared for TCF's common stock. The stock prices represent the
high and low sale prices for the common stock on the New York Stock Exchange
Composite Tape, as reported by THE WALL STREET JOURNAL.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
1998:
First Quarter $35 1/8 $29 1/4 $.1250
Second Quarter 37 1/4 28 3/8 .1625
Third Quarter 32 7/16 19 7/8 .1625
Fourth Quarter 25 5/8 15 13/16 .1625
1997:
First Quarter $23 3/4 $19 1/2 $.09375
Second Quarter 25 3/16 18 3/4 .125
Third Quarter 29 11/16 24 1/8 .125
Fourth Quarter 34 3/8 27 .125
</TABLE>
As of March 17, 1999, there were approximately 11,000 record holders of
TCF's common stock.
16
<PAGE>
The Board of Directors of TCF has not adopted a formal dividend policy.
The Board of Directors intends to continue its present practice of paying
quarterly cash dividends on TCF's common stock as justified by the financial
condition of TCF. The declaration and amount of future dividends will depend
on circumstances existing at the time, including TCF's earnings, financial
condition and capital requirements, the cash available to pay such dividends
(derived mainly from dividends and distributions from the TCF Banks), as well
as regulatory and contractual limitations and such other factors as the Board
of Directors may deem relevant. In general, the TCF Banks may not declare or
pay a dividend to TCF in excess of 100% of their net profits for that year
combined with their retained net profits for the preceding two calendar years
without prior approval of the OCC. Restrictions on the ability of the TCF
Banks to pay cash dividends or possible diminished earnings of the indirect
subsidiaries of the Holding Company may limit the ability of the Holding
Company to pay dividends in the future to holders of its common stock. See
"REGULATION --Regulatory Capital Requirements," "REGULATION -- Restrictions
on Distributions" and Note 13 of Notes to Consolidated Financial Statements
on pages 46 and 47 of TCF's 1998 Annual Report, incorporated herein by
reference. Federal income tax rules may also limit dividend payments under
certain circumstances. See "TAXATION," and Note 12 of Notes to Consolidated
Financial Statements on pages 45 and 46 of TCF's 1998 Annual Report,
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The Other Financial Data on pages 58 through 61 of TCF's 1998 Annual
Report, presenting selected financial data, is incorporated herein by
reference and should be read in conjunction with the Consolidated Financial
Statements and related notes appearing on pages 30 through 57 of TCF's 1998
Annual Report, incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Financial Review on pages 14 through 29 of TCF's 1998 Annual Report,
presenting management's discussion and analysis of TCF's financial condition
and results of operations, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk set forth
on pages 26 through 29 of TCF's 1998 Annual Report are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements, Independent Auditors' Report and Other Financial Data set forth
on pages 30 through 61 of TCF's 1998 Annual Report are incorporated herein by
reference. See Index to Consolidated Financial Statements on page 20 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of TCF is set forth
on pages 3 through 15 and pages 17 through 21 of TCF's definitive proxy
statement dated March 31, 1999 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers
of TCF is set forth on page 7, pages 12 through 15 and pages 17 through 21 of
TCF's definitive proxy statement dated March 31, 1999 and is incorporated
herein by reference.
17
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of TCF's common stock by TCF's
directors, executive officers, and certain other shareholders is set forth on
pages 8 and 9 of TCF's definitive proxy statement dated March 31, 1999 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between TCF
and management is set forth on page 6 of TCF's definitive proxy statement
dated March 31, 1999 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statements
See Index to Consolidated Financial Statements on page 20 of
this report.
2. Financial Statement Schedules
All schedules to the Consolidated Financial Statements
normally required by the applicable accounting regulations
are omitted since the required information is included in
the Consolidated Financial Statements or the Notes thereto
or is not applicable.
3. Exhibits
See Index to Exhibits on page 20 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 the repurchase of
up to an additional 5% of the Company's outstanding shares through open
market or privately negotiated transactions.
A Current Report on Form 8-K, dated December 15, 1998, was filed
in connection with TCF's announcement that it had authorized the repurchase
of up to an additional 5% of the Company's outstanding shares through open
market or privately negotiated transactions.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TCF FINANCIAL CORPORATION
Registrant
By /s/ WILLIAM A. COOPER
---------------------------------
William A. Cooper
Chairman of the Board and
Chief Executive Officer
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ WILLIAM A. COOPER Chairman of the Board, Chief Executive March 30, 1999
- ---------------------------- Officer and Director
William A. Cooper
/s/ THOMAS A. CUSICK Vice Chairman of the Board, Chief Operating March 30, 1999
- ---------------------------- Officer and Director
Thomas A. Cusick
/s/ LYNN A. NAGORSKE President and Director March 30, 1999
- ----------------------------
Lynn A. Nagorske
/s/ NEIL W. BROWN Executive Vice President, Chief Financial March 30, 1999
- ---------------------------- Officer and Treasurer (Principal
Neil W. Brown Financial Officer)
/s/ MARK R. LUND Senior Vice President, Assistant Treasurer March 30, 1999
- ---------------------------- and Controller (Principal Accounting Officer)
Mark R. Lund
/s/ WILLIAM F. BIEBER Director March 30, 1999
- ----------------------------
William F. Bieber
/s/ RUDY BOSCHWITZ Director March 30, 1999
- ----------------------------
Rudy Boschwitz
/s/ JOHN M. EGGEMEYER III Director March 30, 1999
- ----------------------------
John M. Eggemeyer III
/s/ ROBERT E. EVANS Director March 30, 1999
- ----------------------------
Robert E. Evans
/s/ LUELLA G. GOLDBERG Director March 30, 1999
- ----------------------------
Luella G. Goldberg
/s/ GEORGE G. JOHNSON Director March 30, 1999
- ----------------------------
George G. Johnson
/s/ DANIEL F. MAY Director March 30, 1999
- ----------------------------
Daniel F. May
/s/ THOMAS J. McGOUGH Director March 30, 1999
- ----------------------------
Thomas J. McGough
/s/ RALPH STRANGIS Director March 30, 1999
- ----------------------------
Ralph Strangis
/s/ RONALD A. WARD Director March 30, 1999
- ----------------------------
Ronald A. Ward
</TABLE>
19
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of TCF and its subsidiaries,
included in TCF's 1998 Annual Report, are incorporated herein by reference in
this report:
<TABLE>
<CAPTION>
PAGE
IN 1998
DESCRIPTION ANNUAL REPORT
----------- -------------
<S> <C>
Independent Auditors' Report 57
Consolidated Statements of Financial Condition at
December 31, 1998 and 1997 30
Consolidated Statements of Operations for each of
the years in the three-year period ended
December 31, 1998 31
Consolidated Statements of Stockholders' Equity
for each of the years in the three-year period
ended December 31, 1998 32
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended
December 31, 1998 34
Notes to Consolidated Financial Statements 35
Other Financial Data 58
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
---- ----------- -----
<S> <C> <C>
3(a) Restated Certificate of Incorporation of TCF Financial
Corporation, as amended [incorporated by reference to
Exhibit 3(a) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, No.
0-16431], as amended June 5, 1997 [incorporated by reference
to Exhibit 3(a) to TCF Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997,
No. 0-16431]
3(b) Bylaws of TCF Financial Corporation, as amended
[incorporated by reference to Exhibit 3(b) to TCF Financial
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, No. 0-16431]
4(a) Rights Agreement, dated as of May 23, 1989, between TCF
Financial Corporation and Manufacturers Hanover Trust
Company [incorporated by reference to Exhibit 1 to TCF
Financial Corporation's Registration Statement on Form 8-A,
No. 0-16431 (filed May 25, 1989)], as amended October 1,
1995 [incorporated by reference to Exhibit 4(a) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995, No. 0-16431 (filed
November 14, 1995)], as amended October 20, 1997
[incorporated by reference to Exhibit 4(a) to TCF Financial
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, No. 0-16431]
20
<PAGE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
---- ----------- -----
<S> <C> <C>
4(b) Indenture dated July 1, 1996 relating to 9.50% Senior Notes
due 2003 between Winthrop Resources Corporation ("Winthrop")
and Norwest Bank Minnesota, National Association, as Trustee
[incorporated by reference to Exhibit 4.5 to Winthrop's
Registration Statement on Form S-2, File No. 333-04539
(filed May 24, 1996)], as amended by First Supplemental
Indenture dated as of June 20, 1997 by and among Winthrop,
TCF Financial Corporation and Norwest Bank Minnesota,
National Association, as Trustee [incorporated by reference
to Exhibit 4(d) to TCF Financial Corporation's Amendment No.
1 to Registration Statement on Form S-4, File No. 333-25905
(filed May 21, 1997)]
4(c) Copies of instruments with respect to long-term debt will be
furnished to the Securities and Exchange Commission upon
request.
10(a) Stock Option and Incentive Plan of TCF Financial
Corporation, as amended [incorporated by reference to
Exhibit 10.1 to TCF Financial Corporation's Registration
Statement on Form S-4, No. 33-14203 (filed May 12, 1987)];
Second Amendment, Third Amendment and Fourth Amendment to
the Plan [incorporated by reference to Exhibit 10(a) to TCF
Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, No. 0-16431]; Fifth
Amendment to the Plan [incorporated by reference to Exhibit
10(a) to TCF Financial Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, No. 0-16431];
amendment dated January 21, 1991 [incorporated by reference
to Exhibit 10(a) to TCF Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990,
No. 0-16431]; and as further amended by amendment dated
January 28, 1992 and amendment dated March 23, 1992
(effective April 15, 1992) [incorporated by reference to
Exhibit 10(a) to TCF Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991,
No. 0-16431]
10(b) TCF Financial 1995 Incentive Stock Program, as amended
October 1, 1995 [incorporated by reference to Exhibit 10(b)
to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, No. 0-16431],
as amended October 22, 1996 [incorporated by reference to
Exhibit 10(a) to TCF Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996,
No. 0-16431]
10(c) Amended and Restated TCF Financial Corporation Executive
Deferred Compensation Plan as amended and restated effective
November 1, 1998 [incorporated by reference to Exhibit 10(c)
to the TCF Financial Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998, No. 0-16431]
10(d) Amended and Restated Trust Agreement for TCF Financial
Corporation Executive Deferred Compensation Plan effective
September 1, 1998; amendment adopted effective November 1,
1998 [incorporated by reference to Exhibit 10(d) to TCF
Financial Corporation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, No. 0-16431]
10(e) Employment Agreement of William A. Cooper, dated July 1,
1996 [incorporated by reference to Exhibit 10(a) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, No. 0-16431], as amended
March 1, 1997 [incorporated by reference to Exhibit 10(e) to
TCF Financial Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, No. 0-16431]
10(f) Change in Control Agreement of William A. Cooper, dated July
1, 1996 [incorporated by reference to Exhibit 10(b) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, No. 0-16431]
21
<PAGE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
---- ----------- -----
<S> <C> <C>
10(g) Severance Agreement of Thomas A. Cusick, dated August 22,
1988 [incorporated by reference to Exhibit 19(c) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1988, No. 0-16431],
amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(f) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, No. 0-16431], and amendment dated October
24, 1995 [incorporated by reference to Exhibit 10(f) to TCF
Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, No. 0-16431]
10(h) Severance Agreement of William E. Dove, dated August 22,
1988 [incorporated by reference to Exhibit 19(d) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1988, No. 0-16431],
amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(g) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, No. 0-16431], and amendment thereto dated
October 24, 1995 [incorporated by reference to Exhibit 10(g)
to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, No. 0-16431]
10(j) Severance Agreement of Lynn A. Nagorske, dated August 22,
1988 [incorporated by reference to Exhibit 19(f) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1988, No. 0-16431],
amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(i) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, No. 0-16431], and amendment thereto dated
October 24, 1995 [incorporated by reference to Exhibit 10(i)
to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, No. 0-16431]
10(k) Severance Agreement of Gregory J. Pulles, dated August 23,
1988 [incorporated by reference to Exhibit 19(g) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1988, No. 0-16431],
amendment thereto dated December 4, 1990 [incorporated by
reference to Exhibit 10(j) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, No. 0-16431], and amendment thereto dated
October 24, 1995 [incorporated by reference to Exhibit 10(j)
to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, No. 0-16431]
10(l) Severance Agreement of Barry N. Winslow, dated December 30,
1988 and amendment thereto dated December 4, 1990
[incorporated by reference to Exhibit 10(n) to TCF Financial
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, No. 0-16431], and amendment thereto
dated October 24, 1995 [incorporated by reference to Exhibit
10(m) to TCF Financial Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, No. 0-16431]
10(m) Supplemental Employee Retirement Plan, as amended and
restated effective July 21, 1997 [incorporated by reference
to Exhibit 10(m) to TCF Financial Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997, No. 0-16431]; as amended effective September 30, 1998
[incorporated by reference to Exhibit 10(m) to TCF Financial
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, No. 0-16431]
10(n) Trust Agreement for TCF Financial Corporation Supplemental
Employee Retirement Plan, dated August 21, 1991
[incorporated by reference to Exhibit 10.16 to TCF Financial
Corporation's Registration Statement on Form S-2, filed
November 15, 1991, No. 33-43988]; as amended on October 20,
1997 [incorporated by reference to Exhibit 10(n) to TCF
Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, No. 0-16431]
22
<PAGE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
---- ----------- -----
<S> <C> <C>
10(o) TCF Financial Corporation Senior Officer Deferred
Compensation Plan as amended and restated effective July 21,
1997, and as amended effective January 1, 1998 [incorporated
by reference to Exhibit 10(o) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, No. 0-16431]
10(p) Amended and Restated Trust Agreement for TCF Financial
Corporation Senior Officer Deferred Compensation Plan
effective September 1, 1998; amendment adopted effective
November 1, 1998 [incorporated by reference to Exhibit 10(p)
to TCF Financial Corporation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998, No. 0-16431]
10(q) Directors Stock Program [incorporated by reference to
Program filed with registrant's definitive proxy statement
dated March 22, 1996, No. 0-16431]; amendment adopted June
20, 1998 [incorporated by reference to Exhibit 10(q) to TCF
Financial Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, No. 0-16431]
10(r) Management Incentive Plan-Executive [incorporated by
reference to Plan filed with registrant's definitive proxy
statement dated March 16, 1994, No. 0-16431] and 1995 Plan
Acknowledgment [incorporated by reference to Exhibit 10(s)
to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, No. 0-16431];
1996 Management Incentive Plan-Executive [incorporated by
reference to Exhibit 10(t) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, No. 0-16431]; 1997 Management Incentive
Plan-Executive [incorporated by reference to Exhibit 10(t)
to TCF Financial Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, No. 0-16431];
and 1998 Management Incentive Plan-Executive [incorporated
by reference to Exhibit 10(s) to TCF Financial Corporation's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, No. 0-16431]; and 1999 Management
Incentive Plan-Executive . . . . . . . . . . . . . . . . . .
10(s) 1996 Performance-Based Incentive Policy [incorporated by
reference to Policy filed with registrant's definitive proxy
statement dated March 22, 1996, No. 0-16431]; Incentive
Compensation 1997 Plan [incorporated by reference to Plan
filed with registrant's definitive proxy statement dated
March 17, 1997, No. 0-16431]; and 1999 Performance-Based
Incentive Policy (to be presented to shareholders for
approval at the Annual Meeting on May 11, 1999) . . . . . .
10(t) Supplemental Pension Agreement with Robert E. Evans, dated
July 9, 1991 [incorporated by reference to Exhibit 10.22 to
TCF Financial Corporation's Registration Statement on Form
S-4, No. 33-57290 (filed January 22, 1993)]
10(u) Employment Agreement of Robert J. Delonis, dated February 9,
1995 [incorporated by reference to Exhibit 10(v) to TCF
Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, No. 0-16431, as amended
December 18, 1995 [incorporated by reference to Exhibit
10(w) to TCF Financial Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, No. 0-16431],
as amended January 23, 1998 [incorporated by reference to
Exhibit 10(u) to TCF Financial Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, No. 0-16431]
23
<PAGE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
---- ----------- -----
<S> <C> <C>
10(v) TCF Directors Deferred Compensation Plan [incorporated by
reference to Plan filed with registrant's definitive proxy
statement dated March 15, 1995, No. 0-16431], as amended
October 22, 1996 [incorporated by reference to Exhibit 10(x)
to TCF Financial Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, No. 0-16431];
amendment adopted effective September 30, 1998 [incorporated
by reference to Exhibit 10(v) to TCF Financial Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, No. 0-16431]
10(w) TCF Directors Retirement Plan dated October 24, 1995
[incorporated by reference to Exhibit 10(y) to TCF Financial
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, No. 0-16431]
10(x) Employment Agreement of John L. Morgan, dated November 6,
1996 [incorporated by reference to Exhibit 10.8 to Winthrop
Resources Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, No. 0-20123], as
amended on February 28, 1997 [incorporated by reference to
Exhibit 10(x) to TCF Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997,
No. 0-16431]; as amended on November 23, 1998 . . . . . . .
10(y) Employment Agreement of David Mackiewich dated September 5,
1997 [incorporated by reference to Exhibit 10(y) to TCF
Financial Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, No. 0-16431]; as
amended on August 18, 1998 . . . . . . . . . . . . . . . . .
11 Statement regarding computation of earnings per common
share . . . . . . . . . . . . . . . . . . . . . . . . . . .
13 TCF Financial Corporation 1998 Annual Report (portions
incorporated by reference) . . . . . . . . . . . . . . . . .
21 Subsidiaries of TCF Financial Corporation (as of March 17,
1999) . . . . . . . . . . . . . . . . . . . . . . . . . . .
23 Consent of KPMG Peat Marwick LLP dated March 29, 1999 . . .
</TABLE>
24
<PAGE>
EXHIBIT 10(r)
TCF FINANCIAL CORPORATION
1999 MANAGEMENT INCENTIVE PLAN - EXECUTIVE
1. ELIGIBILITY - Each Participant shall be given a copy of this 1999
Management Incentive Plan for Executives (the "Plan") and required to sign an
acknowledgment of its terms. The participants in the Plan are those approved
by the Personnel/Affirmative Action Committee (the "Committee").
2. All participants will be initially evaluated by the Chairman of TCF
Financial (the "Chairman") who will forward all recommendations to the
Committee for approval. The Committee evaluates the performance of the
Chairman. The Committee will consider the Earnings per Share ("EPS") and
Return on Average Assets ("ROA") performance and shall also evaluate all
other matters it deems appropriate in its sole discretion, subject to limits
imposed on such discretion under the Performance-Based Plan. Evaluations
will be performed pursuant to the terms of the TCF Performance-Based
Compensation Policy for Covered Executive Officers (the "Performance-Based
Plan") in the case of Covered Executive Officers (as defined in that Plan).
3. The criteria for awards (subject to paragraph 4) is as follows:
a. The amount of incentive payable to a participant shall be determined
by the achievement of EPS financial goals on Exhibit A attached. EPS will be
calculated as provided in the Performance-Based Plan, using diluted EPS,
rounded to the nearest cent. The bonus percentage shall be calculated, in the
case of EPS achievement which falls between goals, by interpolation as
follows: The amount by which the EPS achievement exceeds the goal shall be
divided by the amount between the EPS goal exceeded and the next EPS goal.
The result shall be stated in the form of a percentage which shall be
multiplied by the total bonus percentage points between EPS goals. The
result shall be added to the bonus percentage corresponding to the EPS goal
that was exceeded. In addition, the Committee will determine the ROA of the
Company under the Performance-Based Plan and will determine if it is in the
top one-third of the Company's peer group, as required by Exhibit A.
4. The committee may in its discretion, reduce, defer or eliminate the
amount of the incentive determined under paragraph 3.a. of this Agreement for
a Covered Executive Officer in the Performance-Based Plan. In addition, for
participants who are not subject to the Performance-Based Plan, the Committee
may in its discretion increase the amount of the incentive calculated under
paragraph 3.a. of this Agreement. The Committee has authority to make
interpretations under this Plan and to approve the calculations under
Paragraph 3.a. Incentive compensation will be paid in cash as soon as
possible following approval of awards by the Personnel Committee. Except for
Covered Executive Officers, the participant must be employed by TCF Financial
(or the same subsidiary as employed by on the date of this Acknowledgment) on
the date the incentive is paid in the same job position as the position for
which the incentive was earned in order to receive the incentive payment.
However, where the participant has transferred to another position within
TCF, the Committee may in its discretion determine to pay part, none, or all
of the incentive based on any factors the Committee considers to be relevant.
5. The committee may amend this Plan from time to time as it deems
appropriate, except that no provision of the Performance-Based Plan may be
amended except in accordance with its terms. This Plan shall not be
construed as a contract of employment, nor shall it be considered a term of
employment, nor as a binding contract to pay awards. The undersigned
acknowledges he/she is employed "at will".
6. This Plan is effective for service on or after January 1, 1999, and
supersedes and replaces the prior Management Incentive Compensation Plan and
any other prior incentive arrangements with respect to executives in this
Plan. The Plan may not be amended except in writing signed by TCF Financial
and the executive.
<PAGE>
ACKNOWLEDGMENT
I have received, read, and acknowledge the terms of the foregoing plan.
- -------------------- ---------------------------------
Date Signature
<PAGE>
EXHIBIT 10(s)
TCF PERFORMANCE-BASED COMPENSATION POLICY FOR
COVERED EXECUTIVE OFFICERS
1. PURPOSE. The purpose of the TCF Performance-Based Compensation Policy for
Covered Executive Officers (the "Policy") is to establish one or more
performance goals for payment of incentive compensation other than stock
options and the maximum amount of such incentive compensation that may be
paid to certain executive officers. It is the intention of TCF Financial
Corporation (the "Corporation") that incentive compensation awarded to each
covered Executive Officer (as defined below) pursuant to the Policy for the
taxable year commencing January 1, 1996 and each taxable year thereafter be
deductible by the Corporation for federal income tax purposes in accordance
with Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations published relating thereto (the "Regulations").
2. COVERED EXECUTIVE OFFICERS. This Policy shall apply to the Chief Executive
Officer of the Corporation. In addition, a committee (the "Committee")
consisting solely of independent directors, as defined in section 162(m) of
the Code and in the Regulations, may select each year additional
individuals to be covered by the Policy in that year. Any individual so
selected must be an individual who, on the last day of the previous taxable
year, commencing with the taxable year beginning January 1, 1995, was among
the four highest compensated executive officers (other than the Chief
Executive Officer) of the Corporation. Whether an individual is among the
four highest compensated executive officers shall be determined pursuant to
the executive compensation disclosure rules under the Securities Exchange
Act of 1934. The Chief Executive Officer and any other individual selected
for participation in this Policy shall be considered the "Covered Executive
Officers" and are the only individuals subject to this Policy.
3. INCENTIVE COMPENSATION AWARD/ESTABLISHMENT OF PERFORMANCE GOALS. An
incentive compensation award to a Covered Executive Officer pursuant to
this Policy may be paid in the form of cash, stock, or restricted stock, or
any combination thereof. Payment of incentive compensation awards to a
Covered Executive Officer under this Policy will be contingent upon the
attainment of the performance goal or goals in the Performance Period
established for such Covered Executive Officer by the Committee as provided
herein. The Committee shall approve such awards and shall retain the
discretion to reduce, defer or eliminate the incentive compensation award
payable to a Covered Executive Officer, notwithstanding attainment of any
performance goal.
Each year the Committee shall select the individuals, if any, to be Covered
Executive Officers for that year in addition to the Chief Executive Officer
and shall establish in writing one or more performance goals to be attained
(which performance goals may be stated as alternative performance goals)
for a Performance Period for each Covered
<PAGE>
Executive Officer on or before the latest date permitted under Section
162(m) of the Code (currently the last day of the first quarter of the
calendar year), the Regulations or in ruling or advisory opinions published
by the Internal Revenue Service (the "IRS"). Performance goals may be based
on any one or more of the following business criteria (as defined in
paragraph 4 below) as the Committee may select:
- Net Income
- Return on Average Assets ("ROA")
- Business Unit ROA
- Return on Average Equity ("ROE")
- Business Unit ROE
- Return on Tangible Equity ("ROTE")
- Business Unit ROTE
- Earnings Per Share ("EPS")
The maximum amount or value of an incentive compensation award for any
Performance Period to the Chief Executive Officer shall not exceed two
percent (2%) of the Corporation's Net Income. The maximum amount or value
of an incentive compensation award for any Performance Period to any other
Covered Executive Officer shall not exceed one percent (1%) of the
Corporation's Net Income.
4. DEFINITIONS. For purposes of this Policy and for determining whether a
particular goal was attained, the following terms shall have the meanings
given them below:
(a) The term "Net Income" shall mean the Corporation's or Business
Unit's after-tax net income for the applicable Performance Period as
reported in the Corporation's or Business Unit's consolidated
financial statements, adjusted to eliminate the effect of the
following: (1) in the event an acquisition is made effective during
the Performance Period and is accounted for as a pooling of interests,
restatements of financial results for the portion of the Performance
Period preceding the effective date of such acquisition; (2) in the
event an acquisition is made effective during the Performance Period,
regardless of the method of accounting used, the effect on operations
attributable to such acquisition with respect to the portion of the
Performance Period following the effective date of such acquisition;
(3) losses resulting from discontinued operations; (4) extraordinary
gains or losses; (5) the cumulative effect of changes in generally
accepted accounting principles; and (6) any other unusual,
non-recurring gain or loss which is separately identified and
<PAGE>
quantified in the Corporation's or Business Unit's financial
statements in accordance with Generally Accepted Accounting Principles
("GAAP") (any reference herein to the Corporation's financial
statements shall be deemed to include any footnotes thereto as well as
management's discussion and analysis). Notwithstanding the foregoing,
in determining the Corporation's Net Income for a Performance Period
the Committee may from time to time in its discretion disregard any
one or more, or all, of the foregoing adjustments (1) - (6) provided
that the effect of doing so would be to reduce the amount of incentive
payable to a Covered Executive Officer for such Performance Period.
(b) The term "Performance Period" shall mean a calendar year,
commencing January 1 and ending December 31.
(c) The term "Return on Average Equity" shall mean the Net Income of
the Corporation, less dividends on preferred stock held by an
unaffiliated third party, on an annualized basis, divided by the
Corporation's Average Total Common Equity (adjusted to eliminate net
unrealized gains or losses on assets available for sale resulting from
SFAS 115) for the Performance Period.
(d) The term "Return on Average Assets" shall mean the Net Income of
the Corporation on an annualized basis, divided by the Corporation's
average total assets (adjusted to eliminate unrealized gains or losses
on assets available for sale resulting from SFAS 115) for the
Performance Period.
(e) The term "Business Unit ROA" means the Net Income of a business
unit or subsidiary managed by a Covered Executive Officer on an
annualized basis, divided by the business unit's or subsidiary's
average total assets (adjusted to eliminate unrealized gains or losses
on assets available for sale resulting from SFAS 115) for the
Performance Period. In determining the Business Unit ROA of TCF Bank
Minnesota there shall be subtracted the assets, equity and income of
any insured institution subsidiary thereof.
(f) The term "Business Unit ROE" means the Net Income of a
business unit or subsidiary managed by a Covered Executive Officer,
less dividends on preferred stock held by an unaffiliated third party,
on an annualized basis, divided by the business unit's or subsidiary's
Average Total Common Equity including preferred stock held by an
affiliated entity (adjusted to eliminate net unrealized gains or
losses on assets available for sale resulting from SFAS 115) for the
Performance Period. In determining the Business Unit ROE of TCF Bank
Minnesota there shall be subtracted the assets, equity and income of
any insured institution subsidiary thereof.
(g) The term "Return on Tangible Equity" shall mean the Net
Income of the Corporation plus amortization of goodwill, both on an
annualized basis, tax effected
<PAGE>
at the Corporation's statutory state and federal corporate tax rate,
less dividends on preferred stock held by an unaffiliated third party
on an annualized basis, divided by beginning of the year tangible
common equity (adjusted to eliminate net unrealized gains or losses
on assets available for sale resulting from SFAS 115) for the
Performance Period.
(h) The term "Business Unit Return on Tangible Equity" means the Net
Income of a business unit or subsidiary managed by a Covered Executive
Officer, plus amortization of goodwill of the business unit or
subsidiary, both on an annualized basis, tax effected at the
Corporation's statutory state and federal corporate tax rate, and less
dividends on preferred stock held by an unaffiliated third party,
divided by the business unit's or subsidiary's beginning of the year
tangible common equity including preferred stock held by an affiliated
entity (adjusted to eliminate net unrealized gains or losses on assets
available for sale resulting from SFAS 115) for the Performance
Period. In determining the Business Unit ROTE of TCF Bank Minnesota
there shall be subtracted the assets, equity and income of any insured
institution subsidiary thereof.
(i) The term "Earnings Per Share" shall mean the Net Income of the
Corporation divided by the Corporation's weighted average common and
common equivalent shares outstanding, as determined for purposes of
calculating the Corporation's basic or diluted (whichever the
Committee shall designate at the time it establishes the goal)
earnings per share under GAAP (as adjusted to eliminate the effect of
shares issued for mergers or acquisitions identified in Sections
4.(a)(1) and (2) above where those Sections also resulted in
adjustments to Net Income) for the Performance Period.
(j) The term "Average Total Common Equity" shall mean the common
equity of the Corporation or Business Unit, adjusted to eliminate the
effect of mergers or acquisitions completed during the Performance
Period where those mergers or acquisitions resulted in adjustments to
Net Income under Sections 4.(a)(1), (2) or (3) above.
5. CALCULATIONS. Calculations made pursuant to this Policy shall be made in
accordance with procedures reasonably designed to implement its terms.
6. APPLICABILITY OF CERTAIN PROVISIONS OF OTHER PLANS. An incentive
compensation award paid in stock or restricted stock pursuant to this
Policy shall be governed by the provisions (other than provisions with
respect to the computation of such award) of the plan under which the award
was made. Deferral of an incentive compensation award paid in cash under
this Policy may be made pursuant to the provisions of the Corporation's
Executive or Senior Officer Deferred Compensation Plan.
<PAGE>
7. EFFECTIVE DATE; AMENDMENT AND TERMINATION. This Policy shall be effective
as of January 1, 1996; provided, however, that no incentive compensation
award shall be paid pursuant to this Policy unless this Policy has been
approved by the stockholders of the Corporation. This Policy was amended
effective January 1, 1999 to revise the definition of earnings per share.
The Committee may at any time terminate or suspend this Policy, or amend or
modify this Policy to include any provision that, in the opinion of
counsel, would be required by Section 162(m) of the Code, the Regulations,
or any other regulations promulgated under the Code, or rulings or advisory
opinions published by the IRS.
<PAGE>
EXHIBIT 10(x)
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is dated as of ________________ , 1998, and is between
WINTHROP RESOURCES CORPORATION, a Minnesota corporation (the "Company") and John
L. Morgan, an individual residing in the State of Minnesota (the "Employee").
RECITALS
A. Company and Employee are parties to an employment contract dated November
6, 1996 and amended as of February 28, 1997 (the "Employment Agreement");
B. The amendment dated as of February 28, 1997 was entered into in connection
with the merger of the Company with a subsidiary of the current shareholder
of the Company;
C. Pursuant to the Employment Agreement, as amended, in the absence of having
Good Reason to terminate his employment Employee is obligated to continue
employment with the Company through December 31, 1999;
D. Employee desires to terminate his employment with Company effective as of
March 31, 1999 (which he believes to be in the best interests of the
Company) and Company has agreed to such termination, but only upon the
terms and conditions stated herein;
E. In exchange for agreeing to early termination of Employee's employment
prior to the end of the scheduled term of the Employment Agreement, and in
order to preserve the protections negotiated in connection with the merger
of the Company with a subsidiary of the current shareholder of the Company,
as much as practicable after Employee's termination of employment, Company
desires assurance of the continued protections of Section 6.01 of the
Employment Agreement for five years after Employee's termination of
employment and, after due consideration, Employee agrees that this is a
fair and reasonable protection for the Company;
NOW, THEREFORE, in consideration of the parties' agreement to be bound by the
terms contained herein, the parties to the Employment Agreement agree as
follows:
1. Employee's employment with Company is hereby terminated effective March 31,
1999 (the "Employment Termination Date"). Employee's termination of
employment shall be deemed to be a voluntary termination of employment by
Employee effective on the Employment Termination Date. Employee shall
continue to perform his employment duties pursuant to the Employment
Agreement through this Employment Termination Date and the Company shall
continue to pay Employee his compensation and benefits due pursuant to the
Employment Agreement through the Employment Termination Date. Effective
immediately after Employee's Employment Termination Date, all compensation
to Employee shall cease and all obligations of Employee under the
Employment Agreement shall cease, except for the obligations identified in
paragraphs 2-6 following, which shall survive termination of the Employment
Agreement and Employee's employment.
2. Employee hereby agrees to extend the term of Section 6.01 of the Agreement
(NonCompetition and NonSolicitation) and the term of Section 5.01 of the
Agreement (Confidentiality) to be in effect for a period of five years
after March 31, 1999, expiring on March 31, 2004, and the provisions of
Article VIII shall continue to apply with respect to these continuing
obligations. Employee also agrees that the NonCompetition obligations under
Section 6.01 will extend to all leasing activity of any nature within the
United States, but this shall not include real estate investment or
leasing.
<PAGE>
3. Employee hereby resigns his position as a member of the board of directors
of the Company and as a member of the board of directors of TCF Financial
Corporation, effective upon the date of this Amendment first set forth
above. Employee hereby states that his resignation from the board of TCF
Financial Corporation is not the result of a disagreement over operations,
policies, or practices.
4. Employee agrees to assist the Company and to reasonably cooperate with the
Company in connection with any pending or future litigation involving the
Company in which the Company reasonably determines that Employee's
assistance or cooperation would be beneficial to the Company or would aid
in resolving the litigation. Any expenses incurred by Employee in such
assistance shall be promptly reimbursed by the Company.
5. Company and Employee, in consideration of the commitments made herein,
hereby fully release each other from any and all claims of any kind which
either party may have against the other, except for violations, after the
date hereof, of the Employment Agreement as amended by this Amendment.
6. The Company and Employee agree not to disparage or take any action which
would damage the business or reputation of Employee or the Company or any
of its affiliates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
EMPLOYEE WINTHROP RESOURCES CORPORATION
By
- ----------------------- --------------------------------------
Address:
Its
-------------------------------------
TCF FINANCIAL CORPORATION
- -----------------------
By
- ----------------------- --------------------------------------
Its
- ----------------------- -------------------------------------
<PAGE>
EXHIBIT 10(y)
8-20-98
TCF NATIONAL BANK ILLINOIS
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (the "Amendment") to that certain Employment Agreement
entered into effective as of September 5, 1997 (the "Agreement") is entered into
as of AUGUST 18, 1998 (the "Effective Date"), by and among TCF National Bank
Illinois ("TCF Illinois"), TCF Financial Corporation ("TCF Financial") and David
H. Mackiewich ("Executive").
WHEREAS, TCF Illinois is a wholly owned subsidiary of TCF Financial;
WHEREAS, Executive has been elected to and has agreed to serve in the
position of Executive Chairman for TCF Illinois, a position of substantial
responsibility which includes advising on potential merger and acquisition
opportunities;
WHEREAS, subsequent to the execution of the Agreement, TCF Illinois has
completed an acquisition of a substantial number of branches which was not
anticipated at the time the Agreement was executed;
WHEREAS, Executive, TCF Illinois and TCF Financial wish to amend the
Agreement to take into account the changed circumstances by substantially
reducing Executive's responsibilities and compensation, by providing for his
employment term to continue through January 2, 2002, the day after his grant of
restricted stock will vest and by providing for payment at this time of the
change in control payment which he would otherwise be entitled to receive at
termination of employment as a result of the acquisition of Standard Financial,
Inc., effective September 5, 1997; and
WHEREAS, contemporaneously with the signing of this Amendment the parties
are terminating the Change in Control Agreement between TCF Illinois, TCF
Financial and Executive; TCF Illinois is making payment in full to Executive of
the lump sum that would be due thereunder if Executive had a termination of
employment effective as of the date of this Amendment; and the parties are
amending the restricted stock award agreement with Executive to provide for full
vesting on January 1, 2002 regardless of whether the ROE goals previously
related to his shares are met;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
provided, the parties hereto agree as amend the Agreement follows:
1.
Section 1.1 ("Change in Control") is deleted.
2.
Section 1.5 ("Good Reason") is amended to read as follows in full:
(a) without Executive's express written consent: (1) Executive is
assigned any duties inconsistent in any material respect with Executive's
employment positions, duties, responsibilities and status with TCF Illinois or
TCF Financial as provided under this Amendment; (2) Executive's reporting
responsibilities, titles or offices as provided in this Amendment are changed in
any material respect; (3) the Term of this Agreement is reduced from that set
forth in Section 3.3, as amended by this Amendment; (4) Executive is removed
from or is not re-elected to the position of Executive Chairman of TCF Illinois,
except in connection with the termination of Executive's
<PAGE>
employment for Cause, on account of Disability, as a result of Executive's
death, or by Executive other than for Good Reason;
(b) without Executive's express written consent: (1) TCF Illinois or
TCF Financial reduces in any material respect the base salary of Executive
provided for by this Amendment; (2) TCF Illinois or TCF Financial discontinues
Executive's participation in the TCF Stockshare Plan, the TCF Cash Balance
Pension Plan, the TCF Medical Plan, TCF Group Term Life Insurance Plan or TCF
Disability Plan other than through an amendment or other action applicable to
all employees generally; or (3) TCF Illinois' principal executive offices are
relocated to a location at least fifty miles from their current location;
(c) without Executive's express written consent, TCF Illinois or TCF
Financial fail to obtain the assumption of all obligations under the Agreement
by any successor as contemplated in Section 8.5 of the Agreement; or
(d) without Executive's express written consent, Executive's
employment is purported to be terminated in a manner which is not pursuant to a
Notice of Termination satisfying the requirements of Section 7.4 of this
Agreement.
3.
Section 2 (EMPLOYMENT AND TERM) is amended to read as follows in full:
2.1 EMPLOYMENT. TCF Illinois agrees to continue to employ Executive and
Executive agrees to continue to serve as Executive Chairman of TCF Illinois.
Executive agrees to accept Employment on the terms and conditions set forth in
the Agreement, as amended by this Amendment.
2.2 TERM. The term of the Agreement (the "Term") shall be the period
beginning on September 5, 1997 (the "Effective Date") and ending on January 2,
2002 or such earlier time as provided by Article 7.
4.
Section 3 (DUTIES OF EXECUTIVE) is amended to read as follows in full:
3.1 TIME DEVOTED; DUTIES. Executive's duties shall consist of presiding
over board meetings and advising the management of TCF Illinois and/or TCF
Financial from time to time of merger or acquisition opportunities of which
Executive becomes aware.. Executive shall also promote, by entertainment or
otherwise, as and to the extent permitted by law, the business of TCF Illinois
and TCF Financial. Executive shall perform his duties under this Agreement in
accordance with such reasonable standards expected of employees with comparable
positions in comparable organizations and as may be established from time to
time by the TCF Illinois and TCF Financial Boards. Executive shall also conduct
his personal affairs, including his personal financial affairs, in a manner
appropriate for his position.
3.2 COVENANT NOT TO COMPETE. In consideration of the continued employment
of Executive pursuant to this Amendment, as well as the payment to Executive,
contemporaneously with the execution of this Amendment, of the change in control
payment which Executive would otherwise be entitled to receive only upon
termination of employment, Executive covenants and agrees that Executive shall
not during the term of this Agreement:
(a) without the prior written consent of TCF Financial or TCF
Illinois, engage or become interested in any capacity, directly or indirectly
(whether as proprietor, principal stockholder, director, partner, employee,
trustee, beneficiary, or in any other capacity) in any business selling,
providing or developing products or services competitive with products or
services sold or maintained by TCF Financial or TCF Illinois within a 5-mile
radius of the Chicago Metropolitan Statistical Area; or
<PAGE>
(b) recruit or solicit for employment by any other business any
current or future employee of TCF Financial or TCF Illinois or any of its
respective successors or any entities related to it.
The provisions of this Section 3.2 shall expire on the earlier of: (i)
January 1, 2002 and (ii) the date one year after Executive's termination of
employment.
5.
Section 4 (COMPENSATION) is amended to read as follows in full:
4.1 . Executive shall receive for his services the following Base
Compensation:
(a) Effective starting as of July 1, 1998, TCF Illinois shall pay
Executive a salary at an annual rate of $60,000.00 ("Base Compensation") payable
in 26 equal bi-weekly installments per year (resulting in a total of $30,000 in
salary for the months of July through December, 1998);
(b) Any increase in Executive's Base Compensation shall be left to
the sole discretion of the TCF Illinois Board. The Executive's Base
Compensation shall not be subject to reduction during the Term of this Agreement
except as otherwise provided in this Agreement.
4.2 BONUS COMPENSATION. Executive will not be eligible for a bonus.
4.3 ADDITIONAL COMPENSATION. As further compensation Executive shall be
eligible to continue to participate for the remaining term of the Agreement in
the TCF Stockshare Plan, the TCF Cash Balance Pension Plan, the TCF Medical
Plan, the TCF Group Term Insurance Plan and other benefit plans for which
executives of TCF Illinois are generally eligible subject to the terms and
conditions of each respective plan concerning participation. TCF Illinois will
not make any further payment of premiums for Executive's Term Life Insurance
policy with Pacific Mutual Life, Policy No. 1A22101880 or the premiums for
Executive's personal disability policy with UNUM, Policy No. 1AD290740 after the
date of this Amendment. Effective as of July 1, 1998, Executive shall not
accrue any additional benefits under the STEP supplemental pension plan and no
further contributions shall be made to that plan by TCF Illinois or TCF
Financial. As soon as practicable after this Amendment is signed, TCF Illinois
shall assign to Executive all of its interest in the Pacific Mutual Life
Insurance Policy No. 1A22661680 pertaining to the STEP Plan. Notwithstanding
the foregoing, Executive's rights to medical coverage shall continue under the
TCF Medical Plan or a comparable plan, upon payment of the same premium as
active TCF Illinois employees pay, until Executive becomes eligible for other
comparable medical coverage elsewhere or until Executive becomes eligible for
Medicare, whichever occurs first. Nothing in this amended section 4.3 shall
prohibit TCF Illinois or TCF Financial from amending, replacing or terminating
any of the plans in which Executive currently participates, provided that the
terms of any such action apply to employees generally.
6.
Section 5.2 is amended to read as follows in full:
5.2 FRINGE BENEFITS. In addition to benefits in Section 4.3, as
amended by this Amendment, Executive shall be entitled to receive from TCF
Financial or TCF Illinois the use of a company car. Executive also has a grant
of restricted stock in the amount of 60,000 shares (the "Restricted Stock
Grant") which is expected to vest on January 1, 2002.
7.
Section 6.1 (COVENANT NOT TO COMPETE) is moved to Section 3.2 as amended by
this Amendment.
8.
<PAGE>
Section 7.3 (VOLUNTARY TERMINATION) is amended to read as follows in full:
Executive may terminate his employment (i) for Good Reason or (ii) if the Term
of the Agreement is changed without Executive's consent from that set forth in
Section 2.2 of this Amendment.
9.
Section 8.4 is amended to read as follows in full:
8.4 COMPENSATION UPON TERMINATION OTHER THAN FOR CAUSE. If Executive's
employment is terminated other than for Cause or Disability or the Executive
terminates employment pursuant to Section 7.3, Executive shall be entitled to
the compensation Executive would have been entitled to under this Agreement as
and when payable hereunder for the remainder of the Term, except that
participation under the TCF Cash Balance Pension Plan, TCF Stockshare Plan, TCF
Group Term Life Plan and TCF Disability Plan shall cease in accordance with the
terms of those plans. If Executive's employment is terminated by TCF Illinois
or TCF Financial for any reason other than for Cause, or Executive terminates
employment pursuant to Section 7.3, then Executive shall be entitled to
continuing coverage under the TCF Medical Plan, or other comparable medical
coverage, for payment of the same premium as active TCF Illinois employees pay,
until he becomes eligible for comparable coverage elsewhere or becomes eligible
for Medicare, whichever comes first. Upon termination of Executive's employment
by TCF Illinois or TCF Financial, regardless of whether for Cause, Disability or
any other reason, or pursuant to Section 7.1, or upon termination of employment
by Executive pursuant to Section 7.3 of the Agreement, Executive shall become
fully vested in his Restricted Stock Grant. Upon Executive's termination of
employment other than pursuant to Section 7.3, Executive's Restricted Stock
Grant shall vest to the extent of the vesting percentage earned through the last
January 1 preceding such termination of employment.
10.
.Section 9.3 is amended to read as follows in full:
9.3 ENTIRE AGREEMENT; TERMINATION OF AND RELEASE UNDER CHANGE IN CONTROL
AGREEMENT. This instrument contains the entire agreement between the parties
with respect to the subject matter hereof, and shall supersede all prior
agreements and understandings with respect to the subject matter hereof,
including, without limitation, any and all employment agreements or Change in
Control Agreements with Standard Financial, Inc. and/or Standard Federal Bank
for savings. In connection with this Amendment, the parties hereby terminate
that certain Change in Control Agreement by and between Executive and TCF
Illinois and TCF Financial, executed as of September 5, 1997 (the "Change in
Control Agreement") and no further payments or other compensation of any nature
are due in the future under that Agreement (except that TCF Illinois'
indemnification obligations as to fees and expenses under Sec. 2.2(b) and as to
excise taxes under Sec. 2.4 of the Change in Control Agreement shall survive the
termination of that Agreement). Executive hereby acknowledges full payment
under said Change in Control Agreement and hereby releases TCF Illinois and TCF
Financial from any further performance thereunder. In connection with the
restricted stock grant made to Executive, there is an award agreement
outstanding between Executive and TCF Financial which, subject to the terms and
conditions of this Agreement, governs the vesting and other terms and conditions
of that award. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. No modification or
addition to this Agreement shall be enforceable unless in writing and signed by
the party against whom enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the
day and year first above written.
TCF NATIONAL BANK ILLINOIS
By:
-------------------------------------
Title:
----------------------------------
TCF FINANCIAL CORPORATION
By:
-------------------------------------
Title:
----------------------------------
DAVID H. MACKIEWICH
----------------------------------------
<PAGE>
Exhibit 11 - Computation of Earnings Per Common Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
Year Ended December 31,
Computation of Basic Earnings Per Common -------------------------------------------------
Share for Statements of Operations: 1998 1997 1996
- ---------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 156,179 $ 145,061 $ 100,377
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding 88,092,895 84,477,536 81,903,690
----------- ----------- -----------
----------- ----------- -----------
Basic earnings per common share $ 1.77 $ 1.72 $ 1.23
----------- ----------- -----------
----------- ----------- -----------
Computation of Diluted Earnings Per Common
Share for Statements of Operations:
- ----------------------------------------
Net income $ 156,179 $ 145,061 $ 100,377
Add: Interest expense on 7 1/4% convertible
subordinated debentures, net of tax - 132 328
----------- ----------- -----------
Income applicable to common shareholders
including effect of dilutive securities $ 156,179 $ 145,193 $ 100,705
----------- ----------- -----------
----------- ----------- -----------
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 88,092,895 84,477,536 81,903,690
Net dilutive effect of:
Stock option plans 346,434 468,275 537,900
Restricted stock plans 476,486 838,189 654,918
Assumed conversion of 7 1/4% convertible
subordinated debentures - 349,936 842,850
----------- ----------- -----------
88,915,815 86,133,936 83,939,358
----------- ----------- -----------
----------- ----------- -----------
Diluted earnings per common share $ 1.76 $ 1.69 $ 1.20
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Financial Review
FINANCIAL REVIEW
The financial review presents management's discussion and analysis of the
consolidated financial condition and results of operations of TCF Financial
Corporation ("TCF" or the "Company"). This review should be read in conjunction
with the consolidated financial statements and other financial data beginning on
page 30.
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY -- TCF reported net income of $156.2 million for 1998, up
from $145.1 million for 1997 and $100.4 million for 1996. Diluted earnings per
common share was $1.76 for 1998, compared with $1.69 for 1997 and $1.20 for
1996. Return on average assets was 1.62% in 1998, compared with 1.77% in 1997
and 1.39% in 1996. Return on average realized common equity was 17.51% in 1998,
compared with 19.57% in 1997 and 16.77% in 1996. Diluted cash earnings per
common share, which excludes amortization and reduction of goodwill and deposit
base intangibles, was $1.91 for 1998, compared with $1.81 for 1997 and $1.24 for
1996. On the same basis, cash return on average assets was 1.76% for 1998,
compared with 1.91% for 1997 and 1.44% for 1996, and cash return on average
tangible equity was 23.83% for 1998, compared with 23.96% for 1997 and 18.08%
for 1996. 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 due to the
inclusion of Standard for the entire year.
TCF significantly expanded its retail banking franchise in recent periods
and had 311 retail banking branches at December 31, 1998. In the past three
years, TCF opened 147 new branches, of which 128 were supermarket branches. This
expansion includes TCF's January 30, 1998 acquisition of 76 branches and 178
automated teller machines ("ATM") in Jewel-Osco stores in the Chicago area
previously operated by Bank of America. TCF anticipates opening approximately 40
new branches in 1999, and additional branches in subsequent years, including
approximately 25 Jewel-Osco supermarket branches per year in subsequent years
until branches have been installed in all targeted stores, including newly
constructed stores. See "Financial Condition -- Forward-Looking Information."
Further detail on the acquisitions of Standard and the Jewel-Osco branches
is provided in Note 2 of Notes to Consolidated Financial Statements.
In December 1998, TCF restructured its consumer finance company operations,
including the discontinuation of indirect automobile lending, the consolidation
of offices and a renewed focus on home equity lending. TCF recorded a pretax
charge of $1.8 million for the reorganization, and increased the provision for
credit losses by $3.9 million from the 1997 fourth quarter, primarily in
connection with the finance company automobile loan portfolio.
TCF's 1997 results reflect a branch reorganization at Great Lakes National
Bank Michigan ("Great Lakes Michigan") and Great Lakes National Bank Ohio
("Great Lakes Ohio"), including the sale of all eight Great Lakes Ohio branches
and related deposits for a net gain of $10.6 million, the accelerated
amortization of Great Lakes Michigan's remaining $8.7 million of deposit base
intangibles, and the write-off of $1.5 million of Great Lakes Michigan's teller
equipment.
TCF's 1996 results included a one-time special assessment of $34.8 million
from the Federal Deposit Insurance Corporation ("FDIC") to recapitalize the
Savings Association Insurance Fund ("SAIF") under federal legislation enacted on
September 30, 1996. On an after-tax basis, the FDIC special assessment totaled
$21.7 million, or 26 cents per diluted common share. Net income totaled $122.1
million for 1996 before the FDIC special assessment. On the same basis, diluted
earnings per common share was $1.46, diluted cash earnings per common share was
$1.50, return on average assets was 1.70%, return on average realized common
equity was 20.40%, cash return on average assets was 1.74% and cash return on
average tangible equity was 21.87%.
NET INTEREST INCOME -- A significant component of TCF's earnings is net
interest income, which is the difference between interest earned on loans and
leases, securities available for sale, investments and other interest-earning
assets (interest income), and interest paid on deposits and borrowings
(interest expense). This amount, when divided by average interest-earning
assets, is referred to as the net interest margin, expressed as a percentage.
Net interest income and net interest margin are affected by changes in
interest rates, the volume and the mix of interest-earning assets and
interest-bearing liabilities, and the level of non-performing assets.
Net interest income was $425.7 million for the year ended December 31,
1998, up from $393.6 million in 1997 and $354.6 million in 1996. This
represents an increase of 8.2% in 1998, following increases of 11% in 1997
and 7.7% in 1996. Total average interest-earning assets increased 16.2% in
1998, compared with an increase of 12.5% in 1997 and a decrease of 5.6% in
1996. The net interest margin for 1998 was 4.84%, compared with 5.20% in 1997
and 5.27% in 1996. The increase in net interest income for 1998 was primarily
due to the 1997 acquisition of Standard and the growth of lower interest-cost
retail deposits. TCF's net interest margin for 1998 was negatively impacted
due to the impact of Standard's lower net interest margin, loan prepayments
and the purchase of $822.4 million of mortgage-backed securities in the
second half of 1998 yielding approximately 6.5%. Although these
mortgage-backed securities are expected to contribute to future earnings,
they will continue to negatively impact TCF's net interest margin.
14 TCF
<PAGE>
The following table presents TCF's average balance sheets, interest and
dividends earned or paid, and the related yields and rates on major
categories of TCF's interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST INTEREST
YIELDS YIELDS
AVERAGE AND AVERAGE AND
(DOLLARS IN THOUSANDS) BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments ......................... $ 161,239 $ 10,356 6.42% $ 96,146 $ 7,192 7.48%
---------- ---------- ---------- ----------
Securities available for sale(2) .... 1,359,698 93,124 6.85 1,338,295 95,701 7.15
---------- ---------- ---------- ----------
Loans held for sale ................. 197,969 14,072 7.11 211,192 15,755 7.46
---------- ---------- ---------- ----------
Loans and leases:
Residential real estate ........... 3,687,579 267,916 7.27 2,674,107 206,853 7.74
Commercial real estate ............ 831,287 73,546 8.85 856,712 77,829 9.08
Commercial business ............... 263,257 22,169 8.42 205,402 18,068 8.80
Consumer ........................ 1,922,943 218,837 11.38 1,856,299 221,758 11.95
Lease financing ................... 378,824 48,874 12.90 335,534 39,458 11.76
---------- ---------- ---------- ----------
Total loans and leases(3) ....... 7,083,890 631,342 8.91 5,928,054 563,966 9.51
---------- ---------- ---------- ----------
Total interest-
earning assets .............. 8,802,796 748,894 8.51 7,573,687 682,614 9.01
---------- ----- ---------- -----
Other assets(4) ..................... 826,741 600,083
---------- ----------
Total assets ...................... $9,629,537 $8,173,770
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ....... $1,017,245 $ 782,836
---------- ----------
Interest-bearing deposits:
Checking .......................... 666,956 6,207 .93 551,501 6,133 1.11
Passbook and statement ............ 1,130,067 18,305 1.62 901,576 17,653 1.96
Money market ...................... 700,400 20,496 2.93 658,894 20,533 3.12
Certificates ...................... 3,249,742 167,484 5.15 2,868,833 150,863 5.26
---------- ---------- ---------- ----------
Total interest-bearing
deposits ...................... 5,747,165 212,492 3.70 4,980,804 195,182 3.92
---------- ---------- ---------- ----------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased ......... 140,414 7,863 5.60 346,339 19,892 5.74
FHLB advances ..................... 1,367,104 79,237 5.80 817,464 48,142 5.89
Discounted lease rentals .......... 205,393 16,744 8.15 222,558 18,430 8.28
Other borrowings .................. 92,467 6,824 7.38 97,547 7,372 7.56
---------- ---------- ---------- ----------
Total borrowings ................. 1,805,378 110,668 6.13 1,483,908 93,836 6.32
---------- ---------- ---------- ----------
Total interest-bearing
liabilities ................. 7,552,543 323,160 4.28 6,464,712 289,018 4.47
---------- ----- ---------- ------
Other liabilities(4) ................ 159,292 180,585
---------- ----------
Total liabilities ................. 8,729,080 7,428,133
Stockholders' equity(4) ............. 900,457 745,637
---------- ----------
Total liabilities
and stockholders' equity ........ $9,629,537 $8,173,770
---------- ----------
Net interest income .................... $ 425,734 $ 393,596
---------- ----------
Net interest-rate spread ............... 4.23% 4.54%
----- -----
Net interest margin .................... 4.84% 5.20%
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
- ------------------------------------------------------------------------------------
INTEREST
YIELDS
AVERAGE AND
(DOLLARS IN THOUSANDS) BALANCE INTEREST(1) RATES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments ......................... $ 65,853 $ 4,447 6.75%
---------- ----------
Securities available for sale(2) .... 1,054,434 75,303 7.14
---------- ----------
Loans held for sale ................. 227,226 17,080 7.52
---------- ----------
Loans and leases:
Residential real estate ........... 2,416,865 191,348 7.92
Commercial real estate ............ 923,838 82,971 8.98
Commercial business ............... 157,400 13,905 8.83
Consumer .......................... 1,624,449 197,916 12.18
Lease financing ................... 263,709 29,914 11.34
---------- ----------
Total loans and leases(3) ....... 5,386,261 516,054 9.58
---------- ----------
Total interest-
earning assets .............. 6,733,774 612,884 9.10
---------- -----
Other assets(4) ..................... 467,328
----------
Total assets ...................... $7,201,102
----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ....... $ 608,213
----------
Interest-bearing deposits:
Checking .......................... 510,979 5,571 1.09
Passbook and statement ............ 793,975 14,389 1.81
Money market ...................... 630,382 19,256 3.05
Certificates ...................... 2,458,291 132,159 5.38
---------- ----------
Total interest-bearing
deposits ...................... 4,393,627 171,375 3.90
---------- ----------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased ......... 506,298 28,597 5.65
FHLB advances ..................... 674,703 37,277 5.52
Discounted lease rentals .......... 180,586 14,906 8.25
Other borrowings .................. 85,571 6,161 7.20
---------- ----------
Total borrowings ................ 1,447,158 86,941 6.01
---------- ----------
Total interest-bearing
liabilities ................. 5,840,785 258,316 4.42
---------- -----
Other liabilities(4) ................ 153,373
----------
Total liabilities ................. 6,602,371
Stockholders' equity(4) ............. 598,731
----------
Total liabilities
and stockholders' equity ........ $7,201,102
----------
Net interest income .................... $ 354,568
----------
Net interest-rate spread ............... 4.68%
-----
Net interest margin .................... 5.27%
- ------------------------------------------------------------------------------------
</TABLE>
(1) Tax-exempt income was not significant and thus has not been presented on a
tax equivalent basis. Tax-exempt income of $147,000, $201,000 and $363,000
was recognized during the years ended December 31, 1998, 1997 and 1996,
respectively.
(2) Average balance and yield of securities available for sale is based upon
the historical amortized cost balance.
(3) Average balance of loans and leases includes non-accrual loans and leases,
and is presented net of unearned income.
(4) Average balance is based upon month-end balances.
TCF 15
<PAGE>
The following table presents the components of the changes in net interest
income by volume and rate:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
VERSUS SAME PERIOD IN 1997 VERSUS SAME PERIOD IN 1996
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
- ----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) VOLUME(1) RATE(1) TOTAL VOLUME(1) RATE(1) TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS ...................... $ 4,302 $ (1,138) $ 3,164 $ 2,222 $ 523 $ 2,745
-------- -------- -------- -------- -------- --------
SECURITIES AVAILABLE FOR SALE .... 1,505 (4,082) (2,577) 20,293 105 20,398
-------- -------- -------- -------- -------- --------
LOANS HELD FOR SALE .............. (962) (721) (1,683) (1,191) (134) (1,325)
-------- -------- -------- -------- -------- --------
LOANS AND LEASES:
Residential real estate ...... 74,296 (13,233) 61,063 19,946 (4,441) 15,505
Commercial real estate ....... (2,311) (1,972) (4,283) (6,061) 919 (5,142)
Commercial business .......... 4,910 (809) 4,101 4,210 (47) 4,163
Consumer ..................... 7,833 (10,754) (2,921) 27,655 (3,813) 23,842
Lease financing .............. 5,376 4,040 9,416 8,401 1,143 9,544
-------- -------- -------- -------- -------- --------
Total loans and leases .... 90,104 (22,728) 67,376 54,151 (6,239) 47,912
-------- -------- -------- -------- -------- --------
Total interest
income .............. 94,949 (28,669) 66,280 75,475 (5,745) 69,730
-------- -------- -------- -------- -------- --------
DEPOSITS:
Checking ..................... 1,161 (1,087) 74 457 105 562
Passbook and statement ....... 4,026 (3,374) 652 2,026 1,238 3,264
Money market ................. 1,254 (1,291) (37) 847 430 1,277
Certificates ................. 19,812 (3,191) 16,621 21,705 (3,001) 18,704
-------- -------- -------- -------- -------- --------
Total deposits ............ 26,253 (8,943) 17,310 25,035 (1,228) 23,807
-------- -------- -------- -------- -------- --------
BORROWINGS:
Securities sold under
repurchase agree-
ments and federal
funds purchased ........... (11,555) (474) (12,029) (9,155) 450 (8,705)
FHLB advances ................ 31,843 (748) 31,095 8,251 2,614 10,865
Discounted lease rentals ..... (1,401) (285) (1,686) 3,470 54 3,524
Other borrowings ............. (376) (172) (548) 675 536 1,211
-------- -------- -------- -------- -------- --------
Total borrowings .......... 18,511 (1,679) 16,832 3,241 3,654 6,895
-------- -------- -------- -------- -------- --------
Total interest
expense ............. 44,764 (10,622) 34,142 28,276 2,426 30,702
-------- -------- -------- -------- -------- --------
Net interest income .............. $ 50,185 $(18,047) $ 32,138 $ 47,199 $ (8,171) $ 39,028
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
In 1998, TCF's net interest income increased primarily due to the
acquisition of Standard and the growth of lower interest-cost retail deposits.
Net interest income increased $32.1 million, or 8.2%, and total average
interest-earning assets increased by $1.2 billion, or 16.2%, from 1997 levels.
TCF's net interest income improved by $50.2 million due to volume changes and
decreased $18 million due to rate changes. The favorable impact of the growth in
residential real estate, consumer and commercial business loan and lease
financing volumes, decreased volumes of securities sold under repurchase
agreements and federal funds purchased and decreased rates paid on
interest-bearing liabilities was partially offset by decreased yields on
securities available for sale and consumer and residential real estate loans,
and increased certificate of deposit and Federal Home Loan Bank ("FHLB") advance
volumes. TCF's net interest margin for the fourth quarter of 1998 was 4.65%,
compared with 4.82% for the third quarter of 1998 and 4.93% for the fourth
quarter of 1997. As previously noted, TCF's net interest margin for 1998 was
negatively impacted by Standard's lower net interest margin, loan prepayments
and purchases of mortgage-backed securities. Achieving net interest margin
growth is dependent on TCF's ability to generate higher-yielding assets. The
current interest rate environment and resulting increase in prepayment activity
has made it more difficult for TCF to increase the balance of such
higher-yielding assets. Interest income increased $66.3 million in 1998,
reflecting an increase of $94.9 million due to volume, partially offset by a
decrease of $28.7 million due to rate changes. Interest
16 TCF
<PAGE>
expense increased $34.1 million in 1998, reflecting an increase of $44.8
million due to volume, partially offset by a decrease of $10.6 million due to
a lower cost of funds. The increase in net interest income due to volume was
primarily due to the acquisition of Standard. The decrease in net interest
income due to rate changes reflects the impact of Standard's lower net
interest margin, and loan prepayments, partially offset by TCF's changing
asset/liability mix, with greater emphasis on higher-yielding consumer loans
and lease financings.
As a result of recent declines in variable index rates (e.g., prime), or if
such rates were to decline further, TCF may experience additional compression of
its net interest margin depending on the timing and amount of any reductions, as
it is possible that interest rates paid on retail deposits will not decline as
quickly, or to the same extent, as the decline in the yield on
interest-rate-sensitive assets such as home equity loans. In addition,
competition for checking, savings and money market deposits, an important source
of lower cost funds for TCF, has intensified among depository and other
financial institutions. TCF may also experience compression in its net interest
margin if the rates paid on deposits increase. See "Financial Condition --
Deposits" and "Financial Condition - Market Risk -- Interest-Rate Risk."
In 1997, TCF's net interest income increased primarily due to the
acquisition of Standard, the growth of higher-yielding consumer loans,
commercial business loans, lease financings and lower interest-cost retail
deposits, and increased capital. Net interest income increased $39 million, or
11%, and total average interest-earning assets increased by $839.9 million, or
12.5%, from 1996 levels. TCF's net interest income improved by $47.2 million due
to volume changes and decreased $8.2 million due to rate changes. The favorable
impact of the growth in consumer loan, securities available for sale,
residential real estate loan and lease financing volumes was partially offset by
decreased yields on consumer and residential real estate loans, decreased
volumes in commercial real estate loans, and increased certificate of deposit
volumes. Interest income increased $69.7 million in 1997, reflecting an increase
of $75.5 million due to volume, partially offset by a decrease of $5.7 million
due to rate changes. Interest expense increased $30.7 million in 1997, primarily
due to the acquisition of Standard, reflecting increases of $28.3 million due to
volume and $2.4 million due to a higher cost of funds. The decrease in net
interest income due to rate changes reflects the acquisition of Standard,
partially offset by TCF's changing asset/liability mix.
In 1996, TCF's net interest income and net interest margin increased
primarily due to the growth of higher-yielding consumer loans and lease
financings, the favorable impact of merger-related restructuring activities
related to TCF's 1995 acquisition of Great Lakes Bancorp, A Federal Savings
Bank, the November 30, 1995 redemption of $34.5 million of 10% subordinated
capital notes, lower average levels of non-performing assets, and increased
capital. Net interest income increased $25.5 million, or 7.7%, even though total
average interest-earning assets decreased by $400.4 million, or 5.6%, from 1995
levels. TCF's net interest income improved by $8.9 million due to volume changes
and by $16.6 million due to rate changes. The favorable impact of the lower cost
of funds and growth in consumer loan, lease financing and securities available
for sale volumes was partially offset by decreased volumes in mortgage-backed
securities and residential real estate loans. Interest income decreased $18.3
million in 1996, reflecting a decrease of $19.6 million due to volume and an
increase of $1.3 million due to rate changes. Interest expense decreased $43.8
million in 1996, reflecting decreases of $28.5 million due to volume and $15.3
million due to a lower cost of funds. The increase in net interest income due to
the favorable impact of rate changes reflects in part TCF's changing
asset/liability mix.
PROVISION FOR CREDIT LOSSES -- TCF provided $23.3 million for credit losses in
1998, compared with $18 million in 1997 and $21.4 million in 1996. The
allowance for loan and lease losses totaled $80 million at December 31, 1998,
compared with $82.6 million at December 31, 1997, and was 237% of non-accrual
loans and leases. See "Financial Condition -- Allowance for Loan and Lease
Losses."
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 securities available for
sale, loan servicing, branches, loans and a joint venture interest,
non-interest income increased $60.3 million, or 29.8%, during 1998 to $262.7
million. The increase was primarily due to increased fee and service charge
revenues, electronic funds transfer revenues and title insurance revenues,
and reflects TCF's expanded retail banking activities.
TCF 17
<PAGE>
The following table presents the components of non-interest income:
<TABLE>
<CAPTION>
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
- ---------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1998/97 1997/96
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fee and service charge revenues ........... $127,952 $101,329 $ 90,424 26.3% 12.1%
Electronic funds transfer revenues ........ 50,556 30,808 21,478 64.1 43.4
Leasing revenues .......................... 31,344 32,025 23,814 (2.1) 34.5
Title insurance revenues .................. 20,161 13,730 13,492 46.8 1.8
Commissions on sales of annuities ......... 8,413 7,894 9,134 6.6 (13.6)
Commissions on sales of mutual funds ...... 5,513 3,998 3,372 37.9 18.6
Gain on sale of loans held for sale ....... 7,575 4,777 5,038 58.6 (5.2)
Other ..................................... 11,156 7,789 6,584 43.2 18.3
-------- --------- --------
262,670 202,350 173,336 29.8 16.7
-------- --------- --------
Gain on sale of securities
available for sale .................... 2,246 8,509 86 (73.6) N.M.
Gain on sale of loan servicing ............ 2,414 1,622 -- 48.8 100.0
Gain on sale of branches .................. 18,585 14,187 2,747 31.0 416.5
Gain on sale of joint venture interest .... 5,580 -- -- 100.0 --
Gain on sale of loans ..................... -- -- 5,443 -- (100.0)
-------- --------- --------
28,825 24,318 8,276 18.5 193.8
-------- --------- --------
Total non-interest income ....... $291,495 $226,668 $181,612 28.6 24.8
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
N.M. Not meaningful.
Fee and service charge revenues increased $26.6 million in 1998, or 26.3%,
and $10.9 million in 1997, or 12.1%, primarily as a result of expanded retail
banking activities. Included in fee and service charge revenues are fees of
$13.7 million, $14.6 million and $15.3 million received for the servicing of
loans owned by others during 1998, 1997 and 1996, respectively. At December 31,
1998, 1997 and 1996, TCF was servicing real estate loans for others with
aggregate unpaid principal balances of $3.7 billion, $4.4 billion and $4.5
billion, respectively.
Electronic funds transfer revenues increased $19.7 million, or 64.1%, in
1998 and $9.3 million, or 43.4%, in 1997. These increases reflect TCF's efforts
to provide banking services through its ATM network. TCF expanded its network to
1,431 ATMs at December 31, 1998, an increase of 275 ATMs during 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 1999. Included in electronic funds transfer
revenues are debit card interchange fees of $11.1 million, $3.7 million and
$20,000 for 1998, 1997 and 1996, respectively. The significant increase in these
fees during 1998 reflects an increase in the distribution of debit cards, and a
significant increase in their utilization by TCF's customers. TCF initiated its
debit card program at the end of 1996. TCF had 774,000 debit cards outstanding
at December 31, 1998.
Leasing revenues decreased $681,000 in 1998 to $31.3 million, following an
increase of $8.2 million in 1997 to $32 million. 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 increased $6.4 million in 1998 to $20.2 million,
following an increase of $238,000 in 1997 to $13.7 million. Title insurance
revenues are cyclical in nature and are largely dependent on industry levels of
residential real estate loan originations and refinancings.
Commissions on sales of annuities increased $519,000 to $8.4 million in
1998, following a decrease of $1.2 million to $7.9 million in 1997. Commissions
on sales of mutual funds increased $1.5 million to $5.5 million in 1998,
following an increase of $626,000 in 1997. Sales of annuities and mutual funds
may fluctuate from period to period, and future sales levels will depend upon
general economic conditions and investor preferences. Sales of annuities will
also depend upon continued favorable tax treatment and may be negatively
impacted by the current interest rate environment.
Gains on sales of loans held for sale increased $2.8 million in 1998
following a decrease of $261,000 in 1997. Gains or losses on sales of loans held
for sale may fluctuate significantly from period to period due to changes in
interest rates and volumes, and results in any period related to these
transactions may not be indicative of results which will be obtained in future
periods.
Gains on sales of securities available for sale totaled $2.2 million in
1998, a decrease of $6.3 million from the $8.5 million recognized in 1997. Gains
on sales of third-party loan servicing rights totaled $2.4 million in 1998 on
the sale of $200.4 million of third-party loan servicing rights. Gains of $1.6
million were recognized in 1997 on the sale of $144.7 million of third-party
loan servicing rights. TCF periodically sells securities available for sale and
loan servicing rights depending on market conditions.
18 TCF
<PAGE>
During 1998, TCF recognized gains of $5.6 million on the sale of its joint
venture interest in Burnet Home Loans and $18.6 million on the sales of 14
branches, compared with gains of $14.2 million on the sales of 11 branches
during 1997 and gains of $2.7 million on the sales of five branches during 1996.
During 1996, TCF recognized a $5.4 million gain on the sale of $46.8
million of credit card and other loans. The Company now provides credit card
products on behalf of a third party through a marketing agreement.
NON-INTEREST EXPENSE -- Non-interest expense increased $67.3 million, or 18.6%,
in 1998, and $8 million, or 2.3%, in 1997, compared with the respective prior
years. The following table presents the components of non-interest expense:
<TABLE>
<CAPTION>
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
- -----------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1998/97 1997/96
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Compensation and employee
benefits .................... $217,401 $180,482 $157,554 20.5% 14.6%
Occupancy and equipment .......... 71,323 58,352 51,958 22.2 12.3
Advertising and promotions ....... 19,544 19,157 17,014 2.0 12.6
Federal deposit insurance
premiums and assessments .... 5,439 4,689 12,019 16.0 (61.0)
Amortization of goodwill and
other intangibles ........... 11,399 15,757 3,540 (27.7) 345.1
FDIC special assessment .......... -- -- 34,803 -- (100.0)
Other ............................ 103,594 82,925 76,438 24.9 8.5
-------- -------- --------
Total non-interest
expense ........... $428,700 $361,362 $353,326 18.6 2.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
Compensation and employee benefits, representing 50.7% and 49.9% of total
non-interest expense in 1998 and 1997, respectively, increased $36.9 million, or
20.5%, in 1998, and $22.9 million, or 14.6%, in 1997. The increases were
primarily due to costs associated with expanded retail banking activities,
including the acquisition of Standard and the opening of 106 new branches in
1998.
Occupancy and equipment expenses increased $13 million in 1998 and $6.4
million in 1997. The 1998 increase reflects the costs associated with expanded
retail banking activities. The increase in 1997 reflected the addition of 25
bank branch offices.
Advertising and promotion expenses increased $387,000 in 1998 and $2.1
million in 1997. The increases reflect the increase in direct mail and other
marketing expenses relating to the promotion of TCF's consumer lending and
deposit products.
Federal deposit insurance premiums and assessments increased $750,000 in
1998 following a decrease of $7.3 million in 1997. The increase in 1998 reflects
higher deposit levels as a result of expanded retail banking activities. The
decrease in 1997 reflected a reduction in the rate charged to TCF by the FDIC
for federal deposit insurance premiums from 23 basis points to approximately
6.50 basis points as a result of federal legislation enacted on September 30,
1996 to recapitalize the SAIF, partially offset by higher deposit levels.
Amortization of goodwill and other intangibles decreased $4.4 million in
1998 and increased $12.2 million in 1997. The decrease in 1998 was primarily due
to the previously mentioned 1997 accelerated amortization of $8.7 million of
deposit base intangibles, partially offset by an increase in 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 $3.3 million in
1998 and $514,000 in 1996.
TCF's 1996 results included a one-time special assessment of $34.8 million
from the FDIC to recapitalize the SAIF under federal legislation enacted on
September 30, 1996. See "Financial Condition -- Legislative and Regulatory
Developments."
Other non-interest expense increased $20.7 million, or 24.9%, in 1998 and
$6.5 million, or 8.5%, in 1997. The increase for 1998 primarily reflects costs
associated with expanded retail banking activities and increases in deposit
account losses. A summary of other expense is presented in Note 21 of Notes to
Consolidated Financial Statements. The increase for 1998 also reflects the
recognition of $1.8 million of non-recurring costs in connection with TCF's
reorganization of its consumer finance company operations. The increase for 1997
reflected the write-off of $1.5 million of teller equipment in connection with
the previously mentioned Great Lakes Michigan branch reorganization and the
recognition of $1.5 million of non-recurring merger-related costs in connection
with TCF's acquisition of Winthrop Resources Corporation. The increase in 1997
also reflected costs associated with expanded retail banking activities.
YEAR 2000 -- During 1998, TCF continued to address the "Year 2000" computer
issue. The Year 2000 issue relates to the use of two digits rather than four
by computer systems to define the applicable year and whether such systems
will properly process information when the year changes to 2000. Failure of
computer systems to properly recognize the Year 2000 could potentially result
in the production of erroneous data, miscalculations of financial information
such as interest, system failures, business disruption and other operational
problems.
TCF has established a Year 2000 Task Force and has evaluated its data
processing and other systems with imbedded technologies, such as ATMs, vaults
and security systems, to determine whether they are Year 2000 compliant.
Remediation of software is substantially complete, leaving 1999 for testing.
Such testing includes testing of individual applica-
TCF 19
<PAGE>
tion systems and "integration testing," which tests the way multiple systems
work together. Many of TCF's data processing applications are supplied by
third-party vendors. TCF has also evaluated whether such vendor- supplied
applications are or will be Year 2000 compliant. Additionally, federal
banking regulators are conducting special examinations of FDIC-insured banks
and savings associations to determine whether they are taking necessary steps
to prepare for the Year 2000, and are closely monitoring the progress made by
these institutions in completing key steps required by their individual Year
2000 plans.
TCF has incurred $4.4 million of internal and external costs for
replacement, renovation and testing of its critical internal computer hardware
and software and imbedded technologies through December 31, 1998, and expects
such costs to total $10.1 million over the three-year period ending December 31,
1999. Of the $4.4 million of Year 2000 costs incurred through December 31, 1998,
$1.6 million have been capitalized. Approximately $1.9 million of future Year
2000 costs are expected to be capitalized.
TCF's Year 2000 Task Force is also developing contingency plans to mitigate
potential delays or other problems. TCF's contingency plans include back-up
solutions for mission-critical applications and business continuation plans for
significant vendors and other business partners. Alternative courses of action
for dealing with non-compliant systems are difficult to identify in general
terms because they depend on the nature of the system, whether internal or
external personnel are responsible for the system, and the cost and availability
of replacement systems, among other factors. Although TCF believes its plans
address significant contingencies over which it is able to exercise some
control, there may be contingencies which cannot be readily identified or
contingencies over which it has little or no control and for which few, if any,
alternatives are available (for example, system failures that affect government
agencies and instrumentalities such as the Federal Reserve System).
The effect of the Year 2000 issue on TCF will also depend on the way the
Year 2000 issue is addressed by TCF's customers, including significant
borrowers, vendors, service providers, counterparties, competitors, utilities,
government agencies and instrumentalities and other entities with which TCF does
business. TCF has surveyed and continues to monitor parties with which it does
business to determine how they are addressing the Year 2000 issue and whether
computer hardware and software and other services provided to TCF will be, or
are, Year 2000 compliant. Additionally, TCF's applicable lending and investment
units have implemented procedures for identifying, managing, and underwriting
Year 2000 credit risk. TCF is also monitoring the Year 2000 preparation of
entities such as the Federal Reserve System, which provides services for
processing and settling payments and securities transactions between banks.
The Year 2000 efforts of third parties are ultimately not within TCF's
control, and their failure to remediate Year 2000 issues successfully could
result in a disruption in the services TCF provides, including deposit and loan
services, and could increase TCF's operating costs and credit, investment or
other risks. At the present time, it is not possible to determine with certainty
whether any such events are likely to occur, or to quantify any potential
negative impact they may have on TCF's future results of operations and
financial condition.
The foregoing discussion regarding Year 2000, including the discussion of
the timing and effectiveness of implementation and costs of TCF's Year 2000
efforts, contains forward-looking statements which are based on management's
best estimates derived using assumptions considered reasonable. These
forward-looking statements involve inherent risks and uncertainties, and actual
results could differ materially from those contemplated by such statements.
Factors that might cause material differences include, but are not limited to,
availability and cost of programmers and other systems personnel, TCF's ability
to locate and correct all relevant Year 2000 computer code, including imbedded
technologies, and the ability of TCF's customers, including significant
borrowers, vendors, competitors, counterparties and government agencies and
instrumentalities to effectively address the Year 2000 issue. Such material
differences could result in, among other things, business disruption,
operational problems, financial loss, legal liability and similar risks. See
"Financial Condition -- Forward-Looking Information."
INCOME TAXES -- TCF recorded income tax expense of $109.1 million in 1998,
compared with $95.8 million in 1997 and $61 million in 1996. Income tax
expense represented 41.1% of income before income tax expense during 1998,
compared with 39.8% and 37.8% in 1997 and 1996, respectively. The higher tax
rates in 1998 and 1997 reflect the impact of relatively higher non-deductible
expenses, including an increase in goodwill amortization resulting from the
acquisition of Standard, and higher state tax rates due to business expansion.
Further detail on income taxes is provided in Note 12 of Notes to
Consolidated Financial Statements.
FINANCIAL CONDITION
INVESTMENTS -- Total investments increased $148.1 million in 1998 to $277.7
million at December 31, 1998. The increase primarily reflects increases of
$95.3 million in interest-bearing deposits with banks, $41 million in federal
funds sold and $11.5 million in FHLB stock. TCF had no non-investment grade
debt securities (junk bonds) and there were no open trading account or
investment option positions as of December 31, 1998.
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 increased
$251.8 million during 1998 to $1.7 billion at December 31, 1998. The increase
reflects purchases of $957.6 million of securities available for sale,
partially offset by sales of $229.2 million and payment and prepayment
activity. At December 31, 1998, TCF's securities available-for-sale portfolio
included $1.4 billion and $289.1 million of fixed-rate and adjustable-rate
mortgage-backed securities, respectively. Securities available for sale
totaled $1.4 billion at December 31, 1997.
20 TCF
<PAGE>
LOANS HELD FOR SALE -- Residential real estate and education loans held for
sale are carried at the lower of cost or market. Education loans held for
sale increased $3 million and residential real estate loans held for sale
decreased $34.5 million from year-end 1997, and totaled $138.3 million and
$74.8 million, respectively, at December 31, 1998.
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 DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate ................ $3,765,280 $3,623,845 $2,252,312 $2,607,202 $2,646,644
Consumer ............................... 1,876,554 1,976,699 1,728,368 1,534,213 1,286,143
Commercial real estate ................. 811,428 859,916 858,225 967,766 994,452
Commercial business .................... 289,104 240,207 157,057 167,920 191,142
Lease financing ........................ 398,812 368,521 296,958 239,247 194,379
---------- ---------- ---------- ---------- ----------
Total loans and leases ............ $7,141,178 $7,069,188 $5,292,920 $5,516,348 $5,312,760
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans and leases increased $72 million from year-end 1997 to $7.1 billion
at December 31, 1998, reflecting increases of $141.4 million, $48.9 million and
$30.3 million in residential real estate and commercial business loans and lease
financings, respectively, offset by decreases of $100.1 million and $48.5
million in consumer and commercial real estate loans, respectively. At December
31, 1998, TCF's residential real estate loan portfolio was comprised of $1.7
billion of fixed-rate loans and $2.1 billion of adjustable-rate loans.
Consumer loans decreased $100.1 million from year-end 1997 to $1.9 billion
at December 31, 1998, reflecting decreases of $107 million in automobile loans
and $9.3 million in unsecured loans, partially offset by an increase of $6.5
million in home equity loans. TCF continues its emphasis on expanding its home
equity portfolio.
As previously mentioned, TCF restructured its consumer finance company
operations in December 1998, including the discontinuation of indirect
automobile lending, the consolidation of offices and a renewed focus on home
equity lending. In the states where the Company's banks operate (Minnesota,
Illinois, Wisconsin, Michigan and Colorado), the finance company home equity
operations were combined with the banks, and 25 of the 30 finance company
offices were closed. Of the 23 offices in other states, 17 remain open as real
estate loan production offices of TCF National Bank Minnesota ("TCF Minnesota")
and the remainder were closed. Additionally, TCF reorganized its loan collection
operations related to the remaining consumer finance automobile loan portfolio.
Previously such collection activities were handled centrally in Pensacola,
Florida for loans up to 30-days delinquent and by the branch from which the
loans were originated for loans over 30-days delinquent. Beginning in December
1998, all collection operations for these loans were centralized in facilities
in Minneapolis, Minnesota and Pensacola, Florida. At December 31, 1998, consumer
finance automobile loans totaled $233.9 million, compared with $292.6 million at
December 31, 1997.
Prior to the restructuring, TCF provided financing through the purchase of
automobile loans from dealers, an activity referred to as "indirect" automobile
lending. Included in consumer finance automobile loans at December 31, 1998 are
$211.4 million of sub-prime automobile loans which carry a higher level of
credit risk and higher interest rates. Loans classified as sub-prime are owed by
borrowers who historically have been unable to obtain credit from traditional
sources because of significant past credit problems or limited credit histories.
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.
The underwriting criteria for sub-prime loans originated by TCF generally
have been less stringent than those historically adhered to by TCF and, as a
result, these loans carry a higher level of credit risk and higher interest
rates. The indirect loan portfolio also carries an increased risk of loss in the
event of adverse economic developments such as a recession. The risks posed by
this portfolio could also be exacerbated by TCF's discontinuation of this
lending activity, which has involved the closing of its indirect lending offices
and the centralization of its loan collection operations, among other changes.
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.
In recent years, TCF has also initiated the origination of home equity
loans with loan-to-value ratios in excess of 80%, and up to 100%, that carry no
private mortgage insurance. These loans may carry a higher level of credit risk
than loans with a lower loan-to-value ratio.
TCF 21
<PAGE>
The following table summarizes TCF's commercial real estate loan portfolio
by property type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------
NUMBER NUMBER
(DOLLARS IN THOUSANDS) BALANCE (1) OF LOANS BALANCE (1) OF LOANS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartments ......................... $ 269,791 608 $ 304,866 675
Office buildings ................... 155,780 243 167,607 241
Retail services .................... 130,790 236 148,985 232
Warehouse/industrial buildings ..... 86,902 135 79,980 143
Hospitality facilities ............. 41,338 19 60,544 29
Health care facilities ............. 24,280 14 12,494 10
Other .............................. 105,530 317 87,688 393
Unearned discounts and
deferred loan fees ............ (2,983) N.A. (2,248) N.A.
--------- ------ --------- -----
$ 811,428 1,572 $ 859,916 1,723
--------- ------ --------- -----
Average balance .................... $516 $499
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes construction and development loans
N.A. Not applicable.
Commercial real estate loans decreased $48.5 million from year-end 1997 to
$811.4 million at December 31, 1998. Commercial business loans increased $48.9
million in 1998 to $289.1 million at December 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. At December 31, 1998, approximately 95% of TCF's
commercial real estate loans outstanding were secured by properties located in
its primary markets. The average individual balance of commercial real estate
loans was $516,000 at December 31, 1998. Apartment loans comprised $269.8
million, or 33.2%, of total commercial real estate loans outstanding at December
31, 1998. The average individual balance of commercial business loans was
$336,000 at December 31, 1998.
Lease financings increased $30.3 million from year-end 1997 to $398.8
million at December 31, 1998, reflecting a $32.3 million increase in direct
financing leases, partially offset by a $4.9 million decrease in sales-type
leases. At December 31, 1998, TCF internally funded 53.7% of its lease portfolio
and consequently retained the credit risk on such leases, compared with 37.6% at
December 31, 1997.
ALLOWANCE FOR LOAN AND LEASE LOSSES -- Credit risk is the risk of loss from a
customer default. TCF has in place a process to identify and manage its
credit risks. The process includes initial credit review and approval,
periodic monitoring to measure compliance with credit agreements and internal
credit policies, identification of problem loans and leases and special
procedures for collection of problem loans and leases. The risk of loss is
difficult to quantify and is subject to fluctuations in values and general
economic conditions and other factors. See Note 1 of Notes to Consolidated
Financial Statements for additional information concerning TCF's allowance
for loan and lease losses.
At December 31, 1998, the allowance for loan and lease losses totaled $80
million, compared with $82.6 million at December 31, 1997. The allocation of
TCF's allowance for loan and lease losses, including general and specific loss
allocations, is as follows:
<TABLE>
<CAPTION>
ALLOCATIONS AS A PERCENTAGE OF TOTAL
LOANS AND LEASES OUTSTANDING BY TYPE
AT DECEMBER 31, AT DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate ..... $ 3,471 $ 3,501 $ 2,379 $ 3,238 $ 2,493 .09% .10% .11% .12% .09%
Commercial real estate ...... 12,525 15,065 16,213 20,701 22,006 1.54 1.75 1.89 2.14 2.21
Commercial business ......... 5,756 4,520 3,072 7,261 5,603 1.99 1.88 1.96 4.32 2.93
Consumer .................... 32,011 28,129 26,700 16,667 10,757 1.71 1.42 1.54 1.09 .84
Lease financing ............. 2,955 2,004 1,116 595 -- .74 .54 .38 .25 --
Unallocated ................. 23,295 29,364 22,385 17,828 15,484 N.A. N.A. N.A. N.A. N.A.
------- ------- ------- ------- -------
Total allowance balance ..... $80,013 $82,583 $71,865 $66,290 $56,343 1.12 1.17 1.36 1.20 1.06
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N.A. Not applicable.
22 TCF
<PAGE>
During 1998, TCF did not experience any material changes in loan
concentrations or loan terms that affected the December 31, 1998 balance of the
allowance for loan and lease losses. The allocated allowance balances for TCF's
residential, commercial real estate and commercial business loan portfolios
reflect the Company's continued strengthening of its credit quality and related
level of net loan charge-offs for these portfolios. The increase in the
allocated allowance for lease losses reflects the previously mentioned increase
in the percentage of leases that are internally funded. The allocated allowances
for these portfolios do not reflect any material changes in estimation methods
or assumptions.
TCF has experienced an increase in the level of net loan charge-offs related
to its consumer finance automobile portfolio. As a result, net loan charge-offs
as a percentage of average loans outstanding for TCF's consumer portfolio
increased to 1.29% for the year ended December 31, 1998, compared with 1.00% for
1997. In addition, the net loan charge-offs as a percentage of average loans
outstanding for TCF's consumer finance automobile portfolio increased to 10.76%
and 7.16% for the three months and year ended December 31, 1998, respectively,
compared with 4.79% and 4.50% for the three months and year ended December 31,
1997. As a result, TCF adjusted its guideline reserve percentages on its
consumer finance automobile loans. This change contributed to the increase in
the December 31, 1998 balance of the allowance for loan and lease losses
allocated to the consumer loan portfolio. The unallocated portion of TCF's
allowance for loan and lease losses totaled $23.3 million at December 31, 1998,
compared with $29.4 million at December 31, 1997. The decrease in the
unallocated allowance for loan and lease losses reflects the reduction in
non-accrual loans and leases, and a decrease in the balance of consumer and
commercial real estate loans outstanding.
Net loan and lease charge-offs were $25.9 million in 1998, compared with
$17.9 million in 1997 and $15.9 million in 1996. The allowance for loan and
lease losses as a percentage of net loan and lease charge-offs was 310% at
December 31, 1998, compared with 462% at December 31, 1997 and 453% at December
31, 1996. The decrease in TCF's allowance for loan and lease losses as a
percentage of net loan and lease charge-offs at December 31, 1998 reflects the
impact of the significant consumer finance automobile loan charge-off activity
during 1998, and a decrease in consumer finance automobile loans outstanding.
A summary of the allowance for loan and lease losses and selected statistics
is presented in Note 8 of Notes to Consolidated Financial Statements.
NON-PERFORMING ASSETS--Non-performing assets (principally non-accrual loans
and leases and other real estate owned) totaled $48.7 million at December 31,
1998, down $10.1 million from the December 31, 1997 total of $58.7 million.
The decrease in total non-performing assets reflects decreases of $3.3
million in consumer non-accrual loans and $7 million in other real estate
owned and other assets. Approximately 75% of non-performing assets 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 DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans and leases:
Consumer ...................................... $17,745 $21,037 $13,472 $ 7,487 $ 2,127
Residential real estate ....................... 8,078 8,451 3,996 7,045 7,211
Commercial real estate ........................ 4,352 3,818 7,604 22,255 18,452
Commercial business ........................... 2,797 3,370 1,149 7,541 5,972
Lease financing ............................... 725 117 176 -- --
------- ------- -------- -------- --------
33,697 36,793 26,397 44,328 33,762
Other real estate owned and other assets .......... 14,972 21,953 19,937 26,402 23,849
------- ------- -------- -------- --------
Total non-performing assets ................... $48,669 $58,746 $46,334 $70,730 $57,611
------- ------- -------- -------- --------
Non-performing assets as a percentage of net loans
and leases .................................... .69% .84% .89% 1.30% 1.10%
Non-performing assets as a percentage of total
assets ........................................ .48 .60 .62 .94 .71
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
TCF 23
<PAGE>
The following table sets forth information regarding TCF's delinquent loan
and lease portfolio, excluding loans held for sale and non-accrual loans and
leases:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- -----------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF
PRINCIPAL LOANS AND PRINCIPAL LOANS AND
(DOLLARS IN THOUSANDS) BALANCES LEASES BALANCES LEASES
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans and leases delinquent for:
30-59 days .................... $51,768 .72% $38,902 .54%
60-89 days .................... 15,373 .22 12,730 .18
90 days or more ............... -- -- -- --
------- ---- ------- ----
Total ..................... $67,141 .94% $51,632 .72%
- -----------------------------------------------------------------------------------------
</TABLE>
The over 30-day delinquency rate on TCF's loans and leases (excluding loans
held for sale and non-accrual loans and leases) was .94% of loans and leases
outstanding at December 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 DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL PERCENTAGE PRINCIPAL PERCENTAGE
(DOLLARS IN THOUSANDS) BALANCES OF PORTFOLIO BALANCES OF PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer .................................... $52,588 2.83% $38,610 1.91%
Residential real estate ..................... 9,151 .24 10,567 .29
Commercial real estate ...................... 1,787 .22 1,173 .14
Commercial business ......................... 1,984 .69 396 .17
Lease financing ............................. 1,631 .41 886 .21
------- -------
Total ............................. $67,141 .94 $51,632 .72
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
TCF's over 30-day delinquency rate on total consumer loans was 2.83% at
December 31, 1998, up from 1.91% at year-end 1997. Management continues to
monitor the consumer loan portfolio, which will generally have higher
delinquencies, especially indirect automobile loans. TCF's over 60-day
delinquency rate on consumer finance automobile loans was 3.23% at December 31,
1998, compared with 1.65% at December 31, 1997. Indirect automobile lending is
generally considered to involve a higher level of credit risk and the management
of delinquencies and liquidation of this portfolio will be a key challenge. See
"Loans and Leases."
In addition to non-accrual loans and leases, there were commercial real
estate and commercial business loans and lease financings with an aggregate
principal balance of $23.1 million outstanding at December 31, 1998 for which
management has concerns regarding the ability of the borrowers to meet existing
repayment terms. This amount consists of loans and leases 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 and leases at December 31, 1997. Although these
loans and leases 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 leases and the financial condition of these borrowers.
LIQUIDITY MANAGEMENT -- TCF manages its liquidity position to ensure that the
funding needs of depositors and borrowers are met promptly and in a
cost-effective manner. Asset liquidity arises from the ability to convert
assets to cash as well as from the maturity of assets. Liability liquidity
results from the ability of TCF to attract a diversity of funding sources to
meet funding requirements promptly.
Deposits are the primary source of TCF's funds for use in lending and for
other general business purposes. In addition to deposits, TCF derives funds
primarily from loan and lease repayments, proceeds from the discounting of
leases, advances from the FHLB and proceeds from reverse repurchase borrowing
agreements. Deposit inflows and outflows are significantly influenced by general
interest rates, money market conditions, competition for funds and other
factors. TCF's deposit inflows and outflows have been and will continue to be
affected by these factors. See "Forward-Looking Information." Borrowings may be
used to compensate for reductions in normal sources of funds, such as deposit
inflows at less than projected levels, net deposit outflows or to support
expanded activities. Historically, TCF has borrowed primarily from the FHLB,
from institutional sources under reverse repurchase agreements and, to a lesser
extent, from other sources. See "Borrowings."
24 TCF
<PAGE>
Potential sources of liquidity for TCF Financial Corporation (parent
company only) include cash dividends from TCF's wholly owned bank subsidiaries,
issuance of equity securities, borrowings under the Company's $135 million bank
line of credit, and interest income. TCF's subsidiary banks' ability to pay
dividends or make other capital distributions to TCF is restricted by regulation
and may require regulatory approval. Undistributed earnings and profits at
December 31, 1998 includes approximately $134.4 million for which no provision
for federal income tax has been made. This amount represents earnings
appropriated to bad debt reserves and deducted for federal income tax purposes
and is generally not available for payment of cash dividends or other
distributions to shareholders. Payments or distributions of these appropriated
earnings could invoke a tax liability for TCF based on the amount of earnings
removed and current tax rates.
DEPOSITS -- Deposits totaled $6.7 billion at December 31, 1998, down $192.2
million from December 31, 1997. The decrease reflects the previously
mentioned branch sales with deposits totaling $234 million. Lower
interest-cost checking, savings and money market deposits totaled $3.8
billion, up $454.9 million from year-end 1997, and comprised 55.9% of total
deposits at December 31, 1998. Checking, savings and money market deposits
are an important source of lower cost funds and fee income for TCF. Higher
interest-cost certificates of deposit decreased $647.1 million from December
31, 1997. The Company's weighted-average rate for deposits, including
non-interest bearing deposits, decreased to 2.73% at December 31, 1998, from
3.42% at December 31, 1997. This decrease reflects growth in lower
interest-cost checking, savings and money market deposits, decreases in rates
paid on such deposits and a lower proportion of higher-rate certificates at
December 31, 1998 than at December 31, 1997.
BORROWINGS -- Borrowings are used primarily to fund the purchases of
investments and securities available for sale. These borrowings totaled $2.5
billion at December 31, 1998, up $733.9 million from year-end 1997. The
increase was primarily due to increases of $464.6 million in FHLB advances,
$255 million in securities sold under repurchase agreements and $74 million
in TCF's bank line of credit, partially offset by a decrease of $44.9 million
in discounted lease rentals. The increase in FHLB advances and securities
sold under repurchase agreements reflects the previously mentioned purchases
of securities available for sale in 1998. The weighted-average rate on
borrowings decreased to 6.00% at December 31, 1998, from 6.43% at December
31, 1997.
STOCKHOLDERS' EQUITY -- Stockholders' equity at December 31, 1998 was $845.5
million, or 8.3% 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 7,549,300 shares of TCF's common stock at
a cost of $210.9 million and the payment of $55 million in common stock
dividends, partially offset by net income of $156.2 million for the year
ended December 31, 1998.
RECENT ACCOUNTING DEVELOPMENTS -- In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires recognition of all derivative instruments
as either assets or liabilities in the statement of financial condition and
measurement of those instruments at fair value. A derivative may be
designated as a hedge of an exposure to changes in the fair value of a
recognized asset or liability, an exposure to variable cash flows of a
forecasted transaction, or a foreign currency exposure. The accounting for
gains and losses associated with changes in the fair value of a derivative
and the impact on TCF's consolidated statements will depend on its hedge
designation and whether the hedge is highly effective in offsetting changes
in the fair value or cash flows of the underlying hedged item. The statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. It is too early to predict what effect, if any, the statement will have
on TCF.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise -- an amendment of SFAS No. 65."
The statement is effective for the first fiscal quarter beginning after December
15, 1998. The adoption of SFAS No. 134 will not affect TCF's results of
operations or financial condition.
FORWARD-LOOKING INFORMATION -- There are a number of important factors which
could cause TCF's future results to differ materially from historical
performance and which make any forward-looking statements about TCF's
financial results subject to a number of risks and uncertainties. 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 or lead to other adverse developments; increases in
bankruptcy filings by TCF's loan and lease customers; adverse credit losses
or other unfavorable developments in the liquidation or other disposition of
TCF's consumer finance automobile loan portfolio; shifts in interest rates
which may result in shrinking interest margins, increased borrowing costs or
other adverse developments; 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; inflation; changes in the quality or composition
of TCF's loan, lease and investment portfolios; adverse changes in securities
markets; results of litigation or other significant uncertainties. TCF's Year
2000 compliance initiatives or other required technological changes are
subject to certain uncertainties which may delay or increase the cost of
implementation. 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 1997 and 1998 acquisitions (and its commitment to
construct additional Jewel-Osco branches in future periods)
TCF 25
<PAGE>
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.
LEGISLATIVE AND REGULATORY DEVELOPMENTS -- Federal and state legislation
imposes numerous legal and regulatory requirements on financial institutions.
Future legislative or regulatory change, or changes in enforcement practices
or court rulings, may have a dramatic and potentially adverse impact on TCF
and its bank and other subsidiaries.
Federal legislation enacted on September 30, 1996 addressed inadequate
funding of the SAIF, which had resulted in a large deposit insurance premium
disparity between banks insured by the Bank Insurance Fund ("BIF") and
SAIF-insured thrifts. As a result of this legislation, a one-time special
assessment was imposed on thrift institutions, and TCF recognized a $34.8
million pretax charge for assessments imposed on its bank subsidiaries during
the third quarter of 1996. The legislation also provided for a reduction in
deposit insurance premiums in subsequent periods and other regulatory reforms.
Federal legislation was enacted in 1996 that repealed the reserve method of
accounting for thrift bad debt reserves. This legislation eliminated the
recapture of a thrift institution's bad debt reserve under certain
circumstances, including the institution's conversion to a bank or as a result
of similar charter changes.
After passage of both the BIF/SAIF legislation and the repeal of the
reserve method of accounting for bad debts, TCF completed the conversion of its
savings bank subsidiaries to national banks and TCF became a national bank
holding company on April 7, 1997. In connection with the national bank
conversions, TCF chartered two new national bank subsidiaries, Great Lakes Ohio
and TCF National Bank Colorado ("TCF Colorado"). As previously mentioned, TCF
sold all eight branches and related deposits of Great Lakes Ohio in 1997. TCF
now operates five national bank subsidiaries: TCF Minnesota, TCF National Bank
Illinois, TCF National Bank Wisconsin, TCF Colorado and Great Lakes Michigan.
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). Since TCF does not hold a trading portfolio,
the Company is not exposed to significant market risk from trading activities.
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 interest-earning assets repricing
within the same period. In a rising interest-rate environment, institutions with
negative interest-rate gaps will generally experience more immediate increases
in the cost of their liabilities than in the yield on their assets. Conversely,
the yield on assets for 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. The
amounts in the maturity/rate sensitivity table below represent management's
estimates and assumptions. Also, the amounts could be significantly affected by
external factors such as prepayment rates other than those assumed, early
withdrawals of deposits, changes in the correlation of various interest-bearing
instruments, competition and a general rise or decline in interest rates.
Decisions by management to purchase or sell assets, or retire debt could change
the maturity/repricing and spread relationships. In addition, TCF's
interest-rate risk will increase during periods of rising interest rates due to
resulting slower prepayments on loans and mortgage-backed securities, and the
increased likelihood that the FHLB will exercise its option to call certain of
TCF's longer-term FHLB advances. See Note 11 of Notes to Consolidated Financial
Statements for additional information on FHLB advances. TCF's one-year
interest-rate gap was a negative $263.9 million, or (3)% of total assets, at
December 31, 1998, compared with a negative $184.7 million, or (2)% of total
assets, at December 31, 1997.
26 TCF
<PAGE>
The following table summarizes TCF's interest-rate gap position at December
31, 1998:
<TABLE>
<CAPTION>
MATURITY/RATE SENSITIVITY
-----------------------------------------------------------------------------------
WITHIN 30 DAYS TO 6 MONTHS
(DOLLARS IN THOUSANDS) 30 DAYS 6 MONTHS TO 1 YEAR 1 TO 3 YEARS 3+ YEARS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans held for sale ........................ $ 29,515 $ 89,481 $ 94,077 $ -- $ -- $ 213,073
Securities available for sale .............. 67,266 273,157 258,274 395,766 683,456 1,677,919
Real estate loans(1) ....................... 301,915 694,853 749,200 1,517,542 1,313,198 4,576,708
Lease financings ........................... 15,792 75,467 71,704 201,893 33,956 398,812
Other loans(1) ............................. 1,244,145 141,277 139,590 337,515 303,131 2,165,658
Investments ................................ 254,603 -- -- -- 23,112 277,715
---------- ----------- ---------- ---------- ---------- ----------
1,913,236 1,274,235 1,312,845 2,452,716 2,356,853 9,309,885
---------- ----------- ---------- ---------- ---------- ----------
Interest-bearing liabilities:
Checking deposits(2) ....................... 180,912 -- -- -- 1,698,711 1,879,623
Passbook and statement deposits(2) ......... 66,933 124,060 131,258 355,972 498,708 1,176,931
Money market deposits ...................... 700,004 -- -- -- -- 700,004
Certificate deposits ....................... 336,455 1,328,160 793,167 459,342 41,464 2,958,588
Federal Home Loan Bank advances ............ 200,000 35,000 335,207 1,184,001 50,000 1,804,208
Discounted lease rentals ................... 8,586 39,862 41,702 86,141 7,393 183,684
Other borrowings ........................... 442,585 161 174 530 29,704 473,154
---------- ----------- ---------- ---------- ---------- ----------
1,935,475 1,527,243 1,301,508 2,085,986 2,325,980 9,176,192
---------- ----------- ---------- ---------- ---------- ----------
Interest-earning assets over (under)
interest-bearing liabilities ............... $ (22,239) $ (253,008) $ 11,337 $ 366,730 $ 30,873 $ 133,693
---------- ----------- ---------- ---------- ---------- ----------
Cumulative gap ................................ $ (22,239) $ (275,247) $ (263,910) $ 102,820 $ 133,693 $ 133,693
---------- ----------- ---------- ---------- ---------- ----------
Cumulative gap as a percentage of total assets:
At December 31, 1998 ....................... --% (3)% (3)% 1% 1% 1%
---------- ----------- ---------- ---------- ---------- ----------
At December 31, 1997 ....................... 7% --% (2)% 4% 4% 4%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon contractual maturity, repricing date, if applicable, scheduled
repayments of principal and projected prepayments of principal based upon
experience.
(2) Includes non-interest bearing deposits.
The following tables provide information about TCF's financial instruments
and derivative financial instruments, all of which are held for purposes other
than trading and are sensitive to changes in interest rates. For loans held for
sale, securities available for sale, loans, and liabilities with contractual
maturities, the table presents principal cash flows and related weighted-average
interest rates by contractual maturities as modified by the Company's historical
experience of the impact of interest rate fluctuations on the prepayment of the
assets. For deposits that have no contractual maturity, the table presents
principal cash flows and, as applicable, related weighted-average interest rates
based on the Company's historical experience, management's judgment, and
statistical analysis, with respect to customer account retention. For forward
mortgage loan sales commitments, the table presents notional amounts and, as
applicable, weighted-average interest rates by contractual maturity date.
Notional amounts are used to calculate the contractual payments to be exchanged
under the commitments. For commitments to extend credit, the balance represents
the notional amount of the off-balance-sheet item and the average interest rate
represents the weighted-average interest rate of the underlying loans. This
table does not include the effect of repricings, which is an important
consideration in management's interest-rate risk analysis. The expected
principal/notional maturity amounts at December 31, 1998 and December 31, 1997
are as follows:
TCF 27
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale .................... $ 54,659 $ -- $ -- $ --
Average interest rate .......................... 6.56% --% --% --%
Variable-rate loans held for sale ................. 158,414 -- -- --
Average interest rate .......................... 6.50% --% --% --%
Fixed-rate securities available for sale .......... 318,645 239,782 155,753 123,331
Average interest rate .......................... 6.75% 6.79% 6.82% 6.78%
Variable-rate securities available for sale ....... 107,343 68,652 38,765 24,491
Average interest rate .......................... 6.14% 6.20% 6.22% 6.23%
Fixed-rate loans .................................. 778,886 541,290 392,492 281,057
Average interest rate ........................... 10.25% 9.25% 8.55% 8.09%
Variable-rate loans ............................... 1,136,629 683,244 437,978 315,395
Average interest rate ........................... 7.76% 7.86% 7.95% 8.08%
Fixed-rate investments ............................ 161,121 -- -- --
Average interest rate ........................... 4.85% --% --% --%
Variable-rate investments ......................... -- -- -- --
Average interest rate ........................... --% --% --% --%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity .................. 416,463 204,418 151,814 113,860
Average interest rate ........................... .88% 1.07% 1.07% 1.07%
Certificate deposits .............................. 2,459,050 345,232 112,920 22,366
Average interest rate ........................... 4.94% 5.32% 5.55% 5.29%
Fixed-rate borrowings ............................. 941,487 297,399 936,602 --
Average interest rate .......................... 6.21% 6.16% 5.22% --%
Variable-rate borrowings .......................... 21,271 -- -- --
Average interest rate .......................... 5.23% --% --% --%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments ........... 106,676 -- -- --
Average interest rate .......................... 6.17% --% --% --%
Commitments to extend credit(1) ................... 208,699 -- -- --
Average interest rate .......................... 6.63% --% --% --%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 2003 THEREAFTER TOTAL FAIR VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale .................... $ -- $ -- $ 54,659 $ 54,994
Average interest rate .......................... --% --% 6.56%
Variable-rate loans held for sale ................. -- -- 158,414 160,915
Average interest rate .......................... --% --% 6.50%
Fixed-rate securities available for sale .......... 99,145 436,763 1,373,419 1,388,841
Average interest rate .......................... 6.75% 6.61% 6.72%
Variable-rate securities available for sale ....... 15,793 37,108 292,152 289,078
Average interest rate .......................... 6.24% 5.99% 6.16%
Fixed-rate loans .................................. 218,066 633,391 2,845,182 2,859,691
Average interest rate ........................... 7.89% 8.05% 8.94%
Variable-rate loans ............................... 245,998 1,122,003 3,941,247 4,060,036
Average interest rate ........................... 8.24% 9.24% 8.27%
Fixed-rate investments ............................ -- 23,112 184,233 184,233
Average interest rate ........................... --% 6.00% 4.99%
Variable-rate investments ......................... -- 93,482 93,482 93,482
Average interest rate ........................... --% 7.06% 7.06%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity .................. 85,395 2,784,608 3,756,558 3,756,558
Average interest rate ........................... 1.07% .92% .94%
Certificate deposits .............................. 14,020 5,000 2,958,588 2,994,231
Average interest rate ........................... 4.10% 4.80% 5.01%
Fixed-rate borrowings ............................. 78,750 1,853 2,256,091 2,270,043
Average interest rate .......................... 7.14% 5.95% 5.81%
Variable-rate borrowings .......................... -- -- 21,271 21,271
Average interest rate .......................... --% --% 5.23%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments ........... -- -- 106,676 113(1)
Average interest rate .......................... --% --% 6.17%
Commitments to extend credit(1) ................... -- -- 208,699 (264)(2)
Average interest rate .......................... --% --% 6.63%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes commitments to extend credit with floating interest rates and
repricing terms of one year or less.
(2) Positive amounts represent assets, negative amounts represent liabilities.
28 TCF
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1999 2000 2001
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale ................... $ 47,131 $ -- $ -- $ --
Average interest rate ......................... 7.31% --% --% --%
Variable-rate loans held for sale ................ 197,481 -- -- --
Average interest rate ......................... 7.17% --% --% --%
Fixed-rate securities available for sale ......... 185,051 190,019 126,549 73,863
Average interest rate ......................... 7.20% 7.20% 7.20% 7.20%
Variable-rate securities available for sale ...... 128,274 94,775 70,064 51,839
Average interest rate ......................... 7.46% 7.46% 7.46% 7.46%
Fixed-rate loans ................................. 678,823 478,268 348,516 306,888
Average interest rate ......................... 11.33% 10.50% 9.59% 8.71%
Variable-rate loans .............................. 997,028 684,049 527,458 367,889
Average interest rate ......................... 8.38% 8.41% 8.59% 8.57%
Fixed-rate investments ........................... 24,633 -- -- --
Average interest rate ......................... 6.09% --% --% --%
Variable-rate investments ........................ -- -- -- --
Average interest rate ......................... --% --% --% --%
Due from brokers ................................. 126,662 -- -- --
Average interest rate ......................... 6.86% --% --% --%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity ................. 333,654 202,542 151,905 113,930
Average interest rate ......................... 1.87% 2.04% 2.04% 2.04%
Certificate deposits ............................. 2,931,999 400,893 177,899 68,895
Average interest rate ......................... 5.04% 5.46% 5.54% 5.78%
Fixed-rate borrowings ............................ 421,548 375,510 297,758 25,132
Average interest rate ......................... 6.14% 6.04% 6.16% 6.09%
Variable-rate borrowings ......................... 228,441 93,735 -- --
Average interest rate ......................... 5.88% 5.69% --% --%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments .......... 81,575 -- -- --
Average interest rate ......................... 6.77% --% --% --%
Commitments to extend credit(1) .................. 158,452 -- -- --
Average interest rate ......................... 7.12% --% --% --%
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AT DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 2002 THEREAFTER TOTAL FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale ................... $ -- $ -- $ 47,131 $ 48,786
Average interest rate ......................... --% --% 7.31%
Variable-rate loans held for sale ................ -- -- 197,481 199,555
Average interest rate ......................... --% --% 7.17%
Fixed-rate securities available for sale ......... 60,620 280,299 916,401 930,070
Average interest rate ......................... 7.20% 7.20% 7.20%
Variable-rate securities available for sale ...... 38,398 112,228 495,578 496,061
Average interest rate ......................... 7.46% 7.46% 7.46%
Fixed-rate loans ................................. 158,156 387,880 2,358,531 2,357,476
Average interest rate ......................... 8.51% 8.19% 9.86%
Variable-rate loans .............................. 316,027 1,509,658 4,402,109 4,594,839
Average interest rate ......................... 8.74% 9.79% 8.93%
Fixed-rate investments ........................... -- 22,977 47,610 47,610
Average interest rate ......................... --% 6.00% 6.05%
Variable-rate investments ........................ -- 82,002 82,002 82,002
Average interest rate ......................... --% 7.34% 7.34%
Due from brokers ................................. -- -- 126,662 126,662
Average interest rate ......................... --% --% 6.86%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity ................. 85,447 2,414,169 3,301,647 3,301,647
Average interest rate ......................... 2.04% 2.04% 1.39% 1.55%
Certificate deposits ............................. 18,778 7,199 3,605,663 3,637,981
Average interest rate ......................... 5.19% 5.40% 5.13%
Fixed-rate borrowings ............................ -- 56,432 1,176,380 1,175,251
Average interest rate ......................... --% 7.70% 6.19%
Variable-rate borrowings ......................... -- -- 322,176 322,176
Average interest rate ......................... --% --% 5.82%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments .......... -- -- 81,575 (326)(2)
Average interest rate ......................... --% --% 6.77%
Commitments to extend credit(1) .................. -- -- 158,452 (209)(2)
Average interest rate ......................... --% --% 7.12%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes commitments to extend credit with floating interest rates and
repricing terms of one year or less.
(2) Negative amounts represent liabilities.
TCF 29
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks .............................................. $ 420,477 $ 297,010
Investments .......................................................... 277,715 129,612
Securities available for sale ........................................ 1,677,919 1,426,131
Loans held for sale .................................................. 213,073 244,612
Loans and leases:
Residential real estate ...................................... 3,765,280 3,623,845
Commercial real estate ....................................... 811,428 859,916
Commercial business .......................................... 289,104 240,207
Consumer ..................................................... 1,876,554 1,976,699
Lease financing .............................................. 398,812 368,521
------------ ------------
Total loans and leases ................................. 7,141,178 7,069,188
Allowance for loan and lease losses .................... (80,013) (82,583)
------------ ------------
Net loans and leases ............................ 7,061,165 6,986,605
Goodwill ............................................................. 166,645 177,700
Deposit base intangibles ............................................. 16,238 19,821
Other assets ......................................................... 331,362 463,169
------------ ------------
$ 10,164,594 $ 9,744,660
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking ..................................................... $ 1,879,623 $ 1,468,657
Passbook and statement ....................................... 1,176,931 1,134,678
Money market ................................................. 700,004 698,312
Certificates ................................................. 2,958,588 3,605,663
------------ ------------
Total deposits ......................................... 6,715,146 6,907,310
------------ ------------
Securities sold under repurchase agreements and federal
funds purchased .............................................. 367,280 112,444
Federal Home Loan Bank advances ...................................... 1,804,208 1,339,578
Discounted lease rentals ............................................. 183,684 228,596
Other borrowings ..................................................... 105,874 46,534
------------ ------------
Total borrowings ....................................... 2,461,046 1,727,152
Accrued interest payable ............................................. 27,601 23,510
Accrued expenses and other liabilities ............................... 115,299 133,008
------------ ------------
Total liabilities ...................................... 9,319,092 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; 92,912,246 and 92,821,529 shares issued .... 929 928
Additional paid-in capital ................................... 507,534 460,684
Retained earnings, subject to certain restrictions ........... 610,177 508,969
Unamortized deferred compensation ............................ (24,217) (25,457)
Loan to Executive Deferred Compensation Plan ................. (6,111) --
Shares held in trust for deferred compensation
plans, at cost ......................................... (45,740) --
Accumulated other comprehensive income ....................... 7,591 8,556
Treasury stock, at cost, 7,343,117 shares in 1998 ............ (204,661) --
------------ ------------
Total stockholders' equity ............................. 845,502 953,680
------------ ------------
$ 10,164,594 $ 9,744,660
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
30 TCF
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and leases ............................................... $631,342 $563,966 $516,054
Securities available for sale .................................. 93,124 95,701 75,303
Loans held for sale ............................................ 14,072 15,755 17,080
Investments .................................................... 10,356 7,192 4,447
-------- --------- --------
Total interest income .................................... 748,894 682,614 612,884
-------- --------- --------
INTEREST EXPENSE:
Deposits ....................................................... 212,492 195,182 171,375
Borrowings ..................................................... 110,668 93,836 86,941
-------- --------- --------
Total interest expense ................................... 323,160 289,018 258,316
-------- --------- --------
Net interest income .............................. 425,734 393,596 354,568
Provision for credit losses .................................... 23,280 17,995 21,446
-------- --------- --------
Net interest income after provision
for credit losses ..................................... 402,454 375,601 333,122
-------- --------- --------
NON-INTEREST INCOME:
Fee and service charge revenues ................................ 127,952 101,329 90,424
Electronic funds transfer revenues ............................. 50,556 30,808 21,478
Leasing revenues ............................................... 31,344 32,025 23,814
Title insurance revenues ....................................... 20,161 13,730 13,492
Commissions on sales of annuities .............................. 8,413 7,894 9,134
Commissions on sales of mutual funds ........................... 5,513 3,998 3,372
Gain on sale of loans held for sale ............................ 7,575 4,777 5,038
Other .......................................................... 11,156 7,789 6,584
-------- --------- --------
262,670 202,350 173,336
-------- --------- --------
Gain on sale of securities available for sale .................. 2,246 8,509 86
Gain on sale of loan servicing ................................. 2,414 1,622 --
Gain on sale of branches ....................................... 18,585 14,187 2,747
Gain on sale of joint venture interest ......................... 5,580 -- --
Gain on sale of loans .......................................... -- -- 5,443
-------- --------- --------
28,825 24,318 8,276
-------- --------- --------
Total non-interest income ................................ 291,495 226,668 181,612
-------- --------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits ............................. 217,401 180,482 157,554
Occupancy and equipment ........................................ 71,323 58,352 51,958
Advertising and promotions ..................................... 19,544 19,157 17,014
Federal deposit insurance premiums and assessments ............. 5,439 4,689 12,019
Amortization of goodwill and other intangibles ................. 11,399 15,757 3,540
FDIC special assessment ........................................ -- -- 34,803
Other .......................................................... 103,594 82,925 76,438
-------- --------- --------
Total non-interest expense ............................... 428,700 361,362 353,326
-------- --------- --------
Income before income tax expense ................. 265,249 240,907 161,408
Income tax expense ............................................. 109,070 95,846 61,031
-------- --------- --------
Net income ....................................... $156,179 $145,061 $100,377
-------- --------- --------
NET INCOME PER COMMON SHARE:
Basic .................................................... $ 1.77 $ 1.72 $ 1.23
-------- --------- --------
Diluted .................................................. $ 1.76 $ 1.69 $ 1.20
-------- --------- --------
DIVIDENDS DECLARED PER COMMON SHARE ............................ $ .6125 $ .46875 $.359375
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
TCF 31
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF
COMMON ADDITIONAL RETAINED
(DOLLARS IN THOUSANDS) SHARES ISSUED COMMON STOCK PAID-IN CAPITAL EARNINGS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 .......... 83,452,782 $ 835 $ 252,187 $ 329,001
Comprehensive income:
Net income ....................... -- -- -- 100,377
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- --
---------- ----------- ----------- -----------
Comprehensive income ............. -- -- -- 100,377
Dividends on common stock ........... -- -- -- (26,595)
Purchase of 2,380,136 shares
to be held in treasury ........... -- -- -- --
Issuance of 1,256,232 shares,
of which 10,100 shares were
from treasury .................... 1,246,132 13 18,651 --
Repurchase and cancellation
of shares ........................ (113,342) (2) (686) (674)
Amortization of deferred
compensation ..................... -- -- -- --
Exercise of stock options ........... 656,660 6 4,168 --
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- -- -- --
---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 .......... 85,242,232 852 274,320 402,109
Comprehensive income:
Net income ....................... -- -- -- 145,061
Unrealized gain on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- --
---------- ----------- ----------- -----------
Comprehensive income ............. -- -- -- 145,061
Dividends on common stock ........... -- -- -- (38,201)
Issuance of 7,700,000 shares
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 3,326,034 shares,
of which 2,426,968 shares
were from treasury ............... 899,066 9 20,570 --
Repurchase and cancellation
of shares ........................ (2,086) -- (60) --
Amortization of deferred
compensation ..................... -- -- -- --
Exercise of stock options,
of which 44,600 were from
treasury ......................... 176,585 2 2,917 --
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- -- -- --
---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 .......... 92,821,529 928 460,684 508,969
Comprehensive income:
Net income ....................... -- -- -- 156,179
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- --
---------- ----------- ----------- -----------
Comprehensive income ............. -- -- -- 156,179
Dividends on common stock ........... -- -- -- (54,971)
Purchase of 7,549,300
shares to be held in
treasury ......................... -- -- -- --
Issuance of 108,200
shares, of which
61,000 shares were
from treasury .................... 47,200 1 2,518 --
Cancellation of shares .............. (18,170) -- (375) --
Amortization of deferred
compensation ..................... -- -- -- --
Exercise of stock options,
of which 145,183 shares
were from treasury ............... 61,687 -- (1,033) --
Shares held in trust for
deferred compensation
plans ............................ -- -- 45,740 --
Loan to Executive Deferred
Compensation Plan, net ........... -- -- -- --
---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 .......... 92,912,246 $ 929 $ 507,534 $ 610,177
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
32 TCF
<PAGE>
<TABLE>
<CAPTION>
LOAN TO SHARES HELD
EXECUTIVE IN TRUST FOR ACCUMULATED
UNAMORTIZED DEFERRED DEFERRED OTHER
DEFERRED COMPENSATION COMPREHENSIVE COMPENSATION TREASURY
(DOLLARS IN THOUSANDS COMPENSATION PLAN PLANS INCOME STOCK TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 .......... $ (11,195) $ (131) $-- $ 11,702 $-- $ 582,399
Comprehensive income:
Net income ....................... -- -- -- -- -- 100,377
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- (9,326) -- (9,326)
----------- ----------- -------- ------------ ------- -----------
Comprehensive income ............. -- -- -- (9,326) -- 91,051
Dividends on common stock ........... -- -- -- -- -- (26,595)
Purchase of 2,380,136 shares
to be held in treasury ........... -- -- -- -- (41,382) (41,382)
Issuance of 1,256,232 shares,
of which 10,100 shares were
from treasury .................... (4,975) -- -- -- 173 13,862
Repurchase and cancellation
of shares ........................ 574 -- -- -- -- (788)
Amortization of deferred
compensation ..................... 7,903 -- -- -- -- 7,903
Exercise of stock options ........... -- -- -- -- -- 4,174
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- 63 -- -- -- 63
----------- ----------- -------- ------------ ------- -----------
BALANCE, DECEMBER 31, 1996 .......... (7,693) (68) -- 2,376 (41,209) 630,687
Comprehensive income:
Net income ....................... -- -- -- -- -- 145,061
Unrealized gain on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- 6,180 -- 6,180
----------- ----------- -------- ------------ ------- -----------
Comprehensive income ............. -- -- -- 6,180 -- 151,241
Dividends on common stock ........... -- -- -- -- -- (38,201)
Issuance of 7,700,000 shares
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 3,326,034 shares,
of which 2,426,968 shares
were from treasury ............... (26,110) -- -- -- 44,876 39,345
Repurchase and cancellation
of shares ........................ 15 -- -- -- -- (45)
Amortization of deferred
compensation ..................... 8,331 -- -- -- -- 8,331
Exercise of stock options,
of which 44,600 were from
treasury ......................... -- -- -- -- 844 3,763
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- 68 -- -- -- 68
----------- ----------- -------- ------------ ------- -----------
BALANCE, DECEMBER 31, 1997 .......... (25,457) -- -- 8,556 -- 953,680
Comprehensive income:
Net income ....................... -- -- -- -- -- 156,179
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- (965) -- (965)
----------- ----------- -------- ------------ ------- -----------
Comprehensive income ............. -- -- -- (965) -- 155,214
Dividends on common stock ........... -- -- -- -- -- (54,971)
Purchase of 7,549,300
shares to be held in
treasury ......................... -- -- -- -- (210,939) (210,939)
Issuance of 108,200
shares, of which
61,000 shares were
from treasury .................... (4,815) -- -- -- 1,933 (363)
Cancellation of shares .............. 192 -- -- -- -- (183)
Amortization of deferred
compensation ..................... 5,863 -- -- -- -- 5,863
Exercise of stock options,
of which 145,183 shares
were from treasury ............... -- -- -- -- 4,345 3,312
Shares held in trust for
deferred compensation
plans ............................ -- -- (45,740) -- -- --
Loan to Executive Deferred
Compensation Plan, net ........... -- (6,111) -- -- -- (6,111)
----------- ----------- -------- ------------ ------- -----------
BALANCE, DECEMBER 31, 1998 .......... $ (24,217) $ (6,111) $ (45,740) $ 7,591 $ (204,661) $ 845,502
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TCF 33
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 156,179 $ 145,061 $ 100,377
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ........................... 27,914 23,185 19,724
Amortization of goodwill and other intangibles .......... 11,399 15,757 3,540
Provision for credit losses ............................. 23,280 17,995 21,446
Proceeds from sales of loans held for sale .............. 577,808 624,192 857,050
Principal collected on loans held for sale .............. 9,083 9,174 10,225
Originations and purchases of loans held for
sale ................................................. (603,567) (799,319) (802,777)
Net (increase) decrease in other assets and
liabilities, and accrued interest .................... 14,339 (15,067) 29,231
Gains on sales of assets ................................ (28,825) (24,318) (8,276)
Other, net .............................................. 8,395 (4,707) (488)
---------- ----------- -----------
Total adjustments ...................................... 39,826 (153,108) 129,675
---------- ----------- -----------
Net cash provided (used) by operating activities .... 196,005 (8,047) 230,052
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on loans and leases .................... 3,111,218 1,952,057 1,868,774
Originations and purchases of loans ........................ (3,119,924) (1,952,261) (1,687,214)
Purchases of equipment for lease financing ................. (186,009) (179,165) (175,608)
Proceeds from sales of loans ............................... 20,330 15,910 61,302
Net (increase) decrease in interest-bearing
deposits with banks ..................................... (95,322) 453,895 (374,630)
Proceeds from sales of securities available
for sale .......................................... 231,438 476,218 16,636
Proceeds from maturities of and principal
collected on securities available for sale .............. 606,603 445,145 201,914
Purchases of securities available for sale ................. (967,585) (506,970) (32,993)
Net (increase) decrease in short-term
federal funds sold ...................................... (41,000) 45,000 --
Acquisitions, net of cash acquired ......................... -- (218,896) --
Sales of deposits, net of cash paid ........................ (235,742) (184,917) (60,550)
Other, net ................................................. (19,956) (12,971) (2,361)
---------- ----------- -----------
Net cash provided (used) by investing
activities .......................................... (695,949) 333,045 (184,730)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ........................ 64,399 79,819 (150,667)
Net increase (decrease) in securities sold
under repurchase agreements and federal
funds purchased ......................................... 254,836 (181,288) (159,194)
Proceeds from borrowings ................................... 3,502,311 1,835,104 2,235,289
Payments on borrowings ..................................... (2,911,853) (1,960,675) (1,902,246)
Proceeds from issuance of common stock ..................... -- 29,266 13,726
Purchases of common stock to be held in
treasury ................................................ (210,939) (27,316) (41,382)
Payments for dividends on common stock ..................... (54,971) (38,201) (26,487)
Other, net ................................................. (20,372) (1,143) (10,707)
---------- ----------- -----------
Net cash provided (used) by financing
activities .......................................... 623,411 (264,434) (41,668)
---------- ----------- -----------
Net increase in cash and due from banks .................... 123,467 60,564 3,654
Cash and due from banks at beginning of year ............... 297,010 236,446 232,792
---------- ----------- -----------
Cash and due from banks at end of year ..................... $ 420,477 $ 297,010 $ 236,446
---------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest on deposits and borrowings ..................... $ 306,299 $ 285,722 $ 239,653
---------- ----------- -----------
Income taxes ............................................ $ 105,207 $ 97,319 $ 73,309
---------- ----------- -----------
Transfer of loans to other real estate owned
and other assets ..................................... $ 36,750 $ 40,837 $ 37,417
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
34 TCF
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of TCF Financial Corporation and its wholly owned subsidiaries. TCF
Financial Corporation ("TCF" or the "Company") is a national bank holding
company engaged primarily in community banking and lease financing through its
wholly owned subsidiaries, TCF National Bank Minnesota ("TCF Minnesota"), TCF
National Bank Illinois ("TCF Illinois"), TCF National Bank Wisconsin ("TCF
Wisconsin"), TCF National Bank Colorado ("TCF Colorado"), and Great Lakes
National Bank Michigan ("Great Lakes Michigan"). The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation. For
Consolidated Statements of Cash Flows purposes, cash and cash equivalents
include cash and due from banks.
COMPREHENSIVE INCOME -- Effective January 1, 1998, TCF adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. 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. As permitted by SFAS No. 130, TCF
has elected to disclose the components of comprehensive income in the
Consolidated Statements of Stockholders' Equity.
In accordance with SFAS No. 130, reclassification adjustments have been
determined for all components of other comprehensive income reported in the
Consolidated Statements of Stockholders' Equity.
The following table summarizes the components of other comprehensive
income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses)
on securities available for sale
(net of tax expense (benefit) of
$206, $6,994 and $(5,689),
respectively) ......................................................... $ 236 $11,465 $(9,273)
Reclassification adjustment for gains
included in net income (net of tax
expense of $1,045, $3,224 and $33,
respectively) ......................................................... (1,201) (5,285) (53)
------- ------- -------
Total other comprehensive income,
net of tax .......................................................... $ (965) $ 6,180 $(9,326)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SEGMENT INFORMATION -- Effective January 1, 1998, TCF adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for public business enterprises
to report information about operating segments in annual financial statements,
and requires that those enterprises report selected information about operating
segments in interim financial reports. The adoption of SFAS No. 131 did not
impact TCF's results of operations or financial condition, but did affect the
disclosure of segment information. In accordance with SFAS No. 131, prior period
financial information has been restated. See Note 20 for TCF's disclosures in
accordance with SFAS No. 131.
EMPLOYEE BENEFIT PLANS -- Effective January 1, 1998, TCF adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS
No. 132 revises employers' disclosures about pension and other postretirement
benefit plans. The adoption of SFAS No. 132 did not impact TCF's results of
operations or financial condition. In accordance with SFAS No. 132, prior period
financial information has been restated. See Note 18 for TCF's disclosures in
accordance with SFAS No. 132.
INVESTMENTS -- Investments are carried at cost, adjusted for amortization of
premiums or accretion of discounts using methods which approximate a level
yield.
SECURITIES AVAILABLE FOR SALE -- Securities available for sale are carried at
fair value with the unrealized holding gains or losses, net of deferred income
taxes, reported as accumulated other comprehensive income, which is a separate
component of stockholders' equity. Cost of securities sold is determined on a
specific identification basis and gains or losses on sales of securities
available for sale are recognized at trade dates.
LOANS HELD FOR SALE -- Loans held for sale are carried at the lower of cost or
market determined on an aggregate basis, including related forward mortgage loan
sales commitments. Cost of loans sold is determined on a specific identification
basis and gains or losses on sales of loans held for sale are recognized at
settlement dates. Net fees and costs associated with originating and acquiring
loans held for sale are deferred and are included in the basis for determining
the gain or loss on sales of loans held for sale.
TCF 35
<PAGE>
LOANS AND LEASES -- Net fees and costs associated with originating and acquiring
loans and leases are deferred and amortized over the lives of the assets. Net
fees and costs associated with loan commitments are deferred in other assets or
other liabilities until the loan is advanced. Discounts and premiums on loans
purchased, net deferred fees and costs, unearned discounts and finance charges,
and unearned lease income are amortized using methods which approximate a level
yield over the estimated remaining lives of the loans and leases.
Leases that transfer substantially all of the benefits and risks of
equipment ownership to the lessee are classified as direct financing or
sales-type leases and are included in loans and leases. Direct financing and
sales-type leases are carried at the combined present value of the future
minimum lease payments and the lease residual value, which represents the
estimated fair value of the leased equipment at the termination of the lease
based on management's experience and judgment. Lease residual values are
reviewed on an ongoing basis and any downward revisions are recorded in the
periods in which they become known. Interest income on direct financing and
sales-type leases is recognized using methods which approximate a level yield
over the term of the leases. Sales-type leases generate dealer profit which is
recognized at lease inception by recording lease revenue net of the lease cost.
Revenue consists of the present value of the future minimum lease payments
discounted at the rate implicit in the lease. Cost consists of the leased
equipment's book value, less the present value of its residual.
Impaired loans include all non-accrual and restructured commercial real
estate and commercial business loans. Consumer and residential real estate loans
and lease financings are excluded from the definition of an impaired loan. Loan
impairment is measured as the present value of expected future cash flows
discounted at the loan's initial effective interest rate, the fair value of the
collateral of an impaired collateral-dependent loan or an observable market
price.
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, including the
allocated and unallocated elements, 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, historical net charge-off amounts, geographic location and prevailing
economic conditions. Residential loans, consumer loans, and smaller-balance
commercial loans and lease financings are segregated by lease type and sub-type,
and are evaluated on a group basis. 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 adequacy of the allowance for loan and lease losses is highly
dependent upon management's estimates of variables affecting valuation,
appraisals of collateral, evaluations of performance and status, and the amounts
and timing of future cash flows expected to be received on impaired loans. Such
estimates, appraisals, evaluations and cash flows may be subject to frequent
adjustments due to changing economic prospects of borrowers, lessees or
properties. These estimates are reviewed periodically and adjustments, if
necessary, are recorded in the provision for credit losses in the periods in
which they become known.
Interest income is accrued on loan and lease balances outstanding. Loans
and leases, including loans that are considered to be impaired, are reviewed
regularly by management and are placed on non-accrual status when the collection
of interest or principal is 90 days or more past due, unless the loan or lease
is adequately secured and in the process of collection. When a loan or lease is
placed on non-accrual status, unless collection of all principal and interest is
considered to be assured, uncollected interest accrued in prior years is charged
off against the allowance for loan and lease losses. Interest accrued in the
current year is reversed. Interest payments received on non-accrual loans and
leases are generally applied to principal unless the remaining principal balance
has been determined to be fully collectible.
Cost of loans sold is determined on a specific identification basis and
gains or losses on sales of loans are recognized at trade dates.
PREMISES AND EQUIPMENT -- Premises and equipment are carried at cost and are
depreciated or amortized on a straight-line basis over their estimated useful
lives.
OTHER REAL ESTATE OWNED -- Other real estate owned is recorded at the lower of
cost or fair value minus estimated costs to sell at the date of transfer to
other real estate owned. If the fair value of an asset minus the estimated costs
to sell should decline to less than the carrying amount of the asset, the
deficiency is recognized in the period in which it becomes known and is included
in other non-interest expense.
MORTGAGE SERVICING RIGHTS -- Mortgage servicing rights are capitalized and
amortized in proportion to, and over the period of, estimated net servicing
income. TCF periodically evaluates its capitalized mortgage servicing rights for
impairment. Loan type and note rate are the predominant risk characteristics of
the underlying loans used to stratify capitalized mortgage servicing rights for
purposes of measuring impairment. Any impairment is recognized through a
valuation allowance.
INTANGIBLE ASSETS -- Goodwill resulting from acquisitions is amortized over 25
years on a straight-line basis. Deposit base intangibles are amortized over 10
years on an accelerated basis. The Company periodically reviews the
recoverability of the carrying values of these assets.
DERIVATIVE FINANCIAL INSTRUMENTS -- TCF utilizes derivative financial
instruments in order to meet the ongoing credit needs of its customers and in
order to manage the market exposure of its residential loans held for sale
portfolio and its commitments to extend credit for residential loans.
Derivative financial instruments include commitments to extend credit and
forward mortgage loan sales commitments. See Note 15 for additional
information concerning these derivative financial instruments.
36 TCF
<PAGE>
ADVERTISING AND PROMOTIONS -- Expenditures for advertising costs are expensed as
incurred.
INCOME TAXES -- Income taxes are accounted for using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS PER COMMON SHARE -- The following table reconciles the weighted average
shares outstanding and the income applicable to common shareholders used for
basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number of common shares outstanding
used in basic earnings per common share calculation ............... 88,092,895 84,477,536 81,903,690
Net dilutive effect of:
Stock option plans ................................................ 346,434 468,275 537,900
Restricted stock plans ............................................ 476,486 838,189 654,918
Assumed conversion of 7 1/4% convertible subordinated debentures .. -- 349,936 842,850
----------- ---------- -----------
Weighted average number of shares outstanding adjusted
for effect of dilutive securities ................................. 88,915,815 86,133,936 83,939,358
----------- ---------- -----------
Net income .......................................................... $ 156,179 $ 145,061 $ 100,377
Add: Interest expense on 7 1/4% convertible subordinated
debentures, net of tax ............................................ -- 132 328
----------- ---------- -----------
Income applicable to common shareholders including effect
of dilutive securities ............................................ $ 156,179 $ 145,193 $ 100,705
----------- ---------- -----------
Basic earnings per common share ..................................... $ 1.77 $ 1.72 $ 1.23
----------- ---------- -----------
Diluted earnings per common share ................................... $ 1.76 $ 1.69 $ 1.20
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
2. BUSINESS COMBINATIONS AND ACQUISITIONS
JEWEL-OSCO BRANCHES -- On January 30, 1998, 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.
STANDARD FINANCIAL, INC. -- On September 4, 1997, TCF acquired all of the
outstanding common stock of Standard Financial, Inc. ("Standard"), a
community-oriented thrift institution with $2.6 billion in assets, $1.9 billion
in deposits, and 14 full-service offices in Chicago, Illinois, for a purchase
price of $423.7 million, which consisted of $237.9 million in cash and 7,700,000
shares of TCF common stock. The acquisition has been accounted for by the
purchase method of accounting and, accordingly, the results of operations of
Standard have been included in TCF's consolidated financial statements since
September 4, 1997.
WINTHROP RESOURCES CORPORATION -- On June 24, 1997, TCF completed its
acquisition of Winthrop Resources Corporation ("Winthrop"), a leasing company
with $363 million in assets. Winthrop leases computers, telecommunications
equipment, point-of-sale systems and other business-essential equipment to
companies nationwide. In connection with the acquisition, TCF issued
approximately 13.4 million shares of its common stock for all of the
outstanding common shares of Winthrop.
The consolidated financial statements of TCF give effect to the
acquisition, which has been accounted for as a pooling-of-interests combination.
Accordingly, TCF's consolidated financial statements for periods prior to the
combination have been restated to include the accounts and the results of
operations of Winthrop for all periods presented, except for dividends declared
per share. There were no material intercompany transactions prior to the
acquisition and no material differences in the accounting and reporting policies
of TCF and Winthrop.
BOC FINANCIAL CORPORATION -- On January 16, 1997, TCF completed its purchase of
BOC Financial Corporation, an Illinois-based bank holding company with $183.1
million in assets and $168 million in deposits. TCF accounted for the
acquisition using the purchase method of accounting.
3. CASH AND DUE FROM BANKS
At December 31, 1998, TCF was required by Federal Reserve Board regulations to
maintain reserve balances of $159 million in cash on hand or at various Federal
Reserve Banks.
TCF 37
<PAGE>
4. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks ..... $115,894 $-- $-- $115,894 $ 20,572 $-- $-- $ 20,572
Federal funds sold ....................... 41,000 -- -- 41,000 -- -- -- --
Federal Home Loan Bank stock, at cost .... 93,482 -- -- 93,482 82,002 -- -- 82,002
Federal Reserve Bank stock, at cost ...... 23,112 -- -- 23,112 22,977 -- -- 22,977
Other .................................... 4,227 -- -- 4,227 4,061 -- -- 4,061
-------- ---- ---- -------- -------- ---- ---- --------
$277,715 $-- $-- $277,715 $129,612 $-- $-- $129,612
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value, fair value and yield of investments at December 31,
1998, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
CARRYING FAIR
(DOLLARS IN THOUSANDS) VALUE VALUE YIELD
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Due in one year or less ........... $161,121 $161,121 4.85%
No stated maturity(1) ............ 116,594 116,594 6.85
-------- --------
$277,715 $277,715 5.69
- -------------------------------------------------------------------------------
</TABLE>
(1) Balance represents FRB and FHLB stock, required regulatory investments.
5. SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC ..................... $ 989,681 $ 9,966 $ (960) $ 998,687 $ 701,195 $10,280 $ (676) $ 710,799
FNMA ...................... 537,197 5,567 (1,336) 541,428 466,820 4,083 (1,003) 469,900
GNMA ...................... 33,721 510 (113) 34,118 43,079 932 (18) 43,993
Private issuer ............ 104,099 311 (1,597) 102,813 199,738 1,381 (794) 200,325
Collateralized
mortgage obligations .... 873 -- -- 873 1,147 -- (33) 1,114
----------- ------- ------ ---------- ---------- ------- ------- ----------
$ 1,665,571 $16,354 $(4,006) $1,677,919 $1,411,979 $16,676 $(2,524) $1,426,131
----------- ------- ------ ---------- ---------- ------- ------- ----------
Weighted-average yield ........ 6.63% 7.04%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross gains of $2.3 million, $9.1 million and $102,000 and gross losses of
$57,000, $602,000 and $16,000 were recognized on sales of securities available
for sale during 1998, 1997 and 1996, respectively.
Mortgage-backed securities aggregating $3.6 million were pledged as
collateral to secure certain deposits at December 31, 1998.
6. LOANS HELD FOR SALE
Loans held for sale consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
Residential real estate ...................... $ 74,814 $109,315
Education .................................... 138,259 135,297
---------------------------------------------------------------------------
$213,073 $244,612
---------------------------------------------------------------------------
</TABLE>
38 TCF
<PAGE>
7. LOANS AND LEASES
Loans and leases consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- -------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate ............................ $ 3,757,416 $ 3,619,527
Unearned premiums and deferred loan fees ........... 7,864 4,318
------------------------------
3,765,280 3,623,845
------------------------------
Commercial real estate:
Apartments...................................... 257,195 294,231
Other permanent ................................ 464,817 481,759
Construction and development ................... 92,399 86,174
Unearned discounts and deferred loan fees ...... (2,983) (2,248)
------------------------------
811,428 859,916
------------------------------
Total real estate ............................ 4,576,708 4,483,761
------------------------------
Commercial business ................................ 288,676 239,728
Deferred loan costs ................................ 428 479
------------------------------
289,104 240,207
------------------------------
Consumer:
Home equity..................................... 1,526,129 1,519,644
Automobile...................................... 337,893 444,903
Loans secured by deposits ...................... 7,581 10,112
Other secured .................................. 19,033 19,955
Unsecured ...................................... 35,290 44,607
Unearned discounts and deferred loan fees ...... (49,372) (62,522)
------------------------------
1,876,554 1,976,699
------------------------------
Lease financing:
Direct financing leases ........................ 377,157 344,889
Sales-type leases............................... 35,695 40,592
Lease residuals ................................ 29,340 28,789
Unearned income and deferred lease costs ....... (43,380) (45,749)
------------------------------
398,812 368,521
------------------------------
$ 7,141,178 $ 7,069,188
- -------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the recorded investment in loans that were
considered to be impaired was $7.1 million for which the related allowance
for loan losses was $1.7 million. All of the impaired loans were on
non-accrual status. The average recorded investment in impaired loans during
the year ended December 31, 1998 was $8.7 million. For the year ended
December 31, 1998, TCF recognized interest income on impaired loans of
$90,000, none of which was recognized using the cash basis method of income
recognition.
At December 31, 1997, the recorded investment in loans that were
considered to be impaired was $7.2 million for which the related allowance
for loan losses was $1.7 million. All of the impaired loans were on
non-accrual status. The average recorded investment in impaired loans during
the year ended December 31, 1997 was $13.5 million. For the year ended
December 31, 1997, TCF recognized interest income on impaired loans of
$417,000, of which $208,000 was recognized using the cash basis method of
income recognition.
At December 31, 1998, 1997 and 1996, loans and leases on non-accrual
status totaled $33.7 million, $36.8 million and $26.4 million, respectively.
Had the loans and leases performed in accordance with their original terms
throughout 1998, TCF would have recorded gross interest income of $3.7
million for these loans and leases. Interest income of $1.6 million has been
recorded on these loans and leases for the year ended December 31, 1998.
At December 31, 1998, TCF had no loans or leases outstanding with terms
that had been modified in troubled debt restructurings, compared with $1.3
million of such commercial real estate loans at December 31, 1997. There were
no material commitments to lend additional funds to customers whose loans or
leases were classified as restructured or non-accrual at December 31, 1998.
TCF 39
<PAGE>
Future minimum lease payments for direct financing and sales-type leases
as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
PAYMENTS TO
PAYMENTS TO BE RECEIVED BY
BE RECEIVED OTHER FINANCIAL
(IN THOUSANDS) BY TCF INSTITUTIONS TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 .............................. $ 76,791 $ 98,330 $175,121
2000 .............................. 53,133 64,139 117,272
2001 .............................. 26,760 30,694 57,454
2002 .............................. 9,010 7,084 16,094
2003 .............................. 3,495 1,234 4,729
Thereafter ........................ 89 -- 89
------------------------------------------------------------
$169,278 $201,481 $370,759
- -----------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, 1997 and 1996, TCF was servicing real estate loans
for others with aggregate unpaid principal balances of approximately $3.7
billion, $4.4 billion and $4.5 billion, respectively. During 1998 and 1997,
TCF sold servicing rights on $200.4 million and $144.7 million of loans
serviced for others at net gains of $2.4 million and $1.6 million,
respectively. There were no sales of servicing rights on loans serviced for
others in 1996.
8. ALLOWANCE FOR LOAN AND LEASE LOSSES
Following is a summary of the allowance for loan and lease losses and
selected statistics:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year ...................... $ 82,583 $ 71,865 $ 66,290
Acquired balance ............................... -- 10,592 --
Provision for credit losses .................... 23,280 17,995 21,446
Charge-offs .................................... (32,714) (26,813) (24,294)
Recoveries ..................................... 6,864 8,944 8,423
---------------------------------------------------
Net charge-offs ............................. (25,850) (17,869) (15,871)
---------------------------------------------------
Balance at end of year ............................ $ 80,013 $ 82,583 $ 71,865
---------------------------------------------------
Ratio of net loan and lease charge-offs to
average loans and leases outstanding ........... .36% .30% .29%
Allowance for loan and lease losses as a
percentage of total loan and lease balances at
year-end ....................................... 1.12 1.17 1.36
- -------------------------------------------------------------------------------------------------------
</TABLE>
9. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Premises and equipment .............................. $173,688 $165,790
Accrued interest receivable ......................... 52,197 54,336
Mortgage servicing rights ........................... 21,566 19,512
Other real estate owned ............................. 13,602 18,353
Due from brokers .................................... -- 126,662
Other ............................................... 70,309 78,516
-----------------------------------
$331,362 $463,169
- ------------------------------------------------------------------------------------------
</TABLE>
40 TCF
<PAGE>
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- --------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Land.................................................. $ 33,619 $ 32,664
Office buildings...................................... 130,932 131,720
Leasehold improvements................................ 27,084 23,266
Furniture and equipment............................... 145,835 128,845
-----------------------------------
337,470 316,495
Less accumulated depreciation and amortization........ 163,782 150,705
-----------------------------------
$173,688 $165,790
- --------------------------------------------------------------------------------------------
</TABLE>
TCF leases certain premises and equipment under operating leases. Net lease
expense was $19.6 million, $15 million and $14.7 million in 1998, 1997 and 1996,
respectively.
At December 31, 1998, the total annual minimum lease commitments for
operating leases were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------------
<S> <C>
1999 ............................................ $ 16,647
2000 ............................................ 14,392
2001 ............................................ 11,483
2002 ............................................ 10,176
2003 ............................................ 10,149
Thereafter ...................................... 58,408
--------
$121,255
- -----------------------------------------------------------
</TABLE>
Mortgage servicing rights, net of valuation allowance, are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year, net ......... $19,512 $17,360 $16,286
Acquired balance ....................... -- 2,177 --
Mortgage servicing rights capitalized .. 8,966 5,229 5,822
Amortization ........................... (5,268) (4,753) (4,648)
Sale of servicing ...................... (97) (401) --
Valuation adjustments .................. (1,547) (100) (100)
-----------------------------------
Balance at end of year, net ............... $21,566 $19,512 $17,360
- -------------------------------------------------------------------------------
</TABLE>
The valuation allowance for mortgage servicing rights is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year ................. $1,594 $1,494 $1,394
Provisions ................................ 1,547 100 100
Charge-offs ............................... (403) -- --
-----------------------------------
Balance at end of year ....................... $2,738 $1,594 $1,494
- -----------------------------------------------------------------------------------
</TABLE>
TCF 41
<PAGE>
10. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) RATE AMOUNT TOTAL RATE AMOUNT TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Checking:
Non-interest bearing ................ 0.00% $1,158,685 17.3% 0.00% $840,714 12.2%
Interest bearing .................... .57 720,938 10.7 1.05 627,943 9.1
---------------------- -------------------
.22 1,879,623 28.0 .45 1,468,657 21.3
---------------------- -------------------
Passbook and statement:
Non-interest bearing ................ 0.00 63,024 .9 0.00 33,387 .5
Interest bearing .................... 1.13 1,113,907 16.6 2.10 1,101,291 15.9
---------------------- -------------------
1.07 1,176,931 17.5 2.04 1,134,678 16.4
---------------------- -------------------
Money market ............................ 2.64 700,004 10.4 3.07 698,312 10.1
---------------------- -------------------
.94 3,756,558 55.9 1.55 3,301,647 47.8
Certificates ............................ 5.01 2,958,588 44.1 5.13 3,605,663 52.2
----------------------
2.73 $6,715,146 100.0% 3.42 $6,907,310 100.0%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certificates had the following remaining maturities at December 31, 1998:
<TABLE>
<CAPTION>
(IN MILLIONS) $100,000
MATURITY MINIMUM OTHER TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
0-3 months ............................. $268.6 $ 724.5 $ 993.1
4-6 months ............................. 63.1 626.3 689.4
7-12 months ............................ 69.1 707.5 776.6
13-24 months ........................... 32.4 312.8 345.2
25-36 months ........................... 12.7 100.2 112.9
37-48 months ........................... 2.1 20.3 22.4
49-60 months ........................... 2.0 12.0 14.0
Over 60 months ......................... .1 4.9 5.0
---------------------------------------------
$450.1 $2,508.5 $2,958.6
- --------------------------------------------------------------------------------------
</TABLE>
42 TCF
<PAGE>
11. BORROWINGS
Borrowings consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
YEAR OF AVERAGE AVERAGE
MATURITY AMOUNT RATE AMOUNT RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Securities sold under repurchase
agreements and federal funds purchased:
Securities sold under
repurchase agreements............ 1998 $ -- --% $ 112,244 5.99%
1999 317,280 6.81 -- --
2001 50,000 5.71 -- --
---------- ----------
367,280 6.66 112,244 5.99
Federal funds purchased............. 1998 -- -- 200 6.84
---------- ----------
367,280 6.66 112,444 5.99
---------- ----------
Federal Home Loan Bank advances........... 1998 -- -- 522,300 5.93
1999 570,207 5.85 469,245 5.97
2000 297,399 6.16 297,758 6.16
2001 886,602 5.19 25,132 6.09
2003 50,000 5.78 25,000 5.78
2008 -- -- 143 6.15
---------- ----------
1,804,208 5.58 1,339,578 6.00
---------- ----------
Discounted lease rentals.................. 1998 -- -- 95,142 8.57
1999 87,791 8.28 70,438 8.56
2000 58,917 8.18 38,922 8.55
2001 29,009 8.21 20,151 8.59
2002 6,772 7.99 3,943 8.43
2003 1,195 7.65 -- --
---------- ----------
183,684 8.22 228,596 8.56
---------- ----------
Other borrowings:
Senior subordinated debentures......... 1998 -- -- 6,248 18.00
2003 28,750 9.50 28,750 9.50
---------- ----------
28,750 9.50 34,998 11.02
---------- ----------
Collateralized mortgage obligations.... 2008 44 6.50 868 6.69
2010 1,809 5.95 1,671 6.07
---------- ----------
1,853 5.95 2,539 6.26
---------- ----------
Bank line of credit................... 1999 74,000 6.19 -- --
Treasury, tax and loan note............ 1998 -- -- 8,997 5.26
1999 1,271 4.11 -- --
---------- ----------
105,874 7.06 46,534 9.65
---------- ----------
$2,461,046 6.00 $1,727,152 6.43
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, borrowings with a remaining contractual maturity of one
year or less consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
WEIGHTED-
AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT RATE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements and
federal funds purchased ............................... $ 317,280 6.81%
Federal Home Loan Bank advances .......................... 570,207 5.85
Discounted lease rentals ................................. 87,791 8.28
Bank line of credit ...................................... 74,000 6.19
Treasury, tax and loan note .............................. 1,271 4.11
----------
$1,050,549 6.36
- ----------------------------------------------------------------------------------------
</TABLE>
TCF 43
<PAGE>
The securities underlying the repurchase agreements are book entry
securities. During the period, book entry securities were delivered by
appropriate entry into the counterparties' accounts through the Federal
Reserve System. The dealers may sell, loan or otherwise dispose of such
securities to other parties in the normal course of their operations, but
have agreed to resell to TCF identical or substantially the same securities
upon the maturities of the agreements. At December 31, 1998, all of the
securities sold under repurchase agreements provided for the repurchase of
identical securities.
At December 31, 1998, securities sold under repurchase agreements were
collateralized by mortgage-backed securities and had the following maturities:
<TABLE>
<CAPTION>
REPURCHASE BORROWING COLLATERAL SECURITIES
-----------------------------------------------------
INTEREST CARRYING MARKET
(DOLLARS IN THOUSANDS) AMOUNT RATE AMOUNT VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity:
January 1999 ......... $317,280 6.81% $327,479 $327,479
November 2001 ........ 50,000 5.71 53,174 53,174
-------- --------------------
$367,280 6.66 $380,653 $380,653
- ------------------------------------------------------------------------------------
</TABLE>
Included in Federal Home Loan Bank ("FHLB") advances are $705 million of
callable advances maturing in 2001 which are callable at par beginning in
1999 on their first anniversary date and quarterly thereafter until maturity.
If called, the FHLB will provide replacement funding at the then-prevailing
market rate of interest for the remaining term-to-maturity of the advances,
subject to standard terms and conditions.
TCF has a $135 million bank line of credit which is unsecured and
contains certain covenants common to such agreements with which TCF is in
compliance. The interest rate on the line of credit is based on either the
prime rate or LIBOR. TCF has the option to select the interest rate index and
term for advances on the line of credit. The line of credit expires in
October 1999.
During 1998, TCF redeemed the $6.2 million of senior subordinated
debentures at par plus accrued and unpaid interest to the date of redemption.
The $28.8 million of senior subordinated debentures mature in July 2003.
These debentures will be redeemable at par plus accrued interest to the date
of redemption beginning July 1, 2001.
During 1997, TCF redeemed $7.1 million of convertible subordinated
debentures (the "Debentures") at par plus accrued and unpaid interest to the
date of redemption. The Debentures were convertible into TCF common stock at
a conversion price of $8.52 per common share. TCF issued approximately
839,000 shares of common stock in connection with the conversion of the
Debentures.
At December 31, 1998, mortgage-backed securities collateralizing TCF's
collateralized mortgage obligations had a market value of $1.7 million.
FHLB advances are collateralized by residential real estate loans, FHLB
stock and mortgage-backed securities with an aggregate carrying value of $2.8
billion at December 31, 1998.
The following table sets forth TCF's maximum and average borrowing levels
for each of the years in the three-year period ended December 31, 1998:
<TABLE>
<CAPTION>
SECURITIES SOLD
UNDER REPURCHASE DISCOUNTED
AGREEMENTS AND FHLB LEASE OTHER
(DOLLARS IN THOUSANDS) FEDERAL FUNDS PURCHASED ADVANCES RENTALS BORROWINGS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Average balance .......................... $140,414 $1,367,104 $205,393 $ 92,467
Maximum month-end balance ................ 367,280 1,804,208 222,018 214,087
Average rate for period .................. 5.60% 5.80% 8.15% 7.38%
Year ended December 31, 1997:
Average balance .......................... $346,339 $ 817,464 $222,558 $ 97,547
Maximum month-end balance ................ 482,231 1,339,578 241,895 136,259
Average rate for period .................. 5.74% 5.89% 8.28% 7.56%
Year ended December 31, 1996:
Average balance .......................... $506,298 $ 674,703 $180,586 $ 85,571
Maximum month-end balance ................ 647,707 1,141,040 189,105 139,658
Average rate for period .................. 5.65% 5.52% 8.25% 7.20%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
44 TCF
<PAGE>
12. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) CURRENT DEFERRED TOTAL
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1998:
Federal................................................. $ 91,102 $ (994) $ 90,108
State................................................... 19,325 (363) 18,962
-------------------------------------------
$110,427 $(1,357) $109,070
-------------------------------------------
Year ended December 31, 1997:
Federal................................................. $ 77,465 $ 1,395 $ 78,860
State................................................... 16,464 522 16,986
-------------------------------------------
$ 93,929 $ 1,917 $ 95,846
-------------------------------------------
Year ended December 31, 1996:
Federal................................................. $ 49,446 $ 934 $ 50,380
State................................................... 11,300 (649) 10,651
-------------------------------------------
$ 60,746 $ 285 $ 61,031
- --------------------------------------------------------------------------------------------------------
</TABLE>
Total income tax expense of $109.1 million, $95.8 million and $61 million
for the years ended December 31, 1998, 1997 and 1996, respectively, did not
include tax benefits specifically allocated to stockholders' equity. The tax
benefit allocated to additional paid-in capital for compensation expense for
tax purposes in excess of amounts recognized for financial reporting purposes
totaled $2.4 million, $2.3 million and $2.5 million for the years ended
December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, TCF has net operating loss ("NOL") carryforwards
for federal income tax purposes of $3.7 million, which are available to
offset future federal taxable income through 2008. The realization of the
NOLs is subject to certain Internal Revenue Code ("IRC") limitations. In
addition, TCF has certain alternative minimum tax ("AMT") credit
carryforwards of approximately $1 million, which are available to reduce
future federal income taxes over an indefinite period. The realization of the
AMT credits is subject to certain IRC limitations. TCF has, in its judgment,
made certain reasonable assumptions relating to the realizability of the
deferred tax assets. Based upon these assumptions, the Company has determined
that no valuation allowance is required with respect to the deferred tax
assets.
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% to income before income tax expense as a
result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income tax expense.................................. $ 92,837 $84,317 $56,493
Increase (reduction) in income tax expense resulting from:
ESOP dividend deduction............................. (1,104) (792) (649)
Amortization of goodwill............................ 3,741 1,287 562
State income tax, net of federal income tax
benefit........................................... 12,325 11,041 6,980
Other, net.......................................... 1,271 (7) (2,355)
--------------------------------------------
$109,070 $95,846 $61,031
- -------------------------------------------------------------------------------------------------------------
</TABLE>
TCF 45
<PAGE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses ................................... $22,011 $24,434
Pension and other compensation plans .................................. 11,058 9,117
Insurance premiums .................................................... 4,253 3,750
Net operating loss carryforward ....................................... 1,301 1,326
Alternative minimum tax credit carryforward ........................... 1,028 992
Other ................................................................. 817 1,044
-------------------------------
Total deferred tax assets .......................................... 40,468 40,663
-------------------------------
Deferred tax liabilities:
Securities available for sale ......................................... 4,757 5,596
FHLB stock ............................................................ 4,648 4,711
Loan basis differences ................................................ 469 1,536
Premises and equipment ................................................ 1,279 2,632
Loan fees and discounts ............................................... 8,697 6,715
Mortgage servicing rights ............................................. 4,105 3,926
Lease financing ....................................................... 28,883 29,305
Intangible assets ..................................................... 1,507 2,316
-------------------------------
Total deferred tax liabilities ..................................... 54,345 56,737
-------------------------------
Net deferred tax liabilities .................................... $13,877 $16,074
- ------------------------------------------------------------------------------------------------------------
</TABLE>
13. STOCKHOLDERS' EQUITY
RESTRICTED RETAINED EARNINGS -- In general, TCF's subsidiary banks may not
declare or pay a dividend to TCF in excess of 100% of their net profits for
that year combined with their retained net profits for the preceding two
calendar years without prior approval of the Office of the Comptroller of the
Currency ("OCC"). Additional limitations on dividends declared or paid on, or
repurchases of, TCF's subsidiary banks' capital stock are tied to the
national banks' regulatory capital levels.
Undistributed earnings and profits at December 31, 1998 includes
approximately $134.4 million for which no provision for federal income tax
has been made. This amount represents earnings appropriated to bad debt
reserves and deducted for federal income tax purposes and is generally not
available for payment of cash dividends or other distributions to
shareholders. Payments or distributions of these appropriated earnings could
invoke a tax liability for TCF based on the amount of earnings removed and
current tax rates.
SHAREHOLDER RIGHTS PLAN -- TCF's preferred share purchase rights will become
exercisable only if a person or group acquires or announces an offer to
acquire 15% or more of TCF's common stock. This triggering percentage may be
reduced to no less than 10% by TCF's Board of Directors (the "Board") under
certain circumstances. When exercisable, each right will entitle the holder
to buy one one-hundredth of a share of a new series of junior participating
preferred stock at a price of $90 per share. In addition, upon the occurrence
of certain events, holders of the rights will be entitled to purchase either
TCF's common stock or shares in an "acquiring entity" at half of the market
value. The Board is generally entitled to redeem the rights at 1 cent per
right at any time before they become exercisable. The rights will expire on
June 9, 1999, if not previously redeemed or exercised.
SHARES HELD IN TRUST FOR DEFERRED COMPENSATION PLANS -- During the third
quarter of 1998, TCF applied the consensus reached in the Emerging Issues
Task Force ("EITF") Issue No. 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Are Held in a Rabbi Trust and Invested." As a
result, the assets of TCF's deferred compensation plans were consolidated
with those of TCF. The cost of TCF common stock held by the deferred
compensation plans is reported separately in a manner similar to treasury
stock (that is, changes in fair value are not recognized) with a
corresponding deferred compensation obligation reflected in additional
paid-in capital. The application of EITF 97-14 did not impact TCF's total
stockholders' equity or results of operations for 1998 or any prior period.
LOAN TO EXECUTIVE DEFERRED COMPENSATION PLAN -- During 1998, loans totaling
$6.4 million were made by TCF to the Executive Deferred Compensation Plan
trustee on a nonrecourse basis to purchase shares of TCF common stock for the
accounts of participants. The loans are repayable over five years, bear
interest of 7.41% and are secured by the shares of TCF common stock purchased
with the loan proceeds. These loans, totaling $6.1 million at December 31,
1998, are reflected as a reduction of stockholders' equity as required by
generally accepted accounting principles.
46 TCF
<PAGE>
STOCK OFFERING -- On June 3, 1997, TCF completed a public offering of
1,400,000 shares of its common stock at a price of $21.6875 per share. The
purpose of the offering was to meet one of the criteria for TCF's merger with
Winthrop to be accounted for as a pooling of interests. The net proceeds of
$29.3 million were used as a portion of the cash consideration paid in
connection with the acquisition of Standard.
TREASURY STOCK -- On January 20, 1997, the Board authorized the repurchase of
up to 5% of TCF common stock, or 3.5 million shares. On February 25, 1997,
the Board formally rescinded TCF's common stock repurchase program in
connection with the Company's merger with Winthrop. On January 19, 1998, the
Board authorized the repurchase of up to 5% of TCF common stock, or 4.6
million shares. On June 22, 1998, the Board authorized the repurchase of up
to an additional 5% of TCF common stock, or 4.5 million shares. On December
15, 1998, the Board authorized the repurchase of up to an additional 5% of
TCF common stock, or 4.3 million shares. TCF purchased 7,549,300, 1,295,800
and 2,380,136 shares of common stock during the years ended December 31,
1998, 1997 and 1996, respectively. At December 31, 1998, TCF has remaining
authorization of 1.6 million shares under its June 22, 1998 5% stock
repurchase program, which the Company expects to repurchase before initiating
the December 15, 1998 program.
14. REGULATORY CAPITAL REQUIREMENTS
TCF is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
the federal banking agencies, that, if undertaken, could have a direct
material effect on TCF's financial statements. Under capital adequacy
guidelines and the regulatory framework for "prompt corrective action," TCF
must meet specific capital guidelines that involve quantitative measures of
the Company's assets, stockholders' equity, and certain off-balance-sheet
items as calculated under regulatory accounting practices.
The following table sets forth TCF's tier 1 leverage, tier 1 risk-based
and total risk-based capital levels, and applicable percentages of adjusted
assets, together with the excess over the minimum capital requirements:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 leverage capital ......................... $659,661 6.75% $752,091 7.80%
Tier 1 leverage capital requirement ............. 293,024 3.00 289,132 3.00
------------------------------------------------
Excess ................................... $366,637 3.75% $462,959 4.80%
------------------------------------------------
Tier 1 risk-based capital ....................... $659,661 10.45% $752,091 11.97%
Tier 1 risk-based capital requirement ........... 252,458 4.00 251,273 4.00
------------------------------------------------
Excess ................................... $407,203 6.45% $500,818 7.97%
------------------------------------------------
Total risk-based capital ........................ $738,239 11.70% $830,639 13.22%
Total risk-based capital requirement ............ 504,916 8.00 502,547 8.00
------------------------------------------------
Excess ................................... $233,323 3.70% $328,092 5.22%
- ---------------------------------------------------------------------------------------------------
</TABLE>
At December 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.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
TCF is a party to financial instruments with off-balance-sheet risk,
primarily to meet the financing needs of its customers. These financial
instruments, which are issued or held by TCF for purposes other than trading,
involve elements of credit and interest-rate risk in excess of the amount
recognized in the Consolidated Statements of Financial Condition.
TCF's exposure to credit loss in the event of non-performance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of the
commitments. TCF uses the same credit policies in making these commitments as
it does for on-balance-sheet instruments. TCF evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained
is based on management's credit evaluation of the customer. For Veterans
Administration ("VA") loans serviced with partial recourse and forward
mortgage loan sales commitments, the contract or notional amount exceeds
TCF's exposure to credit loss. TCF controls the credit risk of forward
mortgage loan sales commitments through credit approvals, credit limits and
monitoring procedures.
TCF 47
<PAGE>
COMMITMENTS TO EXTEND CREDIT -- Commitments to extend credit are agreements to
lend to a customer provided there is no violation of any condition in the
contract. These commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. These commitments
totaled $1.1 billion and $1.2 billion at December 31, 1998 and 1997,
respectively. Since certain of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Collateral predominantly consists of residential
and commercial real estate and personal property. Included in the total
commitments to extend credit at December 31, 1998 were fixed-rate mortgage
loan commitments and loans in process aggregating $153.3 million.
STANDBY LETTERS OF CREDIT -- Standby letters of credit are conditional
commitments issued by TCF guaranteeing the performance of a customer to a
third party. The standby letters of credit expire in various years through
the year 2005 and totaled $45.3 million and $30.7 million at December 31,
1998 and 1997, respectively. Collateral held primarily consists of commercial
real estate mortgages. Since the conditions under which TCF is required to
fund standby letters of credit may not materialize, the cash requirements are
expected to be less than the total outstanding commitments. TCF's commitments
to the beneficiaries under its outstanding standby letters of credit at
December 31, 1998 were collateralized by $30.3 million of TCF's
mortgage-backed securities.
VA LOANS SERVICED WITH PARTIAL RECOURSE -- TCF services VA loans on which it
must cover any principal loss in excess of the VA's guarantee if the VA
elects its "no-bid" option upon the foreclosure of a loan. The serviced loans
are collateralized by residential real estate and totaled $273.2 million and
$335.9 million at December 31, 1998 and 1997, respectively.
FORWARD MORTGAGE LOAN SALES COMMITMENTS -- TCF enters into forward mortgage
loan sales commitments in order to manage the market exposure on its
residential loans held for sale and its commitments to extend credit for
residential loans. Forward mortgage loan sales commitments are contracts for
the delivery of mortgage loans or pools of loans in which TCF agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of the counterparties
to meet the terms of their contracts and from movements in mortgage loan
values and interest rates. Forward mortgage loan sales commitments totaled
$106.7 million and $81.6 million at December 31, 1998 and 1997, respectively.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
TCF is required to disclose the estimated fair value of financial
instruments, both assets and liabilities on and off the balance sheet, for
which it is practicable to estimate fair value. Fair value estimates are made
at a specific point in time, based on relevant market information and
information about the financial instruments. Fair value estimates are
subjective in nature, involving uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The carrying amounts of cash and due from banks, investments, accrued
interest payable and receivable, and due from brokers approximate their fair
values due to the short period of time until their expected realization.
Securities available for sale are carried at fair value, which is based on
quoted market prices. Certain financial instruments, including lease
financings and discounted lease rentals, and all non-financial instruments
are excluded from fair value of financial instrument disclosure requirements.
The following methods and assumptions are used by the Company in
estimating its fair value disclosures for its remaining financial
instruments, all of which are issued or held for purposes other than trading.
LOANS HELD FOR SALE -- The fair value of loans held for sale is estimated
based on quoted market prices.
The estimated fair value of capitalized mortgage servicing rights totaled
$27.8 million at December 31, 1998, compared with a carrying amount of $21.6
million. The estimated fair value of capitalized mortgage servicing rights is
based on estimated cash flows discounted using rates commensurate with the
risks involved. Assumptions regarding prepayments, defaults and interest
rates are determined using available market information.
LOANS -- The fair values of residential and consumer loans are estimated using
quoted market prices. For certain variable-rate loans that reprice frequently
and that have experienced no significant change in credit risk, fair values
are based on carrying values. The fair values of other loans are estimated by
discounting contractual cash flows adjusted for prepayment estimates, using
interest rates currently being offered for loans with similar terms to
borrowers with similar credit risk characteristics.
DEPOSITS -- The fair value of checking, passbook and statement and money
market deposits is deemed equal to the amount payable on demand. The fair
value of certificates is estimated based on discounted cash flow analyses
using interest rates offered by TCF for certificates of similar remaining
maturities.
BORROWINGS -- The carrying amounts of short-term borrowings approximate their
fair values. The fair values of TCF's long-term borrowings are estimated
based on quoted market prices or discounted cash flow analyses using interest
rates for borrowings of similar remaining maturities.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- The fair values of
residential commitments to extend credit and forward mortgage loan sales
commitments associated with residential loans held for sale are based upon
quoted market prices. The fair values of TCF's remaining commitments to
extend credit and standby letters of credit are estimated using fees
currently charged to enter into similar agreements. For fixed-rate loan
commitments and standby letters of credit issued in conjunction with
fixed-rate loan agreements, fair value also considers the difference between
current levels of interest rates and the committed rates.
48 TCF
<PAGE>
TCF has not incurred, and does not anticipate, significant losses as a
result of the recourse provisions associated with its balance of VA loans
serviced with partial recourse. As a result, the carrying amounts and related
estimated fair values of these financial instruments were not material at
December 31, 1998 and 1997.
As discussed above, the carrying amounts of certain of the Company's
financial instruments approximate their fair value. The carrying amounts
disclosed below are included in the Consolidated Financial Statements of
Financial Condition under the indicated captions, except where noted
otherwise. The carrying amounts and fair values of the Company's remaining
financial instruments are set forth in the following table:
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial instrument assets:
Loans held for sale ................................. $ 213,073 $ 215,909 $ 244,612 $ 248,341
Loans:
Residential real estate ........................... $3,765,280 $3,813,684 $3,623,845 $3,686,635
Commercial real estate ............................ 811,428 824,358 859,916 866,851
Commercial business ............................... 289,104 288,443 240,207 239,611
Consumer .......................................... 1,876,554 1,993,242 1,976,699 2,159,218
Allowance for loan losses(1) ...................... (76,024) -- (79,166) --
-----------------------------------------------------------
$6,666,342 $6,919,727 $6,621,501 $6,952,315
-----------------------------------------------------------
Financial instrument liabilities:
Certificates of deposit ............................. $2,958,588 $2,994,231 $3,605,663 $3,637,981
Federal Home Loan Bank advances ..................... 1,804,208 1,817,563 1,339,578 1,337,014
Other borrowings .................................... 105,874 106,471 46,534 47,878
Financial instruments with off-balance-sheet risk:(2)
Commitments to extend credit(3) .................... $ 3,085 $ (264) $ 3,463 $ (209)
Standby letters of credit(4) ....................... -- (21) (17) (58)
Forward mortgage loan sales commitments(3) ......... 87 113 56 (326)
-----------------------------------------------------------
Total off-balance-sheet financial instruments .... $ 3,172 $ (172) $ 3,502 $ (593)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes the allowance for lease losses.
(2) Positive amounts represent assets, negative amounts represent liabilities.
(3) Carrying amounts are included in other assets.
(4) Carrying amounts are included in accrued expenses and other liabilities.
17. STOCK OPTION AND INCENTIVE PLAN
The TCF Financial 1995 Incentive Stock Program (the "Program") was adopted to
enable TCF to attract and retain key personnel. Under the program, no more
than 5% of the shares of TCF common stock outstanding on the date of initial
shareholder approval may be awarded. Options generally become exercisable
over a period of one to 10 years from the date of the grant and expire after
10 years. All outstanding options have a fixed exercise price equal to the
market price of TCF common stock on the date of grant. Restricted stock
granted in 1998 generally vests within five years, but may be subject to a
delayed vesting schedule if certain return on equity goals are not met. Other
restricted stock grants generally vest over periods from three to eight years.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- TCF has elected to retain the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," for its stock-based employee
compensation plans. Accordingly, no compensation expense has been recognized
for TCF's stock option grants. Compensation expense for restricted stock
under APB Opinion No. 25 is recorded over the vesting periods, and totaled
$5.9 million, $8.3 million and $7.9 million in 1998, 1997 and 1996,
respectively.
TCF 49
<PAGE>
Had compensation expense been determined based on the fair value at the
grant dates for awards under the Program consistent with the method of SFAS
No. 123, "Accounting for Stock-Based Compensation," TCF's pro forma net
income and earnings per common share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported........................................... $156,179 $145,061 $100,377
----------------------------------------------
Pro forma............................................. $156,271 $146,155 $100,553
----------------------------------------------
Basic earnings per common share:
As reported........................................... $ 1.77 $ 1.72 $ 1.23
----------------------------------------------
Pro forma............................................. $ 1.77 $ 1.73 $ 1.23
----------------------------------------------
Diluted earnings per common share:
As reported........................................... $ 1.76 $ 1.69 $ 1.20
----------------------------------------------
Pro forma............................................. $ 1.76 $ 1.70 $ 1.20
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Since the pro forma disclosures of results under SFAS No. 123 are only
required to consider grants awarded since 1995, the pro forma effects of
applying SFAS No. 123 during this period may not be representative of the
effects on reported results for future years.
The fair value of each option grant is estimated on the grant date using
the Black-Scholes option pricing model, with the following weighted-average
assumptions used for 1998, 1997 and 1996, respectively: risk-free interest
rates of 4.78%, 5.95% and 6.50%; dividend yield of 2.6%, 1.7% and 2.1%;
expected lives of 5.25, 10 and 5 years; and volatility of 27.2%, 26.4% and
19.6%.
The weighted-average grant-date fair value of options granted was $6.49,
$11.98 and $3.32 in 1998, 1997 and 1996, respectively. The weighted-average
grant-date fair value of restricted stock was $31.19, $22.23 and $16.75 in
1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
STOCK OPTIONS RESTRICTED STOCK
---------------------------------------------------------------------------------------
EXERCISE PRICE
-------------------------------
WEIGHTED-
SHARES RANGE AVERAGE SHARES PRICE RANGE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,
1995........................... 1,532,619 $ 1.94-11.43 $ 4.33 1,328,864 $ 7.66-14.83
Granted...................... 108,722 11.19-17.54 13.59 72,800 16.56-18.91
Exercised.................... (691,941) 1.94- 9.28 3.32 -- --
Expired...................... (832) 3.00 3.00 -- --
Forfeited.................... (5,600) 5.33- 9.28 8.15 (42,400) 8.10- 9.89
Vested....................... -- -- -- (167,398) 7.66-16.56
--------- ---------
Outstanding at December 31,
1996........................... 942,968 2.22-17.54 6.12 1,191,866 7.66-18.91
Granted...................... 123,032 20.40-33.28 31.66 929,200 20.88-27.34
Exercised.................... (224,955) 2.22-17.54 7.06 -- --
Forfeited.................... (4,000) 7.74 7.74 -- --
Vested....................... -- -- -- (172,138) 8.10- 9.89
--------- ---------
Outstanding at December 31,
1997.......................... 837,045 2.22-33.28 9.61 1,948,928 7.66-27.34
Granted...................... 551,500 23.69-32.19 25.04 108,200 28.97-34.00
Exercised.................... (208,388) 2.44-17.54 4.69 -- --
Forfeited.................... (1,500) 32.19 32.19 (5,400) 16.56-34.00
Vested....................... -- -- -- (607,994) 7.66-21.91
--------- ---------
OUTSTANDING AT DECEMBER 31,
1998........................... 1,178,657 2.22-33.28 17.67 1,443,734 7.66-34.00
--------- ---------
EXERCISABLE AT DECEMBER 31,
1998........................... 517,157 2.22-20.40 6.68
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
50 TCF
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
EXERCISE PRICE RANGE SHARES PRICE LIFE IN YEARS SHARES PRICE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.22 to $5.00.................. 224,637 $ 3.38 3.1 224,637 $ 3.38
$5.01 to $10.00................. 188,796 6.77 4.6 184,796 6.72
$10.01 to $15.00................ 77,660 11.33 6.9 77,660 11.33
$15.01 to $33.28................ 687,564 26.05 9.6 30,064 19.02
---------- --------
Total Options................. 1,178,657 17.67 7.4 517,157 6.68
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, there were 2,179,073 shares reserved for issuance
under the Program, including 1,178,657 shares for which options had been granted
but had not yet been exercised.
18. EMPLOYEE BENEFIT PLANS
The TCF Cash Balance Pension Plan (the "Pension Plan") is a defined benefit
qualified plan covering all "regular stated salary" employees and certain
part-time employees who are at least 21 years old and have completed a year of
eligibility service with TCF. TCF makes a monthly allocation to the
participant's account based on a percentage of the participant's compensation.
The percentage is based on the sum of the participant's age and years of
employment with TCF. Participants are fully vested after five years of vesting
service.
In addition to providing retirement income benefits, TCF provides health
care benefits for eligible retired employees, and in some cases life insurance
benefits (the "Postretirement Plan"). Substantially all full-time employees may
become eligible for health care benefits if they reach retirement age and have
completed 10 years of service with the Company, with certain exceptions. These
and similar benefits for active employees are provided through insurance
companies or through self-funded programs. The Postretirement Plan is an
unfunded plan.
The following tables set forth the status of the Pension Plan and the
Postretirement Plan at the dates indicated:
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT PLAN
----------------------- ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------
(IN THOUSANDS) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ................................ $ 17,027 $ 13,551 $ 8,603 $ 7,871
Service cost -- benefits earned during the year ......................... 2,967 2,091 299 236
Interest cost on benefit obligation .................................... 1,454 1,207 641 604
Acquisition/merger ..................................................... 5,006 -- -- --
Actuarial loss ......................................................... 3,647 1,151 358 573
Benefits paid .......................................................... (1,134) (973) (687) (681)
-------- -------- -------- --------
Benefit obligation at end of year .................................... 28,967 17,027 9,214 8,603
-------- -------- -------- --------
Change in fair value of plan assets:
Fair value of plan assets at beginning of year ......................... 53,374 38,657 -- --
Actual return on plan assets ........................................... 916 13,365 -- --
Benefits paid .......................................................... (1,134) (973) (687) (681)
Acquisition/merger ..................................................... 4,182 2,325 -- --
Employer contributions ................................................. -- -- 687 681
-------- -------- -------- --------
Fair value of plan assets at end of year .............................. 57,338 53,374 -- --
-------- -------- -------- --------
Funded status of plans:
Funded status at end of year ........................................... 28,371 36,347 (9,214) (8,603)
Unrecognized transition obligation ..................................... -- -- 4,775 5,117
Unrecognized prior service cost ........................................ (5,040) (4,782) 879 988
Unrecognized net gain .................................................. (7,901) (17,063) (1,079) (1,495)
-------- -------- -------- --------
Prepaid (accrued) benefit cost at end of year ........................ $ 15,430 $ 14,502 $ (4,639) $ (3,993)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
TCF 51
<PAGE>
Net periodic benefit cost (credit) included the following components:
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT PLAN
---------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------------
(IN THOUSANDS) 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost .......................... $ 2,967 $ 2,091 $ 2,107 $ 299 $ 236 $ 177
Interest cost ......................... 1,454 1,207 945 641 604 778
Expected return on plan assets ........ (3,745) (2,841) (2,536) -- -- --
Amortization of transition obligation.. -- -- -- 342 342 342
Amortization of prior service cost .... (876) (742) (742) 109 109 109
Recognized actuarial gain ............. (728) -- -- (58) (116) --
------- ------- ------- ------- ------- -------
Net periodic benefit cost (credit)... $ (928) $ (285) $ (226) $ 1,333 $ 1,175 $ 1,406
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The discount rate and rate of increase in future compensation used to
measure the benefit obligation and the expected long-term rate of return on plan
assets were as follows:
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT PLAN
-------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate......................................... 6.75% 7.75% 8.00% 6.75% 7.75% 8.00%
Rate of increase in future compensation............... 5.00 5.00 5.00 -- -- --
Expected long-term rate of return on plan assets...... 9.50 9.50 9.50 -- -- --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Pension Plan's assets consist primarily of listed stocks and government
bonds. At December 31, 1998 and 1997, the Plan's assets included TCF common
stock with a market value of $7.3 million and $12.2 million, respectively.
For active participants of the Postretirement Plan, an 8% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
1999. This rate is assumed to decrease gradually to 6% for the year 2004 and
remain at that level thereafter. For most retired participants, the annual rate
of increase is assumed to be 4% for all future years, which represents the
Plan's annual limit on increases in TCF's contributions for retirees.
Assumed health care cost trend rates have an effect on the amounts reported
for the Postretirement Plan. A one-percentage point change in assumed health
care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
(IN THOUSANDS) POINT INCREASE POINT DECREASE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 65 $ (55)
Effect on postretirement benefit obligation 416 (358)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN -- The TCF Employees Stock Purchase Plan
generally allows participants to make contributions by salary deduction of up to
12% of their salary on a tax-deferred basis pursuant to section 401(k) of the
IRC. TCF matches the contributions of all employees at the rate of 50 cents per
dollar, with a maximum employer contribution of 3% of the employee's salary.
Employee contributions vest immediately while the Company's matching
contributions are subject to a graduated vesting schedule based on an employee's
years of vesting service. The Company's matching contributions are expensed when
made. TCF's contribution to the plan was $2.7 million, $2.2 million and $1.8
million in 1998, 1997 and 1996, respectively.
52 TCF
<PAGE>
19. PARENT COMPANY FINANCIAL INFORMATION
TCF Financial Corporation's (parent company only) condensed statements of
financial condition as of December 31, 1998 and 1997, and the condensed
statements of operations and cash flows for the years ended December 31, 1998,
1997 and 1996 are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash........................................................................ $ 178 $ 16
Interest-bearing deposits with banks........................................ 2,401 19,821
Investment in subsidiaries:
Bank subsidiaries......................................................... 879,887 895,527
Other subsidiaries........................................................ 586 586
Premises and equipment...................................................... 8,009 6,330
Other assets................................................................ 41,656 42,884
-------- ----------
$932,717 $965,164
-------- ----------
Liabilities and Stockholders' Equity:
Bank line of credit......................................................... $ 74,000 $ --
Other liabilities........................................................... 13,215 11,484
-------- ----------
Total liabilities........................................................ 87,215 11,484
Stockholders' equity......................................................... 845,502 953,680
-------- ----------
$932,717 $965,164
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
(IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income .................................. $ 581 $ 1,099 $ 352
Interest expense ................................. 2,219 758 923
--------- --------- ---------
Net interest income (expense) ................ (1,638) 341 (571)
Provision for credit losses ...................... (49) 679 --
--------- --------- ---------
Net interest expense after provision
for credit losses .......................... (1,589) (338) (571)
--------- --------- ---------
Cash dividends received from consolidated
subsidiaries:
Bank subsidiaries ............................ 184,569 109,791 103,500
Other subsidiaries ........................... -- 1,549 4,102
--------- --------- ---------
Total cash dividends received from
consolidated subsidiaries ............... 184,569 111,340 107,602
--------- --------- ---------
Other non-interest income:
Affiliate service fee revenues ............... 72,483 53,671 44,022
Other ........................................ 35 (4) 7
--------- --------- ---------
Total other non-interest income ............ 72,518 53,667 44,029
--------- --------- ---------
Non-interest expense:
Compensation and employee benefits ........... 41,379 42,828 34,174
Occupancy and equipment ...................... 14,672 12,217 10,958
Other ........................................ 19,294 17,813 16,067
--------- --------- ---------
Total non-interest expense ................. 75,345 72,858 61,199
--------- --------- ---------
Income before income tax benefit and equity
in undistributed earnings of subsidiaries .. 180,153 91,811 89,861
Income tax benefit ............................... 1,588 7,518 6,879
--------- --------- ---------
Income before equity in undistributed earnings
of subsidiaries ............................ 181,741 99,329 96,740
Equity in undistributed earnings of subsidiaries . (25,562) 45,732 3,637
--------- --------- ---------
Net income ....................................... $ 156,179 $ 145,061 $ 100,377
--------- --------- ----------
</TABLE>
TCF 53
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................................ $ 156,179 $145,061 $100,377
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries.................................... 25,562 (45,732) (3,637)
Other, net.......................................................................... 1,802 8,625 5,799
--------------------------------------
Total adjustments................................................................ 27,364 (37,107) 2,162
--------------------------------------
Net cash provided by operating activities.......................................... 183,543 107,954 102,539
--------------------------------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits with banks....................... 17,420 (14,383) 6,273
Investments in and advances to subsidiaries, net...................................... -- (66,265) (117)
Loan to Executive Deferred Compensation Plan, net..................................... (6,111) 68 63
Purchases of premises and equipment, net.............................................. (4,174) (3,913) (2,678)
Other, net............................................................................ 765 1,201 (1,049)
--------------------------------------
Net cash provided (used) by investing activities................................... 7,900 (83,292) 2,492
--------------------------------------
Cash flows from financing activities:
Dividends paid on common stock........................................................ (54,971) (37,341) (25,279)
Proceeds from issuance of common stock, net........................................... -- 29,266 --
Proceeds from conversion of convertible debentures.................................... -- 7,149 123
Purchases of common stock to be held in treasury...................................... (210,939) (27,318) (41,382)
Net increase (decrease) in bank line of credit........................................ 74,000 -- (40,000)
Other, net............................................................................ 629 3,481 1,554
--------------------------------------
Net cash used by financing activities.............................................. (191,281) (24,763) (104,984)
--------------------------------------
Net increase (decrease) in cash......................................................... 162 (101) 47
Cash at beginning of year............................................................... 16 117 70
--------------------------------------
Cash at end of year..................................................................... $ 178 $ 16 $ 117
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20. BUSINESS SEGMENTS
TCF's wholly owned bank subsidiaries, TCF Minnesota, TCF Illinois, TCF
Wisconsin, and Great Lakes Michigan (collectively "the banks"), have been
identified as reportable operating segments in accordance with the provisions of
SFAS No. 131. The banks have the following operating units that provide
financial services to customers: deposits and investment products, commercial
lending, consumer lending, lease financing, mortgage banking and residential
lending, and investments and mortgage-backed securities. In addition, TCF
operates a bank holding company ("parent company") that provides data
processing, bank operations and other professional services to the banks. The
results of the parent company and TCF Colorado, a wholly owned bank subsidiary
of TCF, comprise the "other" category in the tables below.
TCF evaluates performance and allocates resources based on the banks' net
income, net interest margin, return on average assets and return on average
realized common equity. The banks follow generally accepted accounting
principles as described in the Summary of Significant Accounting Policies. TCF
generally accounts for intersegment sales and transfers at cost. Certain asset
sales between the banks were accounted for at current market prices, resulting
in intercompany profit.
Each bank is managed separately with its own president, who reports directly
to TCF's chief operating decision maker, and board of directors.
TCF 54
<PAGE>
The following table sets forth certain information about the reported profit
or loss and assets for each of TCF's reportable segments, including
reconciliations to TCF's consolidated totals:
<TABLE>
<CAPTION>
GREAT
TCF TCF TCF LAKES
(DOLLARS IN THOUSANDS) MINNESOTA ILLINOIS WISCONSIN MICHIGAN
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At or For the Year Ended December 31, 1998:
Interest income -- external customers........ $ 323,056 $ 206,139 $ 45,094 $ 173,045
Non-interest income -- external customers.... 169,431 69,589 17,794 31,954
Intersegment interest income................. 615 1,207 274 (22)
Intersegment non-interest income............. 6,365 96 51 170
Interest expense............................. 114,736 103,795 18,525 87,532
Amortization of goodwill and other
intangibles.............................. 1,165 10,204 30 --
Income tax expense (benefit)................. 63,988 22,418 4,934 20,245
Net income (loss)............................ 89,977 25,512 8,289 37,681
Total assets................................. 3,798,433 3,400,172 619,201 2,350,532
Net interest margin.......................... 6.37% 3.61% 4.92% 4.01%
Return on average assets..................... 2.50 .79 1.39 1.70
Return on average realized common equity..... 32.72 6.54 17.52 21.13
At or For the Year Ended December 31, 1997:
Interest income -- external customers........ $ 341,337 $ 121,332 $ 46,536 $ 173,058
Non-interest income -- external customers... 151,410 26,834 13,124 34,690
Intersegment interest income................. 47 980 (266) (1,094)
Intersegment non-interest income............. 6,831 74 27 66
Interest expense............................. 127,576 55,523 20,751 87,344
Amortization of goodwill and other
intangibles.............................. 1,435 4,484 30 9,808
Income tax expense (benefit)................. 64,476 16,360 4,667 17,449
Net income (loss)............................ 93,475 22,630 7,216 32,967
Total assets................................. 3,687,023 3,334,399 613,485 2,214,651
Net interest margin.......................... 6.32% 4.29% 4.51% 4.03%
Return on average assets..................... 2.54 1.30 1.18 1.51
Return on average realized common equity..... 32.50 12.08 15.22 17.65
At or For the Year Ended December 31, 1996:
Interest income -- external customers........ $ 331,955 $ 56,641 $ 44,215 $ 179,937
Non-interest income -- external customers.... 126,679 18,269 16,238 20,419
Intersegment interest income................. 168 (721) (270) (717)
Intersegment non-interest income............. 6,101 59 936 175
Interest expense............................. 121,957 20,860 21,057 94,317
FDIC special assessment...................... 16,111 4,030 3,347 11,315
Amortization of goodwill and other
intangibles.............................. 1,465 567 30 1,478
Income tax expense (benefit)................. 45,146 5,470 3,650 10,719
Net income (loss)............................ 71,086 8,876 6,315 20,349
Total assets................................. 3,982,712 683,764 620,233 2,167,447
Net interest margin.......................... 6.33 5.51% 4.07% 3.82%
Return on average assets..................... 1.97 1.29 1.04 .88
Return on average realized common equity..... 22.99 15.60 14.07 11.06
<CAPTION>
TOTAL
REPORTABLE CONSOLIDATED
(DOLLARS IN THOUSANDS) SEGMENTS OTHER ELIMINATIONS TOTAL
- ------------------------------------------------ ----------------------------------------------------------------
<S> <C> <C> <C> <C>
At or For the Year Ended December 31, 1998:
Interest income -- external customers........ $ 747,334 $ 1,560 $ -- $ 748,894
Non-interest income -- external customer..... 288,768 2,727 -- 291,495
Intersegment interest income................. 2,074 405 (2,479) --
Intersegment non-interest income............. 6,682 72,483 (79,165) --
Interest expense............................. 324,588 2,870 (4,298) 323,160
Amortization of goodwill and other
intangibles.............................. 11,399 -- -- 11,399
Income tax expense (benefit)................. 111,585 (2,515) -- 109,070
Net income (loss)............................ 161,459 (4,173) (1,107) 156,179
Total assets................................. 10,168,338 86,769 (90,513) 10,164,594
Net interest margin.......................... N.M. N.M. N.M. 4.84%
Return on average assets..................... N.M. N.M. N.M. 1.62
Return on average realized common equity..... N.M. N.M. N.M. 17.51
At or For the Year Ended December 31, 1997:
Interest income -- external customers........ $ 682,263 $ 351 $ -- $ 682,614
Non-interest income -- external customers... 226,058 610 -- 226,668
Intersegment interest income................. (333) 997 (664) --
Intersegment non-interest income............. 6,998 55,983 (62,981) --
Interest expense............................. 291,194 834 (3,010) 289,018
Amortization of goodwill and other
intangibles.............................. 15,757 -- -- 15,757
Income tax expense (benefit)................. 102,952 (7,106) -- 95,846
Net income (loss)............................ 156,288 (11,633) 406 145,061
Total assets................................. 9,849,558 84,079 (188,977) 9,744,660
Net interest margin.......................... N.M. N.M. N.M. 5.20%
Return on average assets..................... N.M. N.M. N.M. 1.77
Return on average realized common equity..... N.M. N.M. N.M. 19.57
At or For the Year Ended December 31, 1996:
Interest income -- external customers........ $ 612,748 $ 136 $ -- $ 612,884
Non-interest income -- external customers.... 181,605 7 -- 181,612
Intersegment interest income................. (1,540) 216 1,324 --
Intersegment non-interest income............. 7,271 51,442 (58,713) --
Interest expense............................. 258,191 923 (798) 258,316
FDIC special assessment...................... 34,803 -- -- 34,803
Amortization of goodwill and other
intangibles.............................. 3,540 -- -- 3,540
Income tax expense (benefit)................. 64,985 (3,954) -- 61,031
Net income (loss)............................ 106,626 (6,714) 465 100,377
Total assets................................. 7,454,156 28,919 (52,588) 7,430,487
Net interest margin.......................... N.M. N.M. N.M. 5.27%
Return on average assets..................... N.M. N.M. N.M. 1.39
Return on average realized common equity..... N.M. N.M. N.M. 16.77
- ---------------------------------------------------------------------------------------------------------------------
N.M. Not meaningful.
</TABLE>
TCF 55
<PAGE>
Revenues from external customers, comprised of total interest income and
non-interest income, for TCF's operating units are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits and investment products................................ $ 194,948 $143,714 $106,091
Commercial lending.............................................. 99,383 98,090 100,646
Consumer lending................................................ 236,538 241,390 226,125
Lease financing................................................. 80,201 72,610 53,838
Mortgage banking and residential lending........................ 322,014 244,078 228,405
Investments and mortgage-backed securities...................... 107,305 109,400 79,391
---------- -------- --------
$1,040,389 $909,282 $794,496
- -------------------------------------------------------------------------------------------------------------
</TABLE>
21. OTHER EXPENSE
Other expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposit account losses............................................ $ 14,335 $ 4,738 $ 3,455
Telecommunication................................................. 13,049 9,398 8,384
Office supplies................................................... 10,006 8,349 7,173
Postage and courier............................................... 9,926 9,012 7,857
ATM interchange................................................... 9,107 7,005 6,670
Loan and lease.................................................... 6,917 5,751 7,403
Mortgage servicing amortization and valuation adjustments......... 6,815 4,853 4,748
Other............................................................. 33,439 33,819 30,748
-------- ------- -------
$103,594 $82,925 $76,438
- ------------------------------------------------------------------------------------------------------------
</TABLE>
22. FEDERAL DEPOSIT INSURANCE CORPORATION SPECIAL ASSESSMENT
Federal legislation enacted on September 30, 1996 addressed inadequate
funding of the Savings Association Insurance Fund ("SAIF"), which had resulted
in a large deposit insurance premium disparity between banks insured by the Bank
Insurance Fund ("BIF") and SAIF-insured thrifts. As a result of this
legislation, a one-time special assessment was imposed on thrift institutions,
and TCF recognized a $34.8 million pretax charge for assessments imposed on its
bank subsidiaries. The legislation also provided for a reduction in deposit
insurance premiums in subsequent periods and other regulatory reforms.
23. LITIGATION AND CONTINGENT LIABILITIES
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 of damages. Some
financial services companies have recently been subjected to significant
exposure in connection with class actions and/or suits seeking punitive damages.
While the Company is not aware of any actions or allegations which should
reasonably give rise to any material adverse effect, it is possible that the
Company could be subjected to such a claim in an amount which could be material.
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.
56 TCF
<PAGE>
INDEPENDENT AUDITOR'S REPORT
[LOGO]
To the Board of Directors and Stockholders
of TCF Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of TCF Financial Corporation and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TCF
Financial Corporation and Subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 19, 1999
TCF 57
<PAGE>
OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA) AT DECEMBER 31, 1998 AT SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.......................................... $10,164,594 $9,900,439
Investments........................................... 277,715 135,491
Securities available for sale......................... 1,677,919 1,673,722
Loans and leases...................................... 7,141,178 7,092,639
Deposits.............................................. 6,715,146 6,733,368
Borrowings............................................ 2,461,046 2,159,948
Stockholders' equity.................................. 845,502 869,426
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED OPERATIONS DATA:
Interest income................................................... $185,286 $185,229
Interest expense.................................................. 80,625 80,605
-----------------------------------
Net interest income............................................ 104,661 104,624
Provision for credit losses....................................... 9,761 4,544
-----------------------------------
Net interest income after
provision for credit losses................................ 94,900 100,080
-----------------------------------
Non-interest income:
Gain (loss) on sale of securities available for sale........... -- (43)
Gain on sale of loan servicing................................. -- 2,414
Gain on sale of branches....................................... 12,051 226
Gain on sale of joint venture interest......................... -- --
Other non-interest income...................................... 70,066 71,263
-----------------------------------
Total non-interest income.................................. 82,117 73,860
-----------------------------------
Non-interest expense:
Amortization of goodwill and other
intangibles.................................................. 2,829 2,828
Other non-interest expense..................................... 107,096 109,054
-----------------------------------
Total non-interest expense................................. 109,925 111,882
-----------------------------------
Income before income tax expense............................... 67,092 62,058
Income tax expense................................................ 27,588 25,477
-----------------------------------
Net income..................................................... $ 39,504 $ 36,581
-----------------------------------
Per common share:
Basic earnings................................................. $ .47 $ .42
-----------------------------------
Diluted earnings............................................... $ .46 $ .42
-----------------------------------
Diluted cash earnings (1)...................................... $ .49 $ .44
-----------------------------------
Dividends declared............................................. $ .1625 $ .1625
-----------------------------------
FINANCIAL RATIOS (2):
Return on average assets.......................................... 1.60% 1.54%
Cash return on average assets (1)................................. 1.70 1.64
Return on average realized common equity.......................... 18.77 16.75
Return on average common equity................................... 18.56 16.58
Cash return on average tangible equity (1)........................ 25.18 22.48
Average total equity to average assets............................ 8.63 9.28
Net interest margin (3)........................................... 4.65 4.82
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes amortization and reduction of goodwill and deposit base
intangibles.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
58 TCF
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1998 AT MARCH 31, 1998 AT DECEMBER 31, 1997 AT SEPTEMBER 30, 1997 AT JUNE 30, 1997 AT MARCH 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9,393,060 $9,664,849 $9,744,660 $9,796,154 $7,403,760 $7,317,584
122,888 246,364 129,612 130,261 82,098 60,458
1,122,490 1,306,853 1,426,131 1,628,126 1,181,126 1,242,457
7,103,686 7,036,646 7,069,188 7,052,032 5,382,356 5,354,941
6,741,288 6,925,024 6,907,310 6,976,687 5,243,574 5,291,894
1,617,240 1,631,021 1,727,152 1,754,445 1,349,369 1,273,411
906,485 948,070 953,680 919,952 701,063 626,716
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1998 MARCH 31, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 1997 JUNE 30, 1997 MARCH 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$186,903 $191,476 $198,739 $173,253 $157,242 $153,380
79,606 82,324 87,725 73,399 64,605 63,289
- ----------------------------------------------------------------------------------------------------------------------------------
107,297 109,152 111,014 99,854 92,637 90,091
2,991 5,984 5,909 6,391 4,147 1,548
- ----------------------------------------------------------------------------------------------------------------------------------
104,306 103,168 105,105 93,463 88,490 88,543
- ----------------------------------------------------------------------------------------------------------------------------------
1,787 502 3,179 2,852 1,093 1,385
-- -- -- -- -- 1,622
4,260 2,048 742 10,635 2,810 --
-- 5,580 -- -- -- --
63,531 57,810 55,634 53,917 49,051 43,748
- ----------------------------------------------------------------------------------------------------------------------------------
69,578 65,940 59,555 67,404 52,954 46,755
- ----------------------------------------------------------------------------------------------------------------------------------
2,826 2,916 2,844 10,559 1,161 1,193
102,748 98,403 95,032 87,744 82,932 79,897
- ----------------------------------------------------------------------------------------------------------------------------------
105,574 101,319 97,876 98,303 84,093 81,090
- ----------------------------------------------------------------------------------------------------------------------------------
68,310 67,789 66,784 62,564 57,351 54,208
28,110 27,895 26,895 25,354 22,416 21,181
- ----------------------------------------------------------------------------------------------------------------------------------
$ 40,200 $ 39,894 $ 39,889 $ 37,210 $ 34,935 $ 33,027
- ----------------------------------------------------------------------------------------------------------------------------------
$ .45 $ .44 $ .44 $ .44 $ .43 $ .41
- ----------------------------------------------------------------------------------------------------------------------------------
$ .45 $ .43 $ .43 $ .43 $ .42 $ .40
- ----------------------------------------------------------------------------------------------------------------------------------
$ .48 $ .49 $ .46 $ .51 $ .43 $ .41
- ----------------------------------------------------------------------------------------------------------------------------------
$ .1625 $ .125 $ .125 $ .125 $ .125 $ .09375
- ----------------------------------------------------------------------------------------------------------------------------------
1.69% 1.66% 1.63% 1.80% 1.90% 1.82%
1.84 1.86 1.73 2.13 1.95 1.87
17.52 16.99 17.28 19.37 21.35 21.26
17.37 16.83 17.10 19.20 21.37 21.26
23.73 23.78 23.09 25.94 23.48 23.35
9.75 9.83 9.53 9.38 8.91 8.56
4.94 4.94 4.93 5.24 5.41 5.31
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TCF 59
<PAGE>
OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF OPERATIONS
Interest income............................................ $748,894 $682,614 $612,884 $631,198 $568,864
Interest expense........................................... 323,160 289,018 258,316 302,106 283,421
----------------------------------------------------------------------
Net interest income..................................... 425,734 393,596 354,568 329,092 285,443
Provision for credit losses................................ 23,280 17,995 21,446 16,973(1) 10,911
----------------------------------------------------------------------
Net interest income after provision for credit losses... 402,454 375,601 333,122 312,119 274,532
Loss on sale of mortgage-backed securities................. -- -- -- (21,037) --
Gain (loss) on sale of securities available for sale....... 2,246 8,509 86 (152) 981
Gain on sale of loan servicing............................. 2,414 1,622 -- 1,535 2,353
Gain on sale of branches................................... 18,585 14,187 2,747 1,103 --
Gain on sale of joint venture interest..................... 5,580 -- -- -- --
Gain on sale of loans...................................... -- -- 5,443 -- --
Other non-interest income.................................. 262,670 202,350 173,336 151,104 139,981
Amortization of goodwill and other intangibles............. 11,399 15,757 3,540 3,163 3,282
FDIC special assessment.................................... -- -- 34,803 -- --
Merger-related expenses.................................... -- -- -- 21,733 --
Cancellation cost on early termination
of interest-rate exchange contracts.................... -- -- -- 4,423 --
Other non-interest expense................................. 417,301 345,605 314,983 296,664 282,378
----------------------------------------------------------------------
Income before income tax expense and extraordinary item. 265,249 240,907 161,408 118,689 132,187
Income tax expense......................................... 109,070 95,846 61,031 45,482 52,643
----------------------------------------------------------------------
Income before extraordinary item........................ 156,179 145,061 100,377 73,207 79,544
Extraordinary item, net.................................... -- -- -- (963) --
----------------------------------------------------------------------
Net income.............................................. 156,179 145,061 100,377 72,244 79,544
Dividends on preferred stock............................... -- -- -- 678 2,710
----------------------------------------------------------------------
Net income available to common shareholders....... $156,179 $145,061 $100,377 $ 71,566 $ 76,834
----------------------------------------------------------------------
Basic earnings per common share:
Income before extraordinary item........................ $ 1.77 $ 1.72 $ 1.23 $ .89 $ .98
Extraordinary item...................................... -- -- -- (.01) -
----------------------------------------------------------------------
Net income.............................................. $ 1.77 $ 1.72 $ 1.23 $ .88 $ .98
----------------------------------------------------------------------
Diluted earnings per common share:
Income before extraordinary item........................ $ 1.76 $ 1.69 $ 1.20 $ .87 $ .94
Extraordinary item...................................... -- -- -- (.01) -
----------------------------------------------------------------------
Net income.............................................. $ 1.76 $ 1.69 $ 1.20 $ .86 $ .94
----------------------------------------------------------------------
Dividends declared per common share........................ $ .6125 $ .46875 $.359375 $.296875 $ .25
----------------------------------------------------------------------
Average common and common equivalent shares outstanding:
Basic................................................... 88,093 84,478 81,904 81,115 78,419
-----------------------------------------------------------------------
Diluted................................................. 88,916 86,134 83,939 83,560 81,803
----------------------------------------------------------------------
</TABLE>
(1) Includes $5,000 in merger-related provisions.
<TABLE>
<CAPTION>
AT DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF FINANCIAL CONDITION
Total assets......................................... $10,164,594 $9,744,660 $7,430,487 $7,507,856 $8,072,299
Interest-bearing deposits with banks................. 115,894 20,572 386,224 11,594 202,084
Federal funds sold................................... 41,000 -- -- -- 6,900
Other investments.................................... 4,227 4,061 3,910 3,716 3,528
Federal Reserve Bank stock, at cost.................. 23,112 22,977 -- -- --
Federal Home Loan Bank stock, at cost................ 93,482 82,002 66,061 60,096 78,925
Securities available for sale........................ 1,677,919 1,426,131 999,586 1,201,525 138,742
Loans held for sale.................................. 213,073 244,612 203,869 242,413 201,511
Mortgage-backed securities held to maturity.......... -- -- -- -- 1,601,200
Loans and leases..................................... 7,141,178 7,069,188 5,292,920 5,516,348 5,312,760
Goodwill............................................. 166,645 177,700 15,431 11,569 13,355
Deposit base intangibles............................. 16,238 19,821 10,843 12,918 14,662
Deposits............................................. 6,715,146 6,907,310 4,977,630 5,191,552 5,399,718
Federal Home Loan Bank advances...................... 1,804,208 1,339,578 1,141,040 893,587 1,354,663
Other borrowings..................................... 656,838 387,574 567,132 726,314 684,125
Stockholders' equity................................. 845,502 953,680 630,687 582,399 520,786
Tangible net worth................................... 662,619 756,159 604,413 557,912 492,769
Book value per common share.......................... 9.88 10.27 7.61 6.98 6.24
Tangible book value per common share................. 7.74 8.15 7.29 6.69 5.89
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
60 TCF
<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED) AT OR FOR THE YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEY RATIOS AND OTHER DATA:
Net interest margin.................................. 4.84% 5.20% 5.27% 4.61% 3.95%
Return on average assets............................. 1.62 1.77 1.39 .95 1.03
Return on average realized common equity............. 17.51 19.57 16.77 13.69 16.55
Average total equity to average assets............... 9.35 9.12 8.31 7.04 6.33
Average interest-earning assets to
average interest-bearing liabilities.............. 116.55 117.15 115.29 111.30 108.35
Common dividend payout ratio......................... 34.80% 27.74% 29.95% 34.52% 26.60%
Number of full service bank offices.................. 311 221 196 185 177
- ----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN AND LEASE LOSS INFORMATION YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year........................ $ 82,583 $ 71,865 $ 66,290 $ 56,343 $ 54,444
Acquired balance.................................... -- 10,592 -- -- --
Charge-offs:
Residential real estate.......................... (291) (444) (333) (472) (1,070)
Commercial real estate........................... (1,294) (927) (1,944) (4,189) (8,039)
Commercial business.............................. (42) (1,485) (2,786) (1,695) (2,804)
Consumer......................................... (30,108) (21,660) (18,317) (8,414) (4,081)
Lease financing.................................. (979) (2,297) (914) (247) (109)
---------------------------------------------------------------------
(32,714) (26,813) (24,294) (15,017) (16,103)
---------------------------------------------------------------------
Recoveries:
Residential real estate.......................... 103 167 131 157 222
Commercial real estate........................... 559 2,530 3,690 1,080 2,475
Commercial business.............................. 635 2,488 2,675 4,862 3,132
Consumer......................................... 5,222 3,141 1,918 1,892 1,262
Lease financing.................................. 345 618 9 -- --
---------------------------------------------------------------------
6,864 8,944 8,423 7,991 7,091
---------------------------------------------------------------------
Net charge-offs (25,850) (17,869) (15,871) (7,026) (9,012)
Provision charged to operations..................... 23,280 17,995 21,446 16,973 10,911
---------------------------------------------------------------------
Balance at end of year.............................. $ 80,013 $ 82,583 $ 71,865 $ 66,290 $ 56,343
---------------------------------------------------------------------
Ratio of net loan and lease charge-offs to average
loans and leases outstanding..................... .36% .30% .29% .13% .18%
Year-end allowance as a percentage of year-end
total loan and lease balances.................... 1.12 1.17 1.36 1.20 1.06
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONTRACTUAL AMORTIZATION OF
LOAN AND LEASE PORTFOLIOS AT DECEMBER 31, 1998 (1)
- --------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL COMMERCIAL COMMERCIAL LEASE TOTAL LOANS
(IN THOUSANDS) REAL ESTATE REAL ESTATE BUSINESS CONSUMER FINANCING AND LEASES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year.................... $ 137,690 $ 120,808 $ 171,513 $ 194,399 $ 206,647 $ 831,057
After 1 year:
1 to 2 years.................. 148,766 82,218 51,029 183,158 140,521 605,692
2 to 3 years.................. 140,473 74,137 23,188 156,871 69,620 464,289
3 to 5 years.................. 279,751 147,447 31,318 258,404 25,314 742,234
5 to 10 years................. 703,022 286,711 11,433 472,417 90 1,473,673
10 to 15 years................ 607,763 86,296 195 544,248 -- 1,238,502
Over 15 years................. 1,739,951 16,794 -- 116,429 -- 1,873,174
------------------------------------------------------------------------------------
Total after 1 year......... 3,619,726 693,603 117,163 1,731,527 235,545 6,397,564
------------------------------------------------------------------------------------
Total................. $ 3,757,416 $ 814,411 $ 288,676 $ 1,925,926 $ 442,192 $ 7,228,621
------------------------------------------------------------------------------------
Amounts due after 1 year on:
Fixed-rate loans and leases...... $ 1,574,211 $ 125,031 $ 46,823 $ 824,167 $ 235,545 $ 2,805,777
Adjustable-rate loans............ 2,045,515 568,572 70,340 907,360 -- 3,591,787
------------------------------------------------------------------------------------
Total after 1 year......... $ 3,619,726 $ 693,603 $ 117,163 $ 1,731,527 $ 235,545 $ 6,397,564
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Gross of unearned discounts and deferred fees. This table does not include
the effect of prepayments, which is an important consideration in
management's interest-rate risk analysis. Industry experience indicates
that the loans remain outstanding for significantly shorter periods than
their contractual terms.
TCF 61
<PAGE>
TCF FINANCIAL CORPORATION
EXHIBIT 21
Subsidiaries of Registrant
(As of March 17, 1999)
<TABLE>
<CAPTION>
NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS
<S> <C> <C>
TCF Financial Insurance Illinois TCF Financial Insurance Agency
Agency Illinois, Inc. Illinois, Inc.
TCF Insurance
TCF Financial Insurance Minnesota TCF Financial Insurance Agency
Agency Wisconsin, Inc. Wisconsin, Inc.
TCF Insurance
TCF Financial Insurance Agency Minnesota TCF Financial Insurance Agency
Michigan, Inc. Michigan, Inc.
TCF Insurance
GLB Agency
TCF Financial Insurance Agency Minnesota TCF Financial Insurance Agency
Colorado, Inc. Colorado, Inc.
TCF Financial Insurance Agency, Inc. Minnesota TCF Financial Insurance
Agency, Inc.
TCF Insurance
GLB Financial Insurance Agency Ohio GLB Financial Insurance Agency Ohio, Inc.
Ohio, Inc.
(fka: WNL Insurance Agency of Ohio)
TCF Securities, Inc. Minnesota TCF Securities, Inc.
GLB Securities (MI)
TCF Foundation Minnesota TCF Foundation
TCF Minnesota Financial Services, Inc. Minnesota TCF Minnesota Financial Services, Inc.
TCB Air, Inc. Minnesota TCB Air, Inc.
(fka: Twin City/Burnet, Inc.)
TCF National Bank Minnesota United States TCF National Bank Minnesota
TCF Consumer Financial Services, Inc. Minnesota TCF Consumer Financial Services, Inc.
TCF Financial Services
TCF Mortgage Corporation Minnesota TCF Mortgage Corporation
TCFMC Holding Co. Minnesota TCFMC Holding Co.
TCF Financial Services, Inc. Minnesota TCF Financial Services, Inc.
<PAGE>
<CAPTION>
NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS
<S> <C> <C>
TCF Management Corporation Minnesota TCF Management Corporation
North Star Title, Inc. Minnesota North Star Title, Inc.
North Star Real Estate Services, Inc. Minnesota North Star Real Estate Services, Inc.
TCF Agency Minnesota, Inc. Minnesota TCF Agency Minnesota, Inc.
TCF Agency Minnesota
TCF Insurance Agency Minnesota, Inc. (UT)
TCF Agency Mississippi, Inc. Mississippi TCF Agency Mississippi, Inc.
TCF Agency Mississippi
TCF Agency Insurance Services, Inc. Minnesota TCF Agency Insurance Services, Inc.
TCF National Properties, Inc. Minnesota TCF National Properties, Inc.
TCF New York Investment, Inc. Minnesota TCF New York Investments, Inc.
TCF Qwik, Inc. New York TCF Qwik, Inc.
TCF Wisk, Inc. New York TCF Wisk, Inc.
TCF Bolt, Inc. New York TCF Bolt, Inc.
TCF Jump, Inc. New York TCF Jump, Inc.
TCF Sped, Inc. New York TCF Sped, Inc.
TCF Real Estate Financial Services, Inc. Minnesota TCF Real Estate Financial Services, Inc.
Winthrop Resources Corporation Minnesota Winthrop Resources Corporation
WINR Business Credit
TCF Small Business Leasing
TCF National Bank Wisconsin United States TCF National Bank Wisconsin
Republic Capital Funding Corp. I Wisconsin Republic Capital Funding Corp. I
TCF Agency Wisconsin, Inc. Wisconsin TCF Agency Wisconsin, Inc.
TCF Portfolio Strategies, Inc. Minnesota TCF Portfolio Strategies, Inc.
TCF National Bank Illinois United States TCF National Bank Illinois
Capitol Equities Corporation Illinois Capitol Equities Corporation
SFB Insurance Agency, Inc. Illinois SFB Insurance Agency, Inc.
<PAGE>
<CAPTION>
NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS
<S> <C> <C>
Standard Financial Mortgage Illinois Standard Financial Mortgage
Corporation Corporation
TCF Agency Illinois, Inc. Illinois TCF Agency Illinois, Inc.
Great Lakes National Bank United States Great Lakes National Bank Michigan
Michigan
GLB Service Corporation II Michigan GLB Service Corporation II
GLB Properties, Inc. Michigan GLB Properties, Inc.
Great Lakes Mortgage LLC Michigan Great Lakes Mortgage LLC
Lakeland Group Insurance Agency, Inc. Michigan Lakeland Group Insurance Agency, Inc.
401 Service Corporation Michigan 401 Service Corporation
TCF Colorado Corporation Colorado TCF Colorado Corporation
TCF National Bank Colorado United States TCF National Bank Colorado
TCF Agency Colorado, Inc. Colorado TCF Agency Colorado, Inc.
</TABLE>
<PAGE>
[Letterhead]
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
TCF Financial Corporation:
We consent to incorporation by reference of our report dated January 19,
1999, relating to the consolidated statements of financial condition of TCF
Financial Corporation and Subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1998, which report appears in the December 31, 1998 Form 10-K of TCF
Financial Corporation, in the following Registration Statements of TCF
Financial Corporation: Nos. 33-43030, 33-57633, 33-14203, 33-22375, 33-40403,
33-53986, and 33-63767 on Form S-8.
/s/ KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
March 29, 1999
[LOGO]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1998 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 420,477
<INT-BEARING-DEPOSITS> 115,894
<FED-FUNDS-SOLD> 41,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,677,919
<INVESTMENTS-CARRYING> 4,227
<INVESTMENTS-MARKET> 4,227
<LOANS> 7,141,178
<ALLOWANCE> 80,013
<TOTAL-ASSETS> 10,164,594
<DEPOSITS> 6,715,146
<SHORT-TERM> 1,050,549
<LIABILITIES-OTHER> 142,900
<LONG-TERM> 1,410,497
0
0
<COMMON> 929
<OTHER-SE> 844,573
<TOTAL-LIABILITIES-AND-EQUITY> 10,164,594
<INTEREST-LOAN> 631,342
<INTEREST-INVEST> 103,480
<INTEREST-OTHER> 14,072
<INTEREST-TOTAL> 748,894
<INTEREST-DEPOSIT> 212,492
<INTEREST-EXPENSE> 323,160
<INTEREST-INCOME-NET> 425,734
<LOAN-LOSSES> 23,280
<SECURITIES-GAINS> 2,246
<EXPENSE-OTHER> 428,700
<INCOME-PRETAX> 265,249
<INCOME-PRE-EXTRAORDINARY> 265,249
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,179
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 4.84
<LOANS-NON> 33,697
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 23,107
<ALLOWANCE-OPEN> 82,583
<CHARGE-OFFS> 32,714
<RECOVERIES> 6,864
<ALLOWANCE-CLOSE> 80,013
<ALLOWANCE-DOMESTIC> 56,718
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,295
</TABLE>
