<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended
June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
---------------------
Commission File
No. 0-16431
---------------------
TCF FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1591444
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 Marquette Avenue, Mail Code 100-01-A, Minneapolis, Minnesota 55402
- -------------------------------------------------------------------------------
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (612) 661-6500
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at
- ---------------------------- July 31, 1999
Common Stock, $.01 par value 83,436,165 shares
1
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at June 30, 1999 and December 31, 1998 . . . . . . . . . . 3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1999 and 1998. . . . . . . . 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998. . . . . . . . . . 5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1998 and for the Six
Months Ended June 30, 1999 . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
and Six Months Ended June 30, 1999 and 1998. . . . . 10-23
Supplementary Information. . . . . . . . . . . . . . . . . . 24-25
Part II. Other Information
Items 1-6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-28
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL STATEMENTS
ITEM 1. Financial Statements
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
At At
June 30, December 31,
ASSETS 1999 1998
----------- ------------
<S> <C> <C>
Cash and due from banks $ 367,573 $ 420,477
Investments 194,781 277,715
Securities available for sale 1,701,063 1,677,919
Loans held for sale 201,991 213,073
Loans and leases:
Residential real estate 3,773,094 3,765,280
Commercial real estate 902,661 811,428
Commercial business 356,038 289,104
Consumer 1,999,561 1,876,554
Lease financing 399,817 398,812
----------- -----------
Total loans and leases 7,431,171 7,141,178
Allowance for loan and lease losses (71,346) (80,013)
----------- -----------
Net loans and leases 7,359,825 7,061,165
Goodwill 162,785 166,645
Deposit base intangibles 14,750 16,238
Other assets 335,573 331,362
----------- -----------
$10,338,341 $10,164,594
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $ 1,851,039 $ 1,879,623
Passbook and statement 1,186,405 1,176,931
Money market 737,117 700,004
Certificates 2,873,722 2,958,588
----------- -----------
Total deposits 6,648,283 6,715,146
----------- -----------
Securities sold under repurchase agreements 201,687 367,280
Federal Home Loan Bank advances 1,997,346 1,804,208
Discounted lease rentals 168,442 183,684
Other borrowings 367,177 105,874
----------- -----------
Total borrowings 2,734,652 2,461,046
Accrued interest payable 28,856 27,601
Accrued expenses and other liabilities 116,102 115,299
----------- -----------
Total liabilities 9,527,893 9,319,092
----------- -----------
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; 92,822,005 and 92,912,246 shares issued 928 929
Additional paid-in capital 501,588 507,534
Retained earnings, subject to certain restrictions 658,933 610,177
Unamortized deferred compensation (18,580) (24,217)
Loan to Executive Deferred Compensation Plan (5,503) (6,111)
Shares held in trust for deferred compensation
plans, at cost (46,187) (45,740)
Accumulated other comprehensive income (loss) (26,117) 7,591
Treasury stock, at cost, 9,385,356 and 7,343,117 shares (254,614) (204,661)
----------- -----------
Total stockholders' equity 810,448 845,502
----------- -----------
$10,338,341 $10,164,594
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
3
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans and leases $ 152,177 $ 159,327 $ 302,418 $ 320,175
Securities available for sale 28,683 20,929 56,771 45,093
Loans held for sale 3,273 3,572 6,792 7,253
Investments 2,226 3,075 4,421 5,858
--------- --------- --------- ---------
Total interest income 186,359 186,903 370,402 378,379
--------- --------- --------- ---------
Interest expense:
Deposits 42,965 54,096 86,855 110,468
Borrowings 36,672 25,510 71,986 51,462
--------- --------- --------- ---------
Total interest expense 79,637 79,606 158,841 161,930
--------- --------- --------- ---------
Net interest income 106,722 107,297 211,561 216,449
Provision for credit losses 2,947 2,991 10,707 8,975
--------- --------- --------- ---------
Net interest income after provision
for credit losses 103,775 104,306 200,854 207,474
--------- --------- --------- ---------
Non-interest income:
Fee and service charge revenues 37,469 31,514 71,310 58,445
Electronic funds transfer revenues 16,890 12,619 31,287 22,730
Leasing revenues 5,389 6,568 12,983 14,261
Title insurance revenues 4,512 5,007 8,978 9,543
Commissions on sales of annuities 2,451 2,199 4,651 4,423
Commissions on sales of mutual funds 1,716 1,404 3,258 2,735
Gain on sale of loans held for sale 1,061 1,208 2,630 3,362
Other 3,409 3,012 6,185 5,842
--------- --------- --------- ---------
72,897 63,531 141,282 121,341
--------- --------- --------- ---------
Gain (loss) on sale of securities
available for sale (5) 1,787 3,194 2,289
Gain on sale of loan servicing 743 - 3,076 -
Gain on sale of branches 2,382 4,260 2,382 6,308
Gain on sale of joint venture interest - - - 5,580
--------- --------- --------- ---------
3,120 6,047 8,652 14,177
--------- --------- --------- ---------
Total non-interest income 76,017 69,578 149,934 135,518
--------- --------- --------- ---------
Non-interest expense:
Compensation and employee benefits 60,151 55,186 118,204 107,949
Occupancy and equipment 18,131 17,642 36,240 34,947
Advertising and promotions 4,730 5,458 9,384 10,724
Federal deposit insurance premiums and
assessments 1,321 1,384 2,686 2,779
Amortization of goodwill and other
intangibles 2,673 2,826 5,348 5,742
Other 25,773 23,078 49,242 44,752
--------- --------- --------- ---------
Total non-interest expense 112,779 105,574 221,104 206,893
--------- --------- --------- ---------
Income before income tax expense 67,013 68,310 129,684 136,099
Income tax expense 26,024 28,110 51,355 56,005
--------- --------- --------- ---------
Net income $ 40,989 $ 40,200 $ 78,329 $ 80,094
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common share:
Basic $ .50 $ .45 $ .94 $ .89
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ .49 $ .45 $ .94 $ .88
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividends declared per common share $ .1875 $ .1625 $ .35 $ .2875
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
4
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 78,329 $ 80,094
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,479 14,114
Amortization of goodwill and other intangibles 5,348 5,742
Provision for credit losses 10,707 8,975
Proceeds from sales of loans held for sale 299,562 318,149
Principal collected on loans held for sale 6,047 5,238
Originations and purchases of loans held
for sale (245,907) (324,427)
Net decrease in other assets and liabilities,
and accrued interest 20,321 6,815
Gains on sales of assets (8,652) (14,177)
Other, net 6,990 (1,036)
----------- -----------
Total adjustments 108,895 19,393
----------- -----------
Net cash provided by operating activities 187,224 99,487
----------- -----------
Cash flows from investing activities:
Principal collected on loans and leases 1,243,168 1,485,211
Originations and purchases of loans (1,570,146) (1,469,215)
Purchases of equipment for lease financing (90,999) (83,108)
Proceeds from sales of loans - 6,957
Net decrease in interest-bearing deposits with banks 83,758 7,429
Proceeds from sales of securities available for sale 288,718 149,215
Proceeds from maturities of and principal collected on
securities available for sale 374,015 261,251
Purchases of securities available for sale (738,079) (45,684)
Net decrease in federal funds sold 6,000 -
Sales of deposits, net of cash paid (20,077) (114,132)
Other, net (3,804) 2,953
----------- -----------
Net cash provided (used) by investing activities (427,446) 200,877
----------- -----------
Cash flows from financing activities:
Net decrease in deposits (44,447) (43,266)
Net decrease in securities sold under repurchase
agreements and federal funds purchased (165,593) (34,435)
Proceeds from borrowings 2,384,076 516,144
Payments on borrowings (1,895,299) (537,418)
Purchases of common stock to be held in treasury (59,967) (103,888)
Payments of dividends on common stock (29,573) (26,371)
Other, net (1,879) (10,717)
----------- -----------
Net cash provided (used) by financing activities 187,318 (239,951)
----------- -----------
Net increase (decrease) in cash and due from banks (52,904) 60,413
Cash and due from banks at beginning of period 420,477 297,010
----------- -----------
Cash and due from banks at end of period $ 367,573 $ 357,423
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 151,325 $ 157,967
----------- -----------
----------- -----------
Income taxes $ 37,375 $ 58,993
----------- -----------
----------- -----------
Transfer of loans to other real estate owned
and other assets $ 19,610 $ 19,731
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Number Unamor-
of Addi- tized
Common tional Deferred
Shares Common Paid-in Retained Compen-
Issued Stock Capital Earnings sation
------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 92,821,529 $ 928 $460,684 $508,969 $(25,457)
Net income - - - 156,179 -
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment - - - - -
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 - (4,815)
Cancellation of shares (18,170) - (375) - 192
Amortization of deferred
compensation - - - - 5,863
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 (24,217)
Net income - - - 78,329 -
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment - - - - -
Dividends on common stock - - - (29,573) -
Purchase of 2,407,700
shares to be held in
treasury - - - - -
Issuance of 7,000 shares
from treasury - - (36) - (158)
Cancellation of shares (90,241) (1) (2,072) - 319
Amortization of deferred
compensation - - - - 5,476
Exercise of stock options,
of which 358,461 shares
were from treasury - - (4,285) - -
Shares held in trust for
deferred compensation
plans - - 447 - -
Payments on Loan to
Executive Deferred
Compensation Plan - - - - -
---------- ------ -------- -------- --------
Balance, June 30, 1999 92,822,005 $ 928 $501,588 $658,933 $(18,580)
---------- ------ -------- -------- --------
---------- ------ -------- -------- --------
<CAPTION>
Shares
Held in Accum-
Loan to Trust lated
Executive for Other
Deferred Deferred Compre-
Compen- Compen- hensive
sation sation Income Treasury
Plan Plans (Loss) Stock Total
--------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ - $ - $ 8,556 $ - $ 953,680
Net income - - - - 156,179
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment - - (965) - (965)
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 - - - 1,933 (363)
Cancellation of shares - - - - (183)
Amortization of deferred
compensation - - - - 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 (6,111) (45,740) 7,591 (204,661) 845,502
Net income - - - - 78,329
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment - - (33,708) - (33,708)
Dividends on common stock - - - - (29,573)
Purchase of 2,407,700
shares to be held in
treasury - - - (59,967) (59,967)
Issuance of 7,000 shares
from treasury - - - 194 -
Cancellation of shares - - - - (1,754)
Amortization of deferred
compensation - - - - 5,476
Exercise of stock options,
of which 358,461 shares
were from treasury - - - 9,820 5,535
Shares held in trust for
deferred compensation
plans - (447) - - -
Payments on Loan to
Executive Deferred
Compensation Plan 608 - - - 608
--------- -------- -------- ----------- ---------
Balance, June 30, 1999 $ (5,503) $(46,187) $(26,117) $ (254,614) $ 810,448
--------- -------- -------- ----------- ---------
--------- -------- -------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
6
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. The
results of operations for interim periods are not necessarily indicative of
the results to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and notes necessary for complete financial
statements in conformity with generally accepted accounting principles.
The material under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is written with the
presumption that the users of the interim financial statements have read or
have access to the most recent Annual Report on Form 10-K of TCF Financial
Corporation ("TCF" or the "Company"), which contains the latest audited
financial statements and notes thereto, together with Management's
Discussion and Analysis of Financial Condition and Results of Operations as
of December 31, 1998 and for the year then ended. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior period
financial statements to conform to the current period presentation. For
consolidated statements of cash flows purposes, cash and cash equivalents
include cash and due from banks.
(2) COMPREHENSIVE INCOME
The following table summarizes the components of comprehensive income for
the periods noted. 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. Such
unrealized gains or losses only pertain to a small portion of TCF's balance
sheet and do not reflect the increased economic value of TCF's demand
deposit accounts.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In thousands) June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 40,989 $ 40,200 $ 78,329 $ 80,094
Other comprehensive income (loss),
before tax:
Unrealized holding gains (losses)
arising during the period on
securities available for sale (38,952) (263) (51,132) (441)
Reclassification adjustment for
(gains) losses included in
net income 5 (1,787) (3,194) (2,289)
-------- -------- -------- --------
Other comprehensive income
(loss), before tax (38,947) (2,050) (54,326) (2,730)
Income tax benefit (14,692) (810) (20,618) (1,078)
-------- -------- -------- --------
Total other comprehensive income
(loss), net of tax (24,255) (1,240) (33,708) (1,652)
-------- -------- -------- --------
Comprehensive income $ 16,734 $ 38,960 $ 44,621 $ 78,442
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
7
<PAGE>
(3) EARNINGS PER COMMON SHARE
The weighted average number of common shares outstanding used to compute
basic earnings per common share were 82,615,789 and 89,424,676 for the
three months ended June 30, 1999 and 1998, respectively, and 83,114,543
and 90,169,352 for the six months ended June 30, 1999 and 1998,
respectively. The weighted average number of common and common
equivalent shares outstanding used to compute diluted earnings per
common share were 83,237,841 and 90,271,584 for the three months ended
June 30, 1999 and 1998, respectively, and 83,666,921 and 91,044,032 for
the six months ended June 30, 1999 and 1998, respectively.
(4) SEGMENTS
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure
about Segments of an Enterprise and Related Information," requires
disclosure of certain interim period information related to TCF's
reportable operating segments. TCF's wholly owned bank subsidiaries, 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") have been identified
as reportable operating segments in accordance with the provisions of SFAS
No. 131. 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. The results of
TCF's parent bank holding company and TCF National Bank Colorado, a wholly
owned bank subsidiary of TCF, comprise the "other" category in the table
below.
<TABLE>
<CAPTION>
TCF TCF TCF Great Lakes
(In thousands) Minnesota Illinois Wisconsin Michigan Other Eliminations Consolidated
At or For the Three Months Ended ---------- -------- --------- ----------- --------- ------------ ------------
June 30, 1999
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from External Customers:
Interest Income $ 73,856 $ 54,802 $ 12,259 $ 44,526 $ 916 $ - $ 186,359
Non-Interest Income 37,312 22,018 4,615 10,910 1,162 - 76,017
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 111,168 $ 76,820 $ 16,874 $ 55,436 $ 2,078 $ - $ 262,376
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Intersegment Revenues:
Interest Income $ 45 $ 166 $ (4) $ 10 $ 13 $ (230) $ -
Non-Interest Income 1,189 60 11 76 20,398 (21,734) -
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 1,234 $ 226 $ 7 $ 86 $ 20,411 $ (21,964) $ -
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Net Income (Loss) $ 20,308 $ 8,129 $ 2,194 $ 11,244 $ (1,049) $ 163 $ 40,989
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Total Assets $3,775,155 $3,426,983 $694,531 $2,425,418 $ 946,409 $(930,155) $10,338,341
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
<CAPTION>
At or For the Three Months Ended
June 30, 1998
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from External Customers:
Interest Income $ 82,507 $ 50,001 $ 11,100 $ 42,987 $ 308 $ - $ 186,903
Non-Interest Income 39,506 14,395 3,988 11,046 643 - 69,578
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 122,013 $ 64,396 $ 15,088 $ 54,033 $ 951 $ - $ 256,481
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Intersegment Revenues:
Interest Income $ 35 $ 345 $ 8 $ 19 $ 78 $ (485) $ -
Non-Interest Income 1,351 24 13 20 16,729 (18,137) -
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 1,386 $ 369 $ 21 $ 39 $ 16,807 $ (18,622) $ -
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Net Income (Loss) $ 23,935 $ 4,958 $ 2,076 $ 11,922 $ (2,739) $ 48 $ 40,200
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Total Assets $3,600,012 $3,045,353 $578,755 $2,166,264 $ 987,905 $(985,229) $ 9,393,060
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
TCF TCF TCF Great Lakes
(In thousands) Minnesota Illinois Wisconsin Michigan Other Eliminations Consolidated
For the Six Months Ended ---------- -------- --------- ----------- --------- ------------ ------------
June 30, 1999
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from External Customers:
Interest Income $ 148,100 $ 108,090 $ 24,193 $ 88,368 $ 1,651 $ - $ 370,402
Non-Interest Income 80,342 40,846 8,735 18,007 2,004 - 149,934
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 228,442 $ 148,936 $ 32,928 $ 106,375 $ 3,655 $ - $ 520,336
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Intersegment Revenues:
Interest Income $ 285 $ 208 $ - $ (64) $ 46 $ (475) $ -
Non-Interest Income 2,383 121 22 162 40,227 (42,915) -
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 2,668 $ 329 $ 22 $ 98 $ 40,273 $ (43,390) $ -
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Net Income (Loss) $ 40,076 $ 15,103 $ 4,037 $ 20,591 $ (1,798) $ 320 $ 78,329
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
<CAPTION>
For the Six Months Ended
June 30, 1998
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from External Customers:
Interest Income $ 166,461 $ 102,555 $ 22,454 $ 86,394 $ 515 $ - $ 378,379
Non-Interest Income 84,788 25,358 7,445 16,798 1,129 - 135,518
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 251,249 $ 127,913 $ 29,899 $ 103,192 $ 1,644 $ - $ 513,897
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Intersegment Revenues:
Interest Income $ 56 $ 1,035 $ (4) $ (74) $ 300 $ (1,313) $ -
Non-Interest Income 2,629 48 27 39 32,215 (34,958) -
---------- ---------- -------- ---------- --------- --------- -----------
Total $ 2,685 $ 1,083 $ 23 $ (35) $ 32,515 $ (36,271) $ -
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
Net Income (Loss) $ 49,526 $ 11,498 $ 3,799 $ 20,482 $ (5,335) $ 124 $ 80,094
---------- ---------- -------- ---------- --------- --------- -----------
---------- ---------- -------- ---------- --------- --------- -----------
</TABLE>
9
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
TCF reported net income of $41 million and $78.3 million for the second
quarter and first six months of 1999, respectively, compared with $40.2
million and $80.1 million for the same 1998 periods. Diluted earnings per
common share were 49 cents and 94 cents for the second quarter and first six
months of 1999, respectively, compared with 45 cents and 88 cents for the
same 1998 periods. Diluted cash earnings per common share, which excludes
amortization and reduction of goodwill net of income tax benefit, were 52
cents and 98 cents for the second quarter and first six months of 1999,
respectively, compared with 48 cents and 96 cents for the same 1998 periods.
Return on average assets was 1.60% and 1.54% for the second quarter and first
six months of 1999, compared with 1.69% and 1.67% for the same 1998 periods.
Return on average realized common equity was 19.81% and 18.93% for the second
quarter and first six months of 1999, compared with 17.52% and 17.29% for the
same 1998 periods. TCF's results for the first half of 1998 were favorably
impacted by a non-recurring after-tax gain of $3.4 million, or 4 cents per
diluted common share, on the sale of a joint venture interest.
TCF has significantly expanded its retail banking franchise in recent periods
and had 323 retail banking branches at June 30, 1999. Since April 1, 1996,
TCF has opened 150 new branches, of which 134 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 continued to expand its
supermarket franchise by opening eight new branches during the 1999 second
quarter. TCF anticipates opening approximately 25 more new branches in the
remainder of 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, and also newly
constructed stores. See "Financial Condition - Forward-Looking Information."
NET INTEREST INCOME
Net interest income for the second quarter of 1999 was $106.7 million, compared
with $107.3 million for the second quarter of 1998 and $104.8 million for the
1999 first quarter. The net interest margin for the second quarter of 1999 was
4.52%, compared with 4.94% for the same 1998 period and 4.52% for the first
quarter of 1999. TCF's 1999 net interest income and net interest margin have
been negatively impacted, as compared with last year, by increased loan
prepayments, purchases of lower-yielding mortgage-backed securities and the
discontinuation of TCF's high-margin indirect automobile lending operation.
Changes in net interest income are dependent upon the movement of interest
rates, the volume and mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. Achieving net interest
margin growth is dependent on TCF's ability to generate higher-yielding assets
and lower-cost retail deposits. If variable index rates (e.g., prime) were to
decline, 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. 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 "Market Risk - Interest-Rate Risk" and "Financial Condition - Deposits."
10
<PAGE>
The following rate/volume analysis details the increases (decreases) in net
interest income resulting from interest rate and volume changes during the
second quarter and first six months of 1999 as compared with the same periods
last year. Changes attributable to the combined impact of volume and rate have
been allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
Versus Same Period in 1998 Versus Same Period in 1998
-------------------------------- ----------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------- ----------------------------------
(In thousands) Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Investments $ (990) $ 141 $ (849) $ (1,619) $ 182 $ (1,437)
------- ------- -------- -------- -------- --------
Securities available for sale 9,079 (1,325) 7,754 14,523 (2,845) 11,678
------- ------- -------- -------- -------- --------
Loans held for sale (7) (292) (299) 79 (540) (461)
------- ------- -------- -------- -------- --------
Loans and leases:
Residential real estate 2,063 (3,097) (1,034) 4,638 (7,391) (2,753)
Commercial real estate 984 (1,172) (188) 1,047 (2,445) (1,398)
Commercial business 1,394 (436) 958 2,543 (1,000) 1,543
Consumer (4,160) (1,941) (6,101) (8,472) (4,860) (13,332)
Lease financing 705 (1,490) (785) 1,572 (3,389) (1,817)
------- ------- -------- -------- -------- --------
Total loans and leases 986 (8,136) (7,150) 1,328 (19,085) (17,757)
------- ------- -------- -------- -------- --------
Total interest income 9,068 (9,612) (544) 14,311 (22,288) (7,977)
------- ------- -------- -------- -------- --------
Deposits:
Checking 114 (815) (701) 214 (1,612) (1,398)
Passbook and statement (75) (1,764) (1,839) (69) (3,632) (3,701)
Money market 256 (766) (510) 440 (1,392) (952)
Certificates (4,809) (3,272) (8,081) (12,372) (5,190) (17,562)
------- ------- -------- -------- -------- --------
Total deposits (4,514) (6,617) (11,131) (11,787) (11,826) (23,613)
------- ------- -------- -------- -------- --------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased 3,542 (305) 3,237 8,026 (568) 7,458
FHLB advances 8,417 (1,408) 7,009 14,819 (2,907) 11,912
Discounted lease rentals (679) (173) (852) (1,770) (33) (1,803)
Other borrowings 2,234 (466) 1,768 4,058 (1,101) 2,957
------- ------- -------- -------- -------- --------
Total borrowings 13,514 (2,352) 11,162 25,133 (4,609) 20,524
------- ------- -------- -------- -------- --------
Total interest expense 9,000 (8,969) 31 13,346 (16,435) (3,089)
------- ------- -------- -------- -------- --------
Net interest income $ 68 $ (643) $ (575) $ 965 $ (5,853) $ (4,888)
------- ------- -------- -------- -------- --------
------- ------- -------- -------- -------- --------
</TABLE>
PROVISIONS FOR CREDIT LOSSES
TCF provided $2.9 million for credit losses in the second quarter of 1999,
compared with $3 million for the same prior-year period. At June 30, 1999, the
allowance for loan and lease losses totaled $71.3 million, compared with $80
million at December 31, 1998. 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
(losses) on sales of securities available for sale, loan servicing and branches,
non-interest income increased $9.4 million, or 14.7%, to $72.9 million for the
second quarter of 1999, compared with $63.5 million for the same period in 1998.
For the first six months of 1999, non-interest income, excluding the items
noted above and a 1998 $5.6 million gain on sale of joint venture interest,
totaled $141.3 million, up 16.4% from $121.3 million for the same period in
1998. The increases were primarily due to increased deposit and electronic
funds transfer revenues, and reflect TCF's expanded retail banking activities
from its de novo expansion.
11
<PAGE>
Fee and service charge revenues totaled $37.5 million and $71.3 million for the
second quarter and first six months of 1999, respectively, representing
increases of 18.9% and 22% from $31.5 million and $58.4 million for the same
1998 periods. These increases are primarily due to expanded retail banking
activities.
Electronic funds transfer revenues totaled $16.9 million and $31.3 million
for the second quarter and first six months of 1999, representing increases
of 33.8% and 37.6% from $12.6 million and $22.7 million for the same 1998
periods. These increases reflect TCF's effort to provide banking services
through its ATM network. TCF expanded its network of ATMs to 1,454 machines
at June 30, 1999, an increase of 45 ATMs since June 30, 1998. The significant
increase in these fees also reflects an increase in the distribution of debit
cards, and an increase in their utilization by TCF's customers. TCF
initiated its debit card program at the end of 1996, and had 863,000 debit
cards outstanding at June 30, 1999, compared with 700,000 debit cards
outstanding at June 30, 1998.
Leasing revenues totaled $5.4 million and $13 million for the second quarter and
first six months of 1999, compared with $6.6 million and $14.3 million for the
same 1998 periods. Leasing revenues can fluctuate as a result of changes in the
mix of leases classified as sales-type, direct financing or operating leases in
accordance with generally accepted accounting principles. In addition, leasing
revenues may be negatively impacted by a decline in economic activity and a
resulting decrease in demand for leased equipment.
Title insurance revenues totaled $4.5 million and $9 million for the second
quarter and first six months of 1999, compared with $5 million and $9.5 million
for the same 1998 periods. Title insurance revenues are cyclical in nature and
are largely dependent on industry levels of residential real estate loan
originations and refinancings.
Gains on sales of loans held for sale totaled $1.1 million and $2.6 million
for the second quarter and first six months of 1999, respectively, a decrease
of $147,000 and $732,000 from the amounts recognized during the same periods
in 1998. Sales of securities available for sale produced a $5,000 loss for
the second quarter and a $3.2 million gain for the first six months of 1999,
compared with gains of $1.8 million and $2.3 million for the comparable 1998
periods. Gains or losses on sales of loans held for sale and securities
available for sale may fluctuate significantly from period to period due to
changes in interest rates and volumes, and results in any period related to
these transactions may not be indicative of results which will be obtained in
future periods.
Gains on the sale of third-party loan servicing rights totaled $743,000 and $3.1
million for the second quarter and first six months of 1999, respectively.
During the first quarter of 1999, TCF sold the servicing rights on approximately
$345 million of third-party residential mortgage loans. In accordance with a
provision in the original sale agreement, the servicing rights were subsequently
sold in the second quarter of 1999 to another third party at an additional gain
of $743,000. TCF periodically sells and purchases loan servicing rights
depending on market conditions. TCF's third-party residential loan servicing
portfolio totaled $3.3 billion at June 30, 1999, compared with $3.7 billion at
December 31, 1998.
During the second quarter and first six months of 1999, TCF recognized a $2.4
million gain on the sale of one branch, compared with a $4.3 million gain on the
sale of four branches during the second quarter of 1998. During the first six
months of 1998, TCF recognized a $5.6 million gain on the sale of its joint
venture interest in Burnet Home Loans, and recognized gains of $6.3 million on
the sales of six branches.
NON-INTEREST EXPENSE
Non-interest expense totaled $112.8 million for the second quarter of 1999, up
6.8% from $105.6 million for the same 1998 period. For the first six months of
1999, non-interest expense totaled $221.1 million, up 6.9% from $206.9 million
for the same 1998 period. Compensation and employee benefits expense totaled
$60.2 million and $118.2 million for the 1999 second quarter and first six
months, respectively, compared with $55.2 million
12
<PAGE>
and $107.9 million for the comparable periods in 1998. Occupancy and
equipment expenses totaled $18.1 million and $36.2 million for the second
quarter and first six months of 1999, respectively, compared with $17.6 and
$34.9 million for the same 1998 periods. The increased expenses in 1999 are
primarily due to the costs associated with expanded retail banking activities.
Amortization of goodwill and other intangibles totaled $2.7 million and $5.3
million for the second quarter and first six months of 1999, respectively,
compared with $2.8 million and $5.7 million for the same 1998 periods.
Reductions of goodwill associated with branch sales, which are reported as a
component of gains on sales of branches, totaled $974,000 and $3.3 million
for the second quarter and first six months of 1998, respectively.
Other non-interest expense totaled $25.8 million and $49.2 million for the
second quarter and first six months of 1999, increases of 11.7% and 10% from
$23.1 million and $44.8 million for the same 1998 periods. These increases were
primarily due to the costs associated with expanded retail banking activities,
and included increases of $1.1 million and $2.8 million in deposit account
losses over amounts recorded in the second quarter and first six months of 1998,
respectively. These losses reflect the growth in the number of checking
accounts to 990,000 at June 30, 1999, up from 913,000 at December 31, 1998 and
863,000 at June 30, 1998. While deposit account losses have increased over the
same 1998 periods, losses during the first and second quarters of 1999 have
declined $1.4 million and $1.2 million, respectively, from the losses recognized
in the 1998 fourth quarter.
YEAR 2000
TCF continues 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 and
testing of all critical systems is substantially complete. Such testing
included testing of individual application 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 $7.5 million of internal and external costs for replacement,
renovation and testing of its critical internal computer hardware and software
and imbedded technologies through June 30, 1999, and expects such costs to total
$10.1 million over the three-year period ending December 31, 1999. Of the $7.5
million of Year 2000 costs incurred through June 30, 1999, $2.9 million have
been capitalized. Approximately $700,000 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
13
<PAGE>
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,
depositors, 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 $26 million and $51.4 million for the second
quarter and first six months of 1999, or 38.8% and 39.6% of income before income
tax expense, respectively, compared with $28.1 million and $56 million, or 41.2%
of income before income tax expense, for the comparable 1998 periods. The lower
tax rates in 1999 reflect lower state taxes in 1999, and the impact of
relatively higher non-deductible expenses in 1998, including goodwill reductions
associated with branch sales.
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 risk
from trading activities.
14
<PAGE>
Like most financial institutions, TCF's interest income and cost of funds are
significantly affected by general economic conditions and by policies of
regulatory authorities. The mismatch between maturities and interest-rate
sensitivities of assets and liabilities results in interest-rate risk. Although
the measure is subject to a number of assumptions and is only one of a number of
measurements, management believes the interest-rate gap (difference between
interest-earning assets and interest-bearing liabilities repricing within a
given period) is an important indication of TCF's exposure to interest-rate risk
and the related volatility of net interest income in a changing interest rate
environment. In addition to the interest-rate gap analysis, management also
utilizes a simulation model to measure and manage TCF's interest-rate risk.
For an institution with a negative interest-rate gap for a given period, the
amount of its interest-bearing liabilities maturing or otherwise repricing
within such period exceeds the amount of its interest-earning assets repricing
within the same period. In a rising interest-rate environment, institutions
with negative interest-rate gaps will generally experience more immediate
increases in the cost of their liabilities than in the yield on their assets.
Conversely, the yield on assets of institutions with negative interest-rate gaps
will generally decrease more slowly than the cost of their funds in a falling
interest-rate environment.
TCF's Asset/Liability Management Committee manages TCF's interest-rate risk
based on interest rate expectations and other factors. The principal objective
of TCF's asset/liability management activities is to provide maximum levels of
net interest income while maintaining acceptable levels of interest-rate risk
and liquidity risk and facilitating the funding needs of the Company.
Management's estimates and assumptions could be significantly affected by
external factors such as prepayment rates other than those assumed, early
withdrawals of deposits, changes in the correlation of various interest-bearing
instruments, competition and a general rise in interest rates. Decisions by
management to purchase or sell assets, or retire debt could change the
maturity/repricing and spread relationships. 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 Federal Home Loan Bank ("FHLB") will exercise its option to
call certain of TCF's longer-term FHLB advances. See "Financial Condition -
Borrowings." TCF's one-year interest-rate gap was a negative $1.3 billion, or
(13)% of total assets, at June 30, 1999, compared with a negative $263.9
million, or (3)% of total assets, at December 31, 1998. The increase in TCF's
negative one-year interest-rate gap reflects the impact of projected slower
prepayments on residential loans and mortgage-backed securities. In addition,
due to recent increases in market interest rates, $655 million of TCF's callable
FHLB advances are included as repricing at their call dates rather than their
maturity dates. Subsequent to June 30, 1999, management entered into long-term
callable FHLB advances to extend the maturity of $300 million of TCF's
short-term borrowings. The FHLB advances settle during the third and fourth
quarters of 1999 and will reduce TCF's negative one-year interest-rate gap by
$300 million, or 3% of total assets at June 30, 1999. See "Financial Condition -
Borrowings."
15
<PAGE>
FINANCIAL CONDITION
INVESTMENTS
Total investments decreased $82.9 million from year-end 1998 to $194.8
million at June 30, 1999. The decrease is primarily due to a decrease of
$83.8 million in interest-bearing deposits with banks. The following table
summarizes investments:
<TABLE>
<CAPTION>
At June 30, 1999 At December 31, 1998
------------------------ ---------------------
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest-bearing deposits
with banks $ 32,136 $ 32,136 $115,894 $115,894
Federal funds sold 35,000 35,000 41,000 41,000
Federal Home Loan Bank stock,
at cost 100,187 100,187 93,482 93,482
Federal Reserve Bank stock,
at cost 23,212 23,212 23,112 23,112
Other 4,246 4,246 4,227 4,227
-------- -------- -------- --------
$194,781 $194,781 $277,715 $277,715
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
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 (loss), which is a separate component of stockholders'
equity. Securities available for sale increased $23.1 million from year-end
1998 to $1.7 billion at June 30, 1999. The increase reflects purchases of
$738.1 million of securities available for sale, partially offset by sales of
$285.5 million and payment and prepayment activity. At June 30, 1999, TCF's
securities available-for-sale portfolio included $1.6 billion and $149.3 million
of fixed-rate and adjustable-rate mortgage-backed securities, respectively. The
following table summarizes securities available for sale:
<TABLE>
<CAPTION>
At June 30, 1999 At December 31, 1998
-------------------------- -----------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 988,852 $ 961,223 $ 989,681 $ 998,687
FNMA 645,792 631,836 537,197 541,428
GNMA 29,801 30,293 33,721 34,118
Private issuer 77,875 76,990 104,099 102,813
Collateralized mortgage
obligations 721 721 873 873
---------- ---------- ---------- ----------
$1,743,041 $1,701,063 $1,665,571 $1,677,919
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or market. Education loans
held for sale increased $13 million and residential real estate loans held for
sale decreased $24.1 million from year-end 1998, and totaled $151.3 million and
$50.7 million at June 30, 1999, respectively.
During the first six months of 1999, $52.2 million of consumer finance
automobile loans and $3.4 million of related allowances were transferred to
loans held for sale in connection with agreements to sell the loans. The sales
closed in the 1999 second quarter. Losses of $527,000 were recognized in
connection with these transfers which are included in loss on sale of loans held
for sale. See "Loans and Leases."
16
<PAGE>
LOANS AND LEASES
The following table sets forth information about loans and leases held in TCF's
portfolio, excluding loans held for sale:
<TABLE>
<CAPTION>
At At
June 30, December 31,
(In thousands) 1999 1998
---------- ----------
<S> <C> <C>
Residential real estate $3,764,929 $3,757,416
Unearned premiums and deferred loan fees 8,165 7,864
---------- ----------
3,773,094 3,765,280
---------- ----------
Commercial real estate:
Apartments 264,376 257,195
Other permanent 526,469 464,817
Construction and development 114,921 92,399
Unearned discounts and deferred loan fees (3,105) (2,983)
---------- ----------
902,661 811,428
---------- ----------
Total real estate 4,675,755 4,576,708
---------- ----------
Commercial business 355,496 288,676
Deferred loan costs 542 428
---------- ----------
356,038 289,104
---------- ----------
Consumer:
Home equity 1,789,165 1,526,129
Automobile 193,937 337,893
Loans secured by deposits 7,195 7,581
Other secured 11,912 19,033
Unsecured 28,943 35,290
Unearned discounts and deferred loan fees (31,591) (49,372)
---------- ----------
1,999,561 1,876,554
---------- ----------
Lease financing:
Direct financing leases 380,602 377,157
Sales-type leases 35,250 35,695
Lease residuals 28,942 29,340
Unearned income and deferred lease costs (44,977) (43,380)
---------- ----------
399,817 398,812
---------- ----------
$7,431,171 $7,141,178
---------- ----------
---------- ----------
</TABLE>
Loans and leases increased $290 million from year-end 1998 to $7.4 billion at
June 30, 1999, reflecting increases of $123 million in consumer loans, $91.2
million in commercial real estate loans, $66.9 million in commercial business
loans, and $7.8 million in residential real estate loans. Unearned discounts
and deferred fees totaled $71 million at June 30, 1999 and $87.4 million at
December 31, 1998.
Consumer loans increased $123 million from year-end 1998 to $2 billion at June
30, 1999, reflecting an increase of $263 million in home equity loans, partially
offset by a decrease of $144 million in automobile loans. 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. At June 30, 1999, consumer finance
automobile loans, net of unearned discounts and deferred fees, totaled $118.9
million, compared with $233.9 million at December 31, 1998. Reflected in the
decrease is the previously mentioned transfer of $52.2 million of consumer
finance automobile loans to loans held for sale.
17
<PAGE>
Prior to the restructuring, TCF provided financing through the purchase of
automobile loans from dealers, an activity referred to as "indirect" automobile
lending. The consumer finance automobile loans at June 30, 1999 are
substantially comprised 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.
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.
TCF has changed its home equity loan origination programs in its subsidiary
banks in 1999. Under the new programs, TCF has implemented a tiered pricing
structure for its home equity loans. TCF has experienced an increase in the
loan-to-value ratios on new home equity loans originated in 1999. Many of these
loans are secured by a first lien on the home, and have balances exceeding
$100,000. These loans may carry a higher level of credit risk than loans with a
lower loan-to-value ratio.
Commercial real estate loans increased $91.2 million from year-end 1998 to
$902.7 million at June 30, 1999. Commercial business loans increased
$66.9 million in the first six months of 1999 to $356 million at June 30, 1999.
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 June 30, 1999,
approximately 95% of TCF's commercial real estate loans outstanding were secured
by properties located in its primary markets. The results of hotel and motel
operations are susceptible to changes in prevailing economic conditions.
Included in commercial real estate loans at June 30, 1999 are $88.7 million of
loans secured by hotel or motel properties, up from $41.3 million at December
31, 1998.
At June 30, 1999 and December 31, 1998, there were no commercial real estate
loans with terms that have been modified in troubled debt restructurings
included in performing loans.
At June 30, 1999, the recorded investment in loans that are considered to be
impaired was $5.4 million for which the related allowance for credit losses was
$1.6 million. All of the impaired loans were on non-accrual status. The
average recorded investment in impaired loans during the six months ended June
30, 1999 was $8.6 million.
Lease financings increased $1 million from year-end 1998 to $399.8 million at
June 30, 1999, reflecting a $3.4 million increase in direct financing leases.
18
<PAGE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
A summary of the activity of the allowance for loan and lease losses and
selected statistics follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
(Dollars in thousands) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $75,396 $82,511 $80,013 $82,583
Provision for credit losses 2,947 2,991 10,707 8,975
Charge-offs (9,428) (7,173) (20,242) (14,793)
Recoveries 2,661 1,809 4,218 3,373
------- ------- ------- -------
Net charge-offs (6,767) (5,364) (16,024) (11,420)
Transfer to loans held for sale (230) - (3,350) -
------- ------- ------- -------
Balance at end of period $71,346 $80,138 $71,346 $80,138
------- ------- ------- -------
------- ------- ------- -------
Ratio of annualized net loan and lease
charge-offs to average loans and
leases outstanding .37% .30% .44% .32%
Allowance for loan and lease losses as
a percentage of total loan and lease
balances at period end .96% 1.13% .96% 1.13%
</TABLE>
TCF has experienced an increase in the level of net loan charge-offs related to
its consumer finance automobile portfolio, which is being liquidated. As a
result, the ratio of annualized net loan charge-offs to average loans
outstanding for TCF's consumer portfolio were 1.47% and 1.65% for the second
quarter and six months ended June 30, 1999, respectively, compared with 1.08%
and 1.11% for the same periods of 1998 and 1.83% for the three months ended
March 31, 1999. In addition, the ratio of annualized net loan charge-offs to
average loans outstanding for TCF's consumer finance automobile portfolio were
16.09% and 14.79% for the three months and six months ended June 30, 1999,
respectively, compared with 5.59% and 5.82% for the same periods in 1998 and
13.90% for the three months ended March 31, 1999. Included in the net loan and
lease charge-offs for the second quarter and first six months of 1999 were $6.1
million and $13.9 million, respectively, of net charge-offs related to the
consumer finance automobile loans.
On an ongoing basis, TCF's loan and lease portfolios are reviewed and analyzed
as to credit risk, performance, collateral value and quality. The allowance for
loan and lease losses is maintained at a level believed to be adequate by
management to provide for estimated loan and lease losses. Management's
judgment as to the adequacy of the allowance, 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. The allowance for loan and lease losses is established for probable
losses inherent in TCF's loan and lease portfolios as of the balance sheet date,
including known or anticipated problem loans and leases, as well as loans and
leases which are not currently known to require specific allowances. Loans and
leases are charged off to the extent they are deemed to be uncollectible. The
unallocated portion of TCF's allowance for loan and lease losses totaled $20.2
million at June 30, 1999, compared with $23.3 million at December 31, 1998.
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
19
<PAGE>
borrowers, lessees or properties. These estimates are reviewed periodically
and adjustments, if necessary, are reported in the provision for credit
losses in the periods in which they become known. The decrease in the
allowance for loan and lease losses since December 31, 1998 is primarily
attributed to the $115 million decrease in consumer finance automobile loans,
partially offset by the impact of a $405 million net increase in other loan
and lease categories. Management believes the allowance for loan and lease
losses is adequate.
NON-PERFORMING ASSETS
Non-performing assets (principally non-accrual loans and leases and other
real estate owned) totaled $50.1 million at June 30, 1999, up $1.4 million
from the December 31, 1998 total of $48.7 million. The increase in total
non-performing assets reflects increases of $5.1 million in non-accrual lease
financings, partially offset by decreases of $2.2 million in non-accrual
consumer loans and $1.9 million in non-accrual commercial real estate loans.
Included in non-accrual lease financings at June 30, 1999 are $3.2 million of
leases that have been funded on a non-recourse basis by third-party financial
institutions. Approximately 69% of non-performing assets at June 30, 1999
consist of, or are secured by, real estate. The accrual of interest income is
generally discontinued when loans and leases become 90 days or more past due
with respect to either principal or interest unless such loans and leases are
adequately secured and in the process of collection. Non-performing assets
are summarized in the following table:
<TABLE>
<CAPTION>
At At
June 30, December 31,
(Dollars in thousands) 1999 1998
-------- ------------
<S> <C> <C>
Non-accrual loans and leases:
Consumer $15,581 $17,745
Residential real estate 7,772 8,078
Commercial real estate 2,445 4,352
Commercial business 2,905 2,797
Lease financing 5,840 725
------- -------
34,543 33,697
Other real estate owned and other assets 15,575 14,972
------- -------
Total non-performing assets $50,118 $48,669
------- -------
------- -------
Non-performing assets as a percentage
of net loans and leases .68% .69%
Non-performing assets as a percentage
of total assets .48 .48
</TABLE>
TCF had no accruing loans and leases 90 days or more past due at June 30, 1999.
The over 30-day delinquency rate on TCF's loans and leases (excluding loans held
for sale and non-accrual loans and leases) was .58% of loans and leases
outstanding at June 30, 1999, compared with .94% at year-end 1998. TCF's
delinquency rates are determined using the contractual method. The following
table sets forth information regarding TCF's over 30-day delinquent loan and
lease portfolio, excluding loans held for sale and non-accrual loans and leases:
<TABLE>
<CAPTION>
At June 30, 1999 At December 31, 1998
------------------------ ------------------------
Principal Percentage of Principal Percentage of
(Dollars in thousands) Balances Portfolio Balances Portfolio
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Consumer $26,321 1.33% $52,588 2.83%
Residential real estate 10,230 .27 9,151 .24
Commercial real estate 2,772 .31 1,787 .22
Commercial business 1,451 .41 1,984 .69
Lease financing 2,292 .58 1,631 .41
------- -------
Total $43,066 .58 $67,141 .94
------- -------
------- -------
</TABLE>
20
<PAGE>
TCF's over 30-day delinquency rate on total consumer loans was 1.33% at June 30,
1999, down from 2.83% at year-end 1998. 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 2.79% at June 30, 1999, compared with
3.23% at December 31, 1998. 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.
In addition to the non-accrual loans and leases, there were commercial real
estate and commercial business loans with an aggregate principal balance of
$29.2 million outstanding at June 30, 1999 for which management has concerns
regarding the ability of the borrowers to meet existing repayment terms. This
amount consists of loans that were classified for regulatory purposes as
substandard, doubtful or loss, or were to borrowers that currently are
experiencing financial difficulties or that management believes may experience
financial difficulties in the future. This compares with $23.1 million of such
loans at December 31, 1998. Although these loans are secured by commercial real
estate or other corporate assets, they may be subject to future modifications of
their terms or may become non-performing. Management is monitoring the
performance and classification of such loans and the financial condition of
these borrowers.
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
(In thousands) At June 30, 1999 At December 31, 1998
---------------- --------------------
<S> <C> <C>
Premises and equipment $173,053 $173,688
Accrued interest receivable 54,027 52,197
Mortgage servicing rights 21,193 21,566
Other real estate owned 12,892 13,602
Other 74,408 70,309
-------- --------
$335,573 $331,362
-------- --------
-------- --------
</TABLE>
DEPOSITS
Deposits totaled $6.6 billion at June 30, 1999, down $66.9 million from December
31, 1998. Lower interest-cost checking, savings and money market deposits
totaled $3.8 billion, up $18 million from year-end 1998, and comprised 56.8% of
total deposits at June 30, 1999. 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 $84.9 million from December 31,
1998. The Company's weighted-average rate for deposits, including non-interest
bearing deposits, decreased to 2.60% at June 30, 1999, from 2.73% at December
31, 1998.
21
<PAGE>
As previously noted, TCF continued to expand its supermarket banking franchise
by opening eight new branches during the 1999 second quarter, and 13 during the
first six months of 1999. TCF now has 174 supermarket branches, up from 147
branches a year ago. During the past year, deposit accounts in TCF's
supermarket branches increased 46.2% to 491,000 accounts and the balances
increased 36.8% to $716.8 million. The average rate on these deposits decreased
from 2.48% at June 30, 1998 to 1.99% at June 30, 1999. Additional information
regarding TCF's supermarket branches is as follows:
<TABLE>
<CAPTION>
At or For the Six Months
Ended June 30,
------------------------ Increase
(Dollars in thousands) 1999 1998 (Decrease) % Change
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Supermarket Banking Summary:
Number of branches 174 147 27 18.4%
Number of deposit accounts 491,251 335,935 155,316 46.2
Deposits:
Checking $309,076 $209,908 $ 99,168 47.2
Savings 118,050 86,291 31,759 36.8
Money market 60,390 51,149 9,241 18.1
-------- -------- --------
487,516 347,348 140,168 40.4
Certificates 229,281 176,622 52,659 29.8
-------- -------- --------
Total deposits $716,797 $523,970 $192,827 36.8
-------- -------- --------
Average rate on deposits 1.99% 2.48% (0.49)% (19.8)
-------- -------- --------
-------- -------- --------
Total fees and other revenues $ 39,010 $ 22,016 $ 16,994 77.2
-------- -------- --------
-------- -------- --------
</TABLE>
BORROWINGS
Borrowings totaled $2.7 billion as of June 30, 1999, up $273.6 million from
year-end 1998. The increase was primarily due to increases of $193.1 million in
FHLB advances and $257.6 million in treasury, tax and loan notes, partially
offset by a decrease of $165.6 million in securities sold under repurchase
agreements. The outstanding balances on TCF's bank line of credit and
commercial paper were $37 million and $41 million at June 30, 1999,
respectively. Included in FHLB advances at June 30, 1999 are $1.1 billion of
fixed-rate advances which are callable at par on certain anniversary dates 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. The weighted-average rate on borrowings decreased to 5.58% at June
30, 1999, from 6.00% at December 31, 1998. At June 30, 1999, borrowings with a
maturity of one year or less totaled $1 billion.
STOCKHOLDERS' EQUITY
Stockholders' equity at June 30, 1999 was $810.4 million, or 7.8% of total
assets, down from $845.5 million, or 8.3% of total assets, at December 31, 1998.
The decrease in stockholders' equity is primarily due to the repurchase of
2,407,700 shares of TCF's common stock at a cost of $60 million, the $33.7
million decrease in accumulated other comprehensive income and the payment of
$29.6 million in dividends on common stock, partially offset by net income of
$78.3 million for the first six months of 1999.
On July 19, 1999, TCF declared a quarterly dividend of 18.75 cents per common
share, payable on August 31, 1999 to shareholders of record as of August 6,
1999.
At June 30, 1999, 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.
22
<PAGE>
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued 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. An amendment has been approved which will delay the
effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000.
The impact of SFAS No. 133 on the Company's financial position and results of
operations has not yet been determined.
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.
23
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
At At At At At At
(Dollars in thousands, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
except per-share data) 1999 1999 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $10,338,341 $10,200,744 $10,164,594 $9,900,439 $9,393,060 $9,664,849
Investments 194,781 158,222 277,715 135,491 122,888 246,364
Securities available for sale 1,701,063 1,569,406 1,677,919 1,673,722 1,122,490 1,306,853
Loans and leases 7,431,171 7,293,329 7,141,178 7,092,639 7,103,686 7,036,646
Deposits 6,648,283 6,632,481 6,715,146 6,733,368 6,741,288 6,925,024
Borrowings 2,734,652 2,579,789 2,461,046 2,159,948 1,617,240 1,631,021
Stockholders' equity 810,448 824,442 845,502 869,426 906,485 948,070
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- --------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1999 1999 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Interest income $186,359 $184,043 $185,286 $185,229 $186,903 $191,476
Interest expense 79,637 79,204 80,625 80,605 79,606 82,324
-------- -------- -------- -------- -------- --------
Net interest income 106,722 104,839 104,661 104,624 107,297 109,152
Provision for credit losses 2,947 7,760 9,761 4,544 2,991 5,984
-------- -------- -------- -------- -------- --------
Net interest income after provision
for credit losses 103,775 97,079 94,900 100,080 104,306 103,168
-------- -------- -------- -------- -------- --------
Non-interest income:
Gain (loss) on sale of securities
available for sale (5) 3,199 - (43) 1,787 502
Gain on sale of loan servicing 743 2,333 - 2,414 - -
Gain on sale of branches 2,382 - 12,051 226 4,260 2,048
Gain on sale of joint venture interest - - - - - 5,580
Other non-interest income 72,897 68,385 70,066 71,263 63,531 57,810
-------- -------- -------- -------- -------- --------
Total non-interest income 76,017 73,917 82,117 73,860 69,578 65,940
-------- -------- -------- -------- -------- --------
Non-interest expense:
Amortization of goodwill and other
intangibles 2,673 2,675 2,829 2,828 2,826 2,916
Other non-interest expense 110,106 105,650 107,096 109,054 102,748 98,403
-------- -------- -------- -------- -------- --------
Total non-interest expense 112,779 108,325 109,925 111,882 105,574 101,319
-------- -------- -------- -------- -------- --------
Income before income tax expense 67,013 62,671 67,092 62,058 68,310 67,789
Income tax expense 26,024 25,331 27,588 25,477 28,110 27,895
-------- -------- -------- -------- -------- --------
Net income $ 40,989 $ 37,340 $ 39,504 $ 36,581 $ 40,200 $ 39,894
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Per common share:
Basic earnings $ .50 $ .45 $ .47 $ .42 $ .45 $ .44
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Diluted earnings $ .49 $ .44 $ .46 $ .42 $ .45 $ .43
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Diluted cash earnings (1) $ .52 $ .47 $ .48 $ .44 $ .48 $ .48
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Dividends declared $ .1875 $ .1625 $ .1625 $ .1625 $ .1625 $ .125
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
FINANCIAL RATIOS (2):
Return on average assets 1.60% 1.48% 1.60% 1.54% 1.69% 1.66%
Cash return on average assets (1) 1.67 1.55 1.68 1.62 1.81 1.83
Return on average realized common equity 19.81 18.06 18.77 16.75 17.52 16.99
Return on average common equity 20.11 17.99 18.56 16.58 17.37 16.83
Cash return on average tangible equity (1) 26.94 24.18 24.83 22.13 23.42 23.48
Average total equity to average assets 7.95 8.22 8.63 9.28 9.75 9.83
Net interest margin (3) 4.52 4.52 4.65 4.82 4.94 4.94
</TABLE>
- -------------------
(1) Excludes amortization and reduction of goodwill, net of income tax benefit.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
24
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------------------
1999 1998
--------------------------------------- ------------------------------------
Interest Interest
Average Yields and Average Yields and
(Dollars in thousands) Balance Interest(1) Rates (2) Balance Interest(1) Rates (2)
------- ----------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments $ 137,375 $ 4,421 6.44% $ 187,685 $ 5,858 6.24%
----------- -------- ---------- --------
Securities available
for sale (3) 1,727,589 56,771 6.57 1,290,096 45,093 6.99
----------- -------- ---------- --------
Loans held for sale 207,173 6,792 6.56 204,923 7,253 7.08
----------- -------- ---------- --------
Loans and leases:
Residential real
estate 3,782,537 132,254 6.99 3,655,605 135,007 7.39
Commercial real estate 868,987 36,375 8.37 845,198 37,773 8.94
Commercial business 321,077 12,491 7.78 257,207 10,948 8.51
Consumer 1,926,219 98,611 10.24 1,945,361 111,943 11.51
Lease financing 399,272 22,687 11.36 374,245 24,504 13.10
----------- -------- ---------- --------
Total loans and
leases (4) 7,298,092 302,418 8.29 7,077,616 320,175 9.05
----------- -------- ---------- --------
Total interest-
earning assets 9,370,229 370,402 7.91 8,760,320 378,379 8.64
-------- ----- -------- -----
Other assets(5) 813,057 809,060
----------- ----------
Total assets $10,183,286 $9,569,380
----------- ----------
----------- ----------
Liabilities and
Stockholders' Equity:
Noninterest-bearing
deposits $ 1,152,945 $ 948,727
----------- ----------
Interest-bearing
deposits:
Checking 706,153 2,021 .57 661,852 3,419 1.03
Passbook and
statement 1,122,707 6,223 1.11 1,130,677 9,924 1.76
Money market 726,760 9,386 2.58 696,402 10,338 2.97
Certificates 2,891,212 69,225 4.79 3,398,524 86,787 5.11
----------- -------- ---------- --------
Total interest-
bearing deposits 5,446,832 86,855 3.19 5,887,455 110,468 3.75
----------- -------- ---------- --------
Total deposits 6,599,777 86,855 2.63 6,836,182 110,468 3.23
----------- -------- ---------- --------
Borrowings:
Securities sold under
repurchase
agreements and federal
funds purchased 420,886 10,476 4.98 101,458 3,018 5.95
FHLB advances 1,812,283 49,205 5.43 1,272,928 37,293 5.86
Discounted lease
rentals 176,570 7,105 8.05 220,595 8,908 8.08
Other borrowings 174,112 5,200 5.97 47,337 2,243 9.48
----------- -------- ---------- --------
Total borrowings 2,583,851 71,986 5.57 1,642,318 51,462 6.27
----------- -------- ---------- --------
Total interest-bearing
liabilities 8,030,683 158,841 3.96 7,529,773 161,930 4.30
-------- ----- -------- -----
Other liabilities(5) 176,918 155,635
----------- ----------
Total liabilities 9,360,546 8,634,135
Stockholders' equity (5) 822,740 935,245
----------- ----------
Total liabilities
and stockholders'
equity $10,183,286 $9,569,380
----------- ----------
----------- ----------
Net interest income $211,561 $216,449
-------- --------
-------- --------
Net interest-rate spread 3.95% 4.34%
----- -----
----- -----
Net interest margin 4.52% 4.94%
----- -----
----- -----
</TABLE>
(1) Tax-exempt income was not significant and thus has not been presented
on a tax equivalent basis. Tax-exempt income of $92,000 and $77,000
was recognized during the six months ended June 30, 1999 and 1998,
respectively.
(2) Annualized.
(3) Average balance and yield of securities available for sale is based
upon the historical amortized cost balance.
(4) Average balance of loans and leases includes non-accrual loans and
leases, and is presented net of unearned income.
(5) Average balance is based upon month-end balances.
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, TCF is a party to legal proceedings arising out of its
general lending and operating activities. TCF is and expects to become engaged
in a number of foreclosure proceedings and other collection actions as part of
its loan collection activities. From time to time, borrowers have also brought
actions against TCF, in some cases claiming substantial amounts in damages.
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. In one
of the cases that proceeded to a damages trial, GLENDALE FEDERAL BANK, FSB v.
UNITED STATES, No. 90-772C, the Court of Federal Claims issued a decision on
April 9, 1999, awarding the plaintiff in that case $908,948,000 in restitution
and non-overlapping reliance damages. The GLENDALE damages decision has been
appealed to the United States Court of Appeals for the Federal Circuit. The
other case which went to trial was settled in June 1998.
26
<PAGE>
On December 22, 1997, the Court of Federal Claims issued a decision finding the
existence of contracts and governmental breaches of those contracts in four
other "supervisory goodwill" cases, consolidated for purposes of that decision
only under the title CALIFORNIA FEDERAL BANK v. UNITED STATES, 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. On April 21, 1999, the Court of Federal
Claims entered judgment for the plaintiff in CALIFORNIA FEDERAL, and awarded the
plaintiff $22,966,523.42 in damages under a cost of replacement capital theory.
On May 6, 1999, the Court denied plaintiff's motion for reconsideration of its
damages decision in the CALIFORNIA FEDERAL case. The CALIFORNIA FEDERAL
decision has been appealed to the United States Court of Appeals for the Federal
Circuit. 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
GLENDALE, 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 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
27
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 11, 1999, the Annual Meeting of the shareholders of TCF was held to
obtain the approval of shareholders of record as of March 17, 1999 in connection
with the two matters indicated below. Following is a brief description of each
matter voted on at the meeting, and the number of votes cast for, against or
withheld, as well as the number of abstentions and broker nonvotes, as to each
such matter:
<TABLE>
<CAPTION>
Vote
----------------------------------------------------
Against or Broker
For Withheld Abstain Nonvote
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1. Election of Directors:
Rudy Boschwitz 73,782,361 870,633 N/A N/A
William A. Cooper 73,979,199 673,795 N/A N/A
Thomas A. Cusick 73,971,212 681,782 N/A N/A
Thomas J. McGough 74,000,458 652,536 N/A N/A
2. Approval of an amendment to
the TCF Performance-Based
Compensation Policy and
reapproval of the Policy,
as amended 68,875,035 5,354,186 423,773 0
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits on page 30 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated May 11, 1999, was filed in connection
with TCF's announcement that its Board of Directors adopted a shareholder
rights plan that will replace an existing plan when it expires June 9,
1999.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TCF FINANCIAL CORPORATION
/s/ Neil W. Brown
--------------------------------------------
Neil W. Brown, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Mark R. Lund
--------------------------------------------
Mark R. Lund, Senior Vice President,
Assistant Treasurer and Controller
(Principal Accounting Officer)
Dated: August 13, 1999
29
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
4(a) Copies of instruments with respect N/A
to long-term debt will be furnished
to the Securities and Exchange
Commission upon request.
11 Computation of Earnings Per Common Share
27 Financial Data Schedules (filed
electronically)
</TABLE>
30
<PAGE>
Exhibit 11 - Computation of Earnings Per Common Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Computation of Basic Earnings
Per Common Share for Statements Three Months Ended Six Months Ended
of Operations: June 30, June 30,
- ------------------------------------------- ----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 40,989 $ 40,200 $ 78,329 $ 80,094
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 82,615,789 89,424,676 83,114,543 90,169,352
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per common share $ .50 $ .45 $ .94 $ .89
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
Computation of Diluted Earnings
Per Common Share for Statements
of Operations:
- -------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 40,989 $ 40,200 $ 78,329 $ 80,094
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding adjusted for
effect of dilutive securities:
Weighted average common shares
outstanding used in basic
earnings per common share
calculation 82,615,789 89,424,676 83,114,543 90,169,352
Net dilutive effect of:
Stock option plans 174,087 357,462 186,195 374,501
Restricted stock plans 447,965 489,446 366,183 500,179
----------- ----------- ----------- -----------
83,237,841 90,271,584 83,666,921 91,044,032
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per common share $ .49 $ .45 $ .94 $ .88
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 1999 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 367,573
<INT-BEARING-DEPOSITS> 32,136
<FED-FUNDS-SOLD> 35,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,701,063
<INVESTMENTS-CARRYING> 4,246
<INVESTMENTS-MARKET> 4,246
<LOANS> 7,431,171
<ALLOWANCE> 71,346
<TOTAL-ASSETS> 10,338,341
<DEPOSITS> 6,648,283
<SHORT-TERM> 1,016,788
<LIABILITIES-OTHER> 144,958
<LONG-TERM> 1,717,864
0
0
<COMMON> 928
<OTHER-SE> 809,520
<TOTAL-LIABILITIES-AND-EQUITY> 10,338,341
<INTEREST-LOAN> 302,418
<INTEREST-INVEST> 61,192
<INTEREST-OTHER> 6,792
<INTEREST-TOTAL> 370,402
<INTEREST-DEPOSIT> 86,855
<INTEREST-EXPENSE> 158,841
<INTEREST-INCOME-NET> 211,561
<LOAN-LOSSES> 10,707
<SECURITIES-GAINS> 3,194
<EXPENSE-OTHER> 221,104
<INCOME-PRETAX> 129,684
<INCOME-PRE-EXTRAORDINARY> 129,684
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,329
<EPS-BASIC> .94
<EPS-DILUTED> .94
<YIELD-ACTUAL> 4.52
<LOANS-NON> 34,543
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 29,156
<ALLOWANCE-OPEN> 80,013
<CHARGE-OFFS> 20,242
<RECOVERIES> 4,218
<ALLOWANCE-CLOSE> 71,346
<ALLOWANCE-DOMESTIC> 51,117
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 20,229
</TABLE>
