EXHIBIT 13
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DESCRIPTION OF BUSINESS
TCF Financial Corporation is a stock savings bank holding company with more than
$7 billion in assets and 250 retail financial service offices at March 1, 1995.
Its bank subsidiaries operate in Minnesota, Illinois, Wisconsin, Michigan and
Ohio. Other TCF affiliates included mortgage banking, consumer finance, title
insurance, annuity, and mutual fund companies. TCF's common stock is listed on
the New York Stock Exchange under the symbol TCB.
TABLE OF CONTENTS
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 38
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 43
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 65
Selected Quarterly Financial Data. . . . . . . . . . . . . . . . . . . 66
Other Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 68
FINANCIAL REVIEW
The financial review presents management's discussion and analysis of the
consolidated financial condition and results of operations of TCF Financial
Corporation ("TCF"). This review should be read in conjunction with the
consolidated financial statements and other financial data beginning on page 38.
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY -- TCF reported net income of $57.4 million for 1994,
compared with $38 million for 1993 and $45.3 million for 1992. Net income per
common share was $4.63 for 1994, compared with $3.04 for 1993 and $3.74 for
1992. Net income for 1994 represented an increase of 25.1% from the $45.9
million, or $3.67 per share, before merger-related charges for 1993. During
1993, TCF acquired Republic Capital Group, Inc. ("RCG") and recorded after-tax
merger-related charges totaling $7.9 million.
The 1994 results of operations show continued improvement in TCF's core
operating earnings. TCF's net interest income of $205.1 million and net
interest margin of 4.59% for 1994 were both record levels, representing
increases of 11.2% and 13.6%, respectively, over 1993 results. Non-interest
income totaled $117.3 million for 1994, compared with $119.6 million for 1993.
Operating expenses (non-interest expense excluding the provision for real estate
losses and 1993 merger-related expenses) totaled $211.5 million for 1994, up
6.7% from $198.3 million for 1993. Provisions for credit and real estate losses
totaled $13.3 million in 1994, compared with $33.7 million in 1993 and $35.2
million in 1992. Included in the provisions for credit and real estate losses
in 1993 are $7.7 million in merger-related provisions related to TCF's
acquisition of RCG.
TCF's net interest income of $184.4 million and net interest margin of
4.04% for 1993 increased 10.3% and 12.2%, respectively, over 1992 results. Non-
interest income, excluding gains on sales of investments and mortgage-backed
securities, increased 12.3% over 1992 to $119.6 million. Operating expenses
increased 9.5% over 1992 to $198.3 million.
TCF's net interest income of $167.2 million and net interest margin of
3.60% for 1992 increased 17% and 14.6%, respectively, over 1991 results. Non-
interest income, excluding gains on sales of investments, loans and mortgage-
backed securities, increased 12.7% over 1991 to $106.5 million. Operating
expenses increased 4.2% over 1991 to $181.1 million. TCF's 1992 results
reflected a 22% effective tax rate as a result of the recognition of non-
recurring tax benefits.
Return on average assets was a record 1.19% in 1994, compared with .77% in
1993 and .91% in 1992. Return on average equity was 18.65% in 1994, compared
with 13.73% in 1993 and 19.53% in 1992. Excluding merger-related charges,
return on average assets and return on average equity for 1993 were .94% and
16.59%, respectively.
NET INTEREST INCOME -- A significant component of TCF's earnings is net interest
income, which is the difference between interest earned on loans, mortgage-
backed securities held to maturity, investments and other interest-earning
assets (interest income) and interest paid on deposits, borrowings and other
interest-bearing liabilities (interest expense). This amount, when divided by
average interest-earning assets, is referred to as the net interest margin,
expressed as a percentage. Net interest income and net interest margin are
affected by changes in interest rates, the volume and the mix of interest-
earning assets and interest-bearing liabilities, and the level of non-performing
assets. The arithmetic difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities expressed as a percentage is
referred to as the net interest rate spread.
Net interest income was a record $205.1 million for the year ended
December 31, 1994, up from $184.4 million in 1993 and $167.2 million in 1992.
This represents an increase of 11.2% in 1994, following increases of 10.3%
in 1993 and 17% in 1992. Total average interest-earning assets decreased 1.9%
in 1994 and 1.7% in 1993, after increasing 2% in 1992. The net interest
margin for 1994 was a record 4.59%, compared with 4.04% in 1993 and 3.60% in
1992. In addition, TCF's net interest rate spread was 4.22% in 1994, compared
with 3.73% and 3.35% in 1993 and 1992, respectively.
[Chart] -- Net Interest Income
TCF Financial Corporation and Subsidiaries 21
--
The following table presents TCF's average balance sheets, interest and
dividends earned or paid, and the related yields and rates on major categories
of TCF's interest-earning assets and interest-bearing liabilities:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------- ------------------------------- --------------------------------
INTEREST INTEREST INTEREST
YIELDS YIELDS YIELDS
(DOLLARS IN THOUSANDS) AVERAGE AND AVERAGE AND AVERAGE AND
BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Securities available for sale. . . $ 84,072 $ 3,673 4.37% $ 27,952 $ 1,471 5.26% $ 28,936 $ 2,406 8.31%
-------------------- --------------------- ---------------------
Loans held for sale. . . . . . . . 238,779 16,486 6.90 308,634 21,986 7.12 242,147 19,685 8.13
-------------------- --------------------- ---------------------
Mortgage-backed securities held
to maturity. . . . . . . . . . . 1,115,274 79,219 7.10 1,303,467 93,254 7.15 1,319,143 106,424 8.07
-------------------- --------------------- ---------------------
Loans:
Residential real estate . . . . 1,152,405 85,238 7.40 937,426 73,152 7.80 850,604 78,103 9.18
Commercial real estate . . . . . 653,709 55,323 8.46 753,882 65,472 8.68 862,398 81,744 9.48
Commercial business . . . . . . 84,101 7,150 8.50 79,964 6,059 7.58 82,822 6,869 8.29
Consumer . . . . . . . . . . . 983,208 102,575 10.43 907,564 85,923 9.47 884,825 83,181 9.40
-------------------- --------------------- ---------------------
Total loans (2). . . . . . . 2,873,423 250,286 8.71 2,678,836 230,606 8.61 2,680,649 249,897 9.32
-------------------- --------------------- ---------------------
Investments:
Interest-bearing deposits
with banks. . . . . . . . . . 23,383 979 4.19 26,467 917 3.46 38,835 1,808 4.66
Federal funds sold. . . . . . . 95,197 3,670 3.86 76,543 2,449 3.20 125,249 4,676 3.73
U.S. Government and other
marketable securities
held to maturity . . . . . . 3,614 271 7.50 103,765 4,267 4.11 172,090 10,792 6.27
FHLB stock. . . . . . . . . . . 39,718 3,057 7.70 34,900 2,651 7.60 32,521 2,743 8.43
-------------------- --------------------- ---------------------
Total investments. . . . . . 161,912 7,977 4.93 241,675 10,284 4.26 368,695 20,019 5.43
-------------------- --------------------- ---------------------
Total interest-
earning assets . . . . . 4,473,460 357,641 7.99 4,560,564 357,601 7.84 4,639,570 398,431 8.59
----------------- ---------------- ----------------
Other assets (3). . . . . . . . . 338,803 339,371 361,255
---------- ---------- ----------
Total assets. . . . . . . . . . $4,812,263 $4,899,935 $5,000,825
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Non-interest bearing deposits. . . $ 392,682 $ 365,678 $ 287,807
---------- ---------- ----------
Interest-bearing deposits:
Checking . . . . . . . . . . . 417,840 5,259 1.26 378,285 4,989 1.32 359,726 9,820 2.73
Passbook and statement. . . . . 762,576 14,384 1.89 732,800 16,359 2.23 675,208 21,725 3.22
Money market. . . . . . . . . . 460,286 11,644 2.53 492,128 12,436 2.53 465,716 16,258 3.49
Certificates. . . . . . . . . . 1,865,537 89,327 4.79 1,994,722 102,469 5.14 2,225,620 137,736 6.19
-------------------- --------------------- ---------------------
Total interest-bearing
deposits. . . . . . . . . 3,506,239 120,614 3.44 3,597,935 136,253 3.79 3,726,270 185,539 4.98
-------------------- --------------------- ---------------------
Borrowings:
Securities sold under
repurchase agreements . . . 122,216 6,441 5.27 123,119 6,184 5.02 103,285 7,763 7.52
FHLB advances . . . . . . . . . 369,780 20,781 5.62 435,693 25,085 5.76 500,495 28,471 5.69
Subordinated capital notes. . . 34,500 3,718 10.78 39,147 4,418 11.29 62,401 7,470 11.97
Other borrowings. . . . . . . . 13,059 958 7.34 15,239 1,237 8.12 18,120 1,982 10.94
-------------------- --------------------- ---------------------
Total borrowings . . . . . . 539,555 31,898 5.91 613,198 36,924 6.02 684,301 45,686 6.68
-------------------- --------------------- ---------------------
Total interest-bearing
liabilities . . . . . . 4,045,794 152,512 3.77 4,211,133 173,177 4.11 4,410,571 231,225 5.24
----------------- ---------------- ----------------
Other liabilities (3). . . . . . . 66,197 46,643 70,667
---------- ---------- ----------
Total liabilities . . . . . . . 4,504,673 4,623,454 4,769,045
Stockholders' equity (3) . . . . . 307,590 276,481 231,780
---------- ---------- ----------
Total liabilities
and stockholders'
equity . . . . . . . . . . . $4,812,263 $4,899,935 $5,000,825
---------- ---------- ----------
---------- ---------- ----------
Net interest income. . . . . . . . $205,129 $184,424 $167,206
-------- -------- --------
-------- -------- --------
Net interest rate spread . . . . . 4.22% 3.73% 3.35%
----- ----- -----
----- ----- -----
Net interest margin . . . . . . . 4.59% 4.04% 3.60%
----- ----- -----
----- ----- -----
<FN>
____________________________
(1) TAX-EXEMPT INCOME WAS NOT SIGNIFICANT AND THUS HAS NOT BEEN PRESENTED ON A
TAX EQUIVALENT BASIS. TAX-EXEMPT INCOME OF $329,000, $382,000 AND $609,000
WAS RECOGNIZED DURING THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992,
RESPECTIVELY.
(2) AVERAGE BALANCE OF LOANS INCLUDES NON-ACCRUAL LOANS, AND IS PRESENTED NET
OF UNEARNED INCOME.
(3) AVERAGE BALANCE IS BASED UPON MONTH-END BALANCES.
22 TCF Financial Corporation and Subsidiaries
--
In 1994, TCF's net interest income, net interest margin and interest rate
spread increased primarily due to increased yields and growth of consumer loans,
lower levels of non-performing assets, a lower cost of funds and the retention
of earnings. Net interest income increased $20.7 million, or 11.2%, even though
total average interest-earning assets decreased by $87.1 million, or 1.9% from
1993 levels. TCF's net interest margin improved by $5 million due to volume
changes and by $15.7 million due to rate changes. The favorable impact of the
lower cost of funds and increased residential and consumer loan volumes was
partially offset by the negative impact of decreased volumes in commercial real
estate loans, loans held for sale and mortgage-backed securities held to
maturity. Interest income was relatively unchanged in 1994 as a $5.5 million
increase due to higher yields on interest-earning assets was offset by a
decrease of $5.4 million due to declining volumes. Interest expense decreased
$20.7 million in 1994, of which $10.2 million was due to a lower cost of funds.
The increase in net interest income due to the lower cost of funds and higher
yields on interest-earning assets reflects in part the benefit from TCF's
changing asset/liability mix. TCF has also benefitted from increases in both
short- and long-term market interest rates as its interest rate-sensitive assets
tied to a variable index rate (e.g., prime) repriced at a faster rate than its
retail deposits. If market interest rates should decline, TCF may experience
compression in its interest margin as it is likely that the 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. In addition, competition
for checking and savings deposits, an important source of lower cost funds for
TCF, has intensified among depository and other financial institutions. As a
result of this and the general increase in market interest rates, TCF has
experienced an increase in the rates paid on its deposits. TCF may experience
compression in its net interest margin if these rates continue to increase. See
"Financial Condition - Deposits" and "Financial Condition - Asset/Liability
Management - Interest Rate Risk."
In 1993, the net interest income, net interest margin and interest rate
spread increased primarily due to a lower cost of funds, growth in lower
interest-cost deposits and higher-yielding consumer loans, lower average levels
of non-earning assets, the retention of earnings and the favorable impact of
TCF's March 1993 redemption of $28.8 million of 12 5/8% subordinated capital
notes. Net interest income increased by $17.2 million, or 10.3%, even though
total average interest-earning assets decreased by $79 million, or 1.7%. The
favorable impact of the lower cost of funds and increased residential and
consumer loan volumes was partially offset by the downward repricing of assets
tied to a variable index rate, the negative impact of the significant increase
in loan and mortgage-backed securities prepayment activity due to declining
market interest rates, and higher liquidity levels resulting from the August
1993 acquisition from the Resolution Trust Corporation of $220.8 million of
insured deposits by TCF Bank Michigan fsb ("TCF Michigan"), a wholly owned
subsidiary of TCF. Interest expense decreased $58 million in 1993, of which
$42.4 million was due to a lower cost of funds. Interest income decreased by
$40.8 million, reflecting a decrease of $38.7 million due to lower yields on
interest-earning assets. TCF's net interest income was positively impacted by
$13.5 million due to net volume changes.
In 1992, the increase in net interest income, net interest margin and
interest rate spread was primarily due to a lower cost of funds, growth in lower
interest-cost deposits and higher-yielding consumer and residential real estate
loans, lower levels of non-earning assets, the retention of earnings and the
favorable impact of TCF's January 1992 public offering. Net interest income
increased by $24.3 million, or 17%, even though total average interest-earning
assets increased only $90 million, or 2%. The favorable impact of the lower
cost of funds and increased loan volumes was partially offset by the downward
repricing of assets tied to a variable index rate, and the negative impact of
volume reductions in TCF's mortgage-backed securities portfolio. Interest
expense decreased $62.2 million in 1992, of which $57.6 million was due to a
lower cost of funds. Interest income decreased by $37.9 million, reflecting a
decrease of $45.4 million due to lower yields on interest-earning assets. TCF's
net interest income was positively impacted by $12.1 million due to net volume
changes.
TCF Financial Corporation and Subsidiaries 23
--
The following table sets forth the spread between TCF's interest-earning
assets and interest-bearing liabilities at December 31, 1994 and 1993. The net
interest rate spreads below represent the differences between the yield on
interest-earning assets and the cost of interest-bearing liabilities at those
dates:
At December 31,
-----------------
1994 1993
---- ----
Weighted average yield:
Loans 9.24% 8.42%
Loans held for sale 7.49 6.42
Mortgage-backed securities held to maturity 7.17 6.85
Investments 6.27 3.97
Securities available for sale 5.95 4.66
---- ----
Total interest-earning assets 8.48 7.59
---- ----
Weighted average cost:
Deposits (1) 3.76 3.54
FHLB advances 5.88 6.43
Other borrowings 6.64 5.71
---- ----
Total interest-bearing liabilities 4.24 3.90
---- ----
Net interest rate spread 4.24% 3.69%
---- ----
---- ----
<FN>
______________________________________
(1) EXCLUDES NON-INTEREST BEARING DEPOSITS.
The net interest rate spread increased 55 basis points to 4.24% at December
31, 1994 from 3.69% at December 31, 1993. The 82 basis point increase in the
loan portfolio yield to 9.24% at December 31, 1994 reflects the upward repricing
of adjustable-rate loans and loans tied to a variable index rate, growth in
higher-yielding consumer loans, originations of other residential and commercial
loans at higher rates and reductions in non-accrual loans. The commercial base
lending rate at TCF was 8.50% at December 31, 1994, compared with 6.00% at
December 31, 1993. The 107 basis point increase in the loans held for sale
portfolio yield to 7.49% at December 31, 1994 reflects the origination of
residential and education loans at higher rates. The 32 basis point increase in
the yield on mortgage-backed securities held to maturity to 7.17% at December
31, 1994 reflects the upward repricing of adjustable-rate mortgage-backed
securities held to maturity and the purchase of fixed-rate mortgage-backed
securities at higher rates. The 230 basis point increase in the investments
held to maturity portfolio yield to 6.27% and the 129 basis point increase in
the securities available for sale portfolio yield to 5.95% at December 31, 1994
reflect the general increase in short- and long-term market interest rates. The
weighted average cost of deposits, excluding non-interest bearing deposits,
increased 22 basis points to 3.76% at December 31, 1994 due to higher market
interest rates. The decrease in the weighted average cost of Federal Home Loan
Bank ("FHLB") advances to 5.88% at December 31, 1994 reflects the maturity of
$115 million of higher rate FHLB advances which were subsequently replaced at a
lower weighted average rate. The weighted average cost of other borrowings
increased 93 basis points to 6.64% at December 31, 1994. This increase reflects
the maturity of $129.8 million of lower rate short-term reverse repurchase
agreements and the addition of $170.1 million of higher rate reverse repurchase
agreements during 1994. TCF's net interest rate spread at December 31, 1994 may
not be indicative of net interest rate spreads in future periods.
24 TCF Financial Corporation and Subsidiaries
--
The following table presents the components of the changes in net interest
income by volume and rate:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
VERSUS SAME PERIOD IN 1993 VERSUS SAME PERIOD IN 1992
--------------------------------- ----------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------- ----------------------------------
(IN THOUSANDS) VOLUME (1) RATE (1) TOTAL VOLUME (1) RATE (1) TOTAL
--------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR
SALE . . . . . . . . . . . . . . . . $ 2,490 $ (288) $ 2,202 $ (79) $ (856) $ (935)
---------------------------------------------------------------------
LOANS HELD FOR SALE. . . . . . . . . . (4,839) (661) (5,500) 4,952 (2,651) 2,301
---------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
HELD TO MATURITY . . . . . . . . . . (13,386) (649) (14,035) (1,243) (11,927) (13,170)
---------------------------------------------------------------------
LOANS:
Residential real estate . . . . . . 16,006 (3,920) 12,086 7,492 (12,443) (4,951)
Commercial real estate . . . . . . . (8,523) (1,626) (10,149) (9,740) (6,532) (16,272)
Commercial business. . . . . . . . . 326 765 1,091 (233) (577) (810)
Consumer . . . . . . . . . . . . . . 7,513 9,139 16,652 2,126 616 2,742
---------------------------------------------------------------------
Total loans . . . . . . . . . . . 15,322 4,358 19,680 (355) (18,936) (19,291)
---------------------------------------------------------------------
INVESTMENTS:
Interest-bearing deposits
with banks. . . . . . . . . . . . (116) 178 62 (493) (398) (891)
Federal funds sold . . . . . . . . . 661 560 1,221 (1,631) (596) (2,227)
U.S. Government and other
marketable securities
held to maturity . . . . . . . . (5,948) 1,952 (3,996) (3,494) (3,031) (6,525)
FHLB stock . . . . . . . . . . . . . 371 35 406 191 (283) (92)
---------------------------------------------------------------------
Total investments . . . . . . . . (5,032) 2,725 (2,307) (5,427) (4,308) (9,735)
---------------------------------------------------------------------
Total interest
income. . . . . . . . . . . . (5,445) 5,485 40 (2,152) (38,678) (40,830)
---------------------------------------------------------------------
DEPOSITS:
Checking . . . . . . . . . . . . . . 505 (235) 270 483 (5,314) (4,831)
Passbook and statement . . . . . . . 633 (2,608) (1,975) 1,738 (7,104) (5,366)
Money market . . . . . . . . . . . . (792) - (792) 875 (4,697) (3,822)
Certificates . . . . . . . . . . . . (6,406) (6,736) (13,142) (13,384) (21,883) (35,267)
---------------------------------------------------------------------
Total deposits. . . . . . . . . . (6,060) (9,579) (15,639) (10,288) (38,998) (49,286)
---------------------------------------------------------------------
BORROWINGS:
Securities sold under
repurchase agree-
ments . . . . . . . . . . . . . (46) 303 257 1,313 (2,892) (1,579)
FHLB advances. . . . . . . . . . . . (3,708) (596) (4,304) (3,732) 346 (3,386)
Subordinated capital notes . . . . . (507) (193) (700) (2,649) (403) (3,052)
Other borrowings . . . . . . . . . . (167) (112) (279) (284) (461) (745)
---------------------------------------------------------------------
Total borrowings. . . . . . . . . (4,428) (598) (5,026) (5,352) (3,410) (8,762)
---------------------------------------------------------------------
Total interest
expense . . . . . . . . . . . (10,488) (10,177) (20,665) (15,640) (42,408) (58,048)
---------------------------------------------------------------------
Net interest income. . . . . . . . . . $ 5,043 $ 15,662 $ 20,705 $ 13,488 $ 3,730 $ 17,218
---------------------------------------------------------------------
---------------------------------------------------------------------
<FN>
___________________________
(1) CHANGES ATTRIBUTABLE TO THE COMBINED IMPACT OF VOLUME AND RATE HAVE BEEN
ALLOCATED PROPORTIONATELY TO THE CHANGE DUE TO VOLUME AND THE CHANGE DUE TO
RATE.
For 1994, interest income remained relatively unchanged at $357.6
million, while interest expense decreased $20.7 million to $152.5 million. For
1993, interest income decreased $40.8 million to $357.6 million, while interest
expense decreased $58 million to $173.2 million. As illustrated by the table
above, the increase in net interest income during 1994 reflects the significant
decrease in TCF's cost of funds and growth in higher-yielding consumer loans and
residential real estate loans, partially offset by the negative impact of volume
changes in the mortgage-backed securities and commercial real estate loan
portfolios. Net interest income increased in 1993 due to the decrease in TCF's
cost of funds and the positive impact of volume changes, partially offset by the
downward repricing of loans and investments tied to variable index rates.
Changes in net interest income are dependent upon the movement of interest
rates, the volume and the mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. TCF's exposure to changing
interest rates has been significantly reduced during recent years. See
"Financial Condition - Asset/Liability Management - Interest Rate Risk."
TCF Financial Corporation and Subsidiaries 25
--
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.
During 1994, non-interest income decreased $2.3 million, or 1.9%, to $117.3
million, reflecting decreases in title insurance revenues and gains on sales of
loans held for sale due to the impact on demand of rising market interest rates.
These decreases were partially offset by increases in commissions on sales of
annuities, gains on sales of securities available for sale and gains on sales of
loan servicing. The following table presents the components of non-interest
income:
Percentage
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
------------------------------ -------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992 1994/93 1993/92
-----------------------------------------------------------------------------------------------------
Fee and service charge revenues. . . . . $ 75,449 $ 72,130 $ 66,582 4.6% 8.3%
Data processing revenue. . . . . . . . . 8,988 8,120 7,310 10.7 11.1
Commissions on sales of annuities . . . 10,818 9,446 9,327 14.5 1.3
Title insurance revenues . . . . . . . . 10,274 15,229 9,984 (32.5) 52.5
Gain on sale of loans held for
sale, net. . . . . . . . . . . . . . . 2,367 10,059 6,889 (76.5) 46.0
Gain on sale of securities
available for sale, net. . . . . . . . 2,035 649 3,362 213.6 (80.7)
Gain on sale of loan servicing, net. . . 2,353 137 - 1,617.5 100.0
Other. . . . . . . . . . . . . . . . . . 5,010 3,845 3,058 30.3 25.7
------------------------------
117,294 119,615 106,512 (1.9) 12.3
Gain on sale of mortgage-backed
securities, net. . . . . . . . . . . . - - 718 - (100.0)
Gain on sale of investments, net . . . . - - 114 - (100.0)
------------------------------
Total non-interest income. . . . . . . $117,294 $119,615 $107,344 (1.9) 11.4
------------------------------
------------------------------
[Graph] -- Sources of Non-Interest Income for 1994
Fee and service charge revenues increased $3.3 million in 1994 and $5.5
million in 1993 primarily as a result of expanded retail and mortgage banking
activities. Included in fee and service charge revenues are fees of $13.2
million, $12.3 million and $10.6 million received for the servicing of loans
owned by others during 1994, 1993 and 1992, respectively. The increase in
servicing fees during this period reflects an increase in the size of TCF's
servicing portfolio resulting from loan originations and purchases of loan
servicing rights. At December 31, 1994, 1993 and 1992, TCF was servicing real
estate loans for others with aggregate unpaid principal balances of $3.9
billion, $3.6 billion and $3.3 billion, respectively.
Data processing revenue increased $868,000 in 1994 and $810,000 in 1993.
These increases reflect TCF's efforts to provide electronic banking transaction
services through its automated teller machine ("ATM") network consisting of 634
ATMs. These revenues are generated principally through the use of TCF's ATM
network by depositors of other financial institutions.
Commissions on sales of annuities increased $1.4 million to a record $10.8
million in 1994, following an increase of $119,000 to $9.4 million in 1993.
Sales of annuities may fluctuate from period to period, and future sales levels
will depend upon continued favorable tax treatment, the level of interest rates,
general economic conditions and investor preferences.
26 TCF Financial Corporation and Subsidiaries
--
Title insurance revenues decreased $5 million in 1994 to $10.3 million,
following an increase of $5.2 million in 1993 to $15.2 million. Title insurance
revenues for 1994 were negatively affected by decreases in loan originations and
refinancing activity associated with the rise in market interest rates during
the year. Title insurance revenues are cyclical in nature and are largely
dependent on the level of loan originations and refinancings in the industry.
Gains on sales of loans held for sale decreased $7.7 million in 1994
following an increase of $3.2 million in 1993. Gains on sales of securities
available for sale totaled $2 million in 1994, an increase of $1.4 million from
the $649,000 recognized in 1993. 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. See "Financial Condition - Loans Held for Sale"
and "Financial Condition - Securities Available for Sale."
[Graph] -- Residential Mortgage Servicing Portfolio at period-end
Gains on sales of third-party loan servicing rights totaled $2.4 million in
1994, compared with $137,000 in 1993. These gains were recognized on the sale
of third-party servicing rights on approximately $169 million and $44 million of
loans, respectively. TCF periodically sells loan servicing rights depending on
market conditions.
Other non-interest income increased $1.2 million in 1994 to $5 million, and
$787,000 in 1993 to $3.8 million. The increases in 1994 and 1993 were primarily
due to increased commissions earned on sales of insurance and mutual fund
products. TCF commenced sales of mutual funds in the fourth quarter of 1993.
Gains on sales of mortgage-backed securities and investments totaled
$832,000 in 1992. There were no such gains in 1994 or 1993. TCF's results for
1992 included a pretax gain of $718,000 on the sale of $23 million of Federal
Home Loan Mortgage Corporation ("FHLMC") adjustable-rate mortgage-backed
securities. Management decided to sell these high-coupon adjustable-rate
mortgage-backed securities primarily due to growing concerns over expected
increased prepayments on such securities. In addition, prior to its merger with
TCF, RCG realized a gain of $118,000 on the sale of $4,200 of Federal National
Mortgage Association ("FNMA") stock.
NON-INTEREST EXPENSE -- Total non-interest expense decreased $1.6 million in
1994, following an increase of $12.3 million, or 6.1%, in 1993, as compared with
the respective prior years. The following table presents the components of non-
interest expense:
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
------------------------------ -------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992 1994/93 1993/92
-----------------------------------------------------------------------------------------------------
Compensation and employee
benefits . . . . . . . . . . . . . . . $ 99,071 $ 90,045 $ 82,388 10.0% 9.3%
Occupancy and equipment, net . . . . . . 35,357 32,834 29,542 7.7 11.1
Advertising and promotions . . . . . . . 11,666 11,254 9,423 3.7 19.4
Federal deposit insurance premiums
and assessments. . . . . . . . . . . . 9,871 8,979 9,606 9.9 (6.5)
Amortization of goodwill and
other intangibles. . . . . . . . . . . 3,257 2,957 3,830 10.1 (22.8)
Provision for real estate losses . . . . 2,373 11,743 (1) 22,054 (79.8) (46.8)
Other. . . . . . . . . . . . . . . . . . 52,262 52,182 46,302 .2 12.7
-------- -------- --------
213,857 209,994 203,145 1.8 3.4
Merger-related expense . . . . . . . . . - 5,494 - (100.0) 100.0
Total non-interest expense . . . . . . $213,857 $215,488 $203,145 (.8) 6.1
-------- -------- --------
-------- -------- --------
<FN>
(1) INCLUDES $700 OF MERGER-RELATED PROVISIONS.
Compensation and employee benefits, representing 46.3% of total non-
interest expense in 1994, increased $9 million, or 10%, in 1994, following an
increase of $7.7 million, or 9.3%, in 1993. The 1994 increase was largely due
to compensation and benefit costs associated with TCF's expanded consumer
finance activities, TCF Michigan, which TCF purchased in the third quarter of
1993, and normal salary increases. These increases were offset by compensation
and benefit cost savings associated with the reduction in residential mortgage
origination and title company operations. Residential mortgage origination at
TCF were $1.1 billion in 1994, down from $2.3 billion in 1993.
Occupancy and equipment expenses increased $2.5 million in 1994 and $3.3
million in 1993. The increase in 1994 was a result of expanded consumer finance
activities, which included the opening of 27 new consumer finance offices, and
costs associated with TCF Michigan. The 1993 increase was largely due to costs
associated with TCF Michigan, expanded mortgage banking and consumer finance
activities and the opening of seven new Cub Food branch offices.
TCF Financial Corporation and Subsidiaries 27
--
Advertising and promotion expenses increased $412,000 in 1994 and $1.8
million in 1993. The increases in 1994 and 1993 reflect the increase in direct
mail and other marketing expenses relating to the promotion of TCF's consumer
finance and deposit products in TCF's new market locations.
Federal deposit insurance premiums and assessments totaled $9.9 million for
1994, an increase of $892,000 from 1993. The increase in 1994 reflects TCF's
recognition of its remaining $1.5 million Federal Savings and Loan Insurance
Corporation ("FSLIC") secondary reserve credit during the six-month assessment
period ended June 30, 1993. This credit represented the final recovery of the
1987 federally mandated write-off of TCF's investment in the FSLIC secondary
reserve.
In February 1995, the U.S. Department of the Treasury disclosed that it is
considering a plan to recapitalize the Savings Association Insurance Fund
("SAIF") that would entail charging a one-time special assessment of
approximately $6 billion. The special assessment, estimated to be .80% of TCF's
total insured deposits or approximately $28 million, would be in addition to
TCF's annual deposit insurance premium of .23% of total insured deposits. It is
too early to predict whether the proposed special assessment will be approved,
or, if approved, when it will be charged.
Amortization of goodwill and other intangibles increased $300,000 to $3.3
million in 1994, following a decrease of $873,000 to $3 million in 1993. The
increase in amortization of goodwill and other intangibles in 1994 was primarily
due to the amortization of deposit base intangibles associated with TCF
Michigan. For acquisitions initiated or completed prior to September 30, 1982,
goodwill is being amortized over 25 years on a straight-line basis. For
acquisitions initiated or completed subsequent to September 30, 1982, goodwill
is being amortized by the level-yield method based upon the outstanding
balances, and over the estimated remaining lives, of the long-term assets
acquired. This amortization method, referred to as "lock-step," is required by
generally accepted accounting principles and results in a declining rate of
amortization. TCF periodically re-evaluates the periods of amortization to
determine whether current conditions warrant revised estimates of useful lives.
The provision for real estate losses decreased $9.4 million, or 79.8%, to
$2.4 million in 1994, following a decrease of $10.3 million, or 46.8%, to $11.7
million in 1993. Included in the provision for real estate losses in 1993 are
$700,000 in merger-related provisions related to TCF's acquisition of RCG. The
amounts provided for real estate losses in each of the three years were
considered prudent by management in light of all factors affecting reserve
adequacy. See "Financial Condition - Allowances for Loan and Real Estate Losses
and Industrial Revenue Bond Reserves" for further detail on the provision for
real estate losses.
Other non-interest expense increased $80,000 in 1994 and $5.9 million, or
12.7%, in 1993. Included in other non-interest expense in 1994 are costs
totaling approximately $1 million associated with TCF's February 1995 merger
with Great Lakes Bancorp. See "Subsequent Business Combination." The increase
in 1994 also reflects an increase of $1.5 million in outside processing expense
due to an expansion of TCF's ATM network. Other non-interest expense for 1993
reflects $3.6 million in write-offs of purchased mortgage servicing rights
("PMSRs"), an increase of $2.5 million over similar write-offs recorded in 1992.
No such write-offs occurred in 1994 as loan prepayments slowed significantly due
to the general increase in interest rates. Other non-interest expense in 1993
also reflects an increase of $1.6 million in loan expense resulting from
significantly increased loan origination activity.
During 1993, TCF recorded $5.5 million of merger-related expenses
associated with the RCG merger. These expenses consisted primarily of $2.7
million for severance expense, $830,000 associated with the write-off of
premises and equipment rendered redundant or obsolete as a result of the merger
and $2 million in other expenses.
In June 1994, the Financial Accounting Standards Board ("FASB") issued an
Exposure Draft of a Proposed Statement of Financial Accounting Standards,
"Accounting for Mortgage Servicing Rights and Excess Servicing Receivables and
for Securitization of Mortgage Loans." The proposed statement amends the
accounting for mortgage servicing rights prescribed under Statement of Financial
Accounting Standards ("SFAS") No. 65, "Accounting for Certain Mortgage Banking
Activities." SFAS No. 65 presently prescribes different treatment for the
recognition of originated mortgage servicing rights and PMSRs. Subject to
limitations, presently only PMSRs are capitalized and amortized in accordance
with SFAS No. 65. The proposed statement would require that an entity recognize
as separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. An entity that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
those loans with servicing rights retained would allocate a portion of the cost
of the loans to the mortgage servicing rights. The proposed statement would
also require that capitalized mortgage servicing rights be assessed for
impairment, based on fair value. The proposed statement would be applied
prospectively in fiscal years beginning after December 15, 1995 to transactions
in which an entity acquires mortgage servicing rights and to impairment
evaluations of all capitalized mortgage servicing rights whenever acquired.
Earlier application is permitted but not required. Retroactive application
would be prohibited. It is too early to predict whether the proposed statement
will be adopted in its present form or what effect the proposed statement will
have on TCF's financial condition or results of operations.
INCOME TAXES -- TCF recorded income tax expense of $40.3 million in 1994,
compared with $28.6 million in 1993 and $13 million in 1992. Income tax expense
represented 41% of pretax income during 1994, compared with 43% and 22% for 1993
and 1992, respectively. TCF's 1992 tax rate reflected benefits obtained from
the reversal of a valuation allowance established against deferred tax assets in
years prior to 1992 under the provisions of SFAS No. 109, "Accounting for Income
28 TCF Financial Corporation and Subsidiaries
--
Taxes." The reversal of the valuation allowance resulted in the recognition of
deferred tax assets. No tax valuation allowance was required as of December 31,
1994 or 1993 since TCF had paid taxes, which are available for carryback, in
excess of its deferred tax assets. As a result, TCF's income tax expense
returned to a more normal rate in 1994 and 1993.
The tax expense in 1992 also included the recognition of $2.8 million in
tax benefits from the utilization of net operating loss ("NOL") carryovers TCF
obtained as a result of its settlement of issues raised by the Internal Revenue
Service in their review of the consolidated tax returns for the years ended 1979
through 1982. As part of the settlement, TCF paid interest and minimum tax
relating to certain of the examined years, which had been fully accrued in prior
periods.
The Revenue Reconciliation Act of 1993 increased the federal income tax
rate from 34% to 35% effective January 1, 1993. TCF's 1993 tax expense was not
significantly impacted by the tax rate change since the resulting increase in
federal income taxes was partially offset by the recognition of additional
deferred tax assets.
At December 31, 1994, TCF had no remaining federal NOL or tax credit
carryovers.
Further detail on income taxes is provided in Note 14 of Notes to
Consolidated Financial Statements.
SUBSEQUENT BUSINESS COMBINATION
On February 8, 1995, TCF completed its acquisition of Great Lakes Bancorp,
A Federal Savings Bank ("Great Lakes"), a Michigan-based savings bank with $2.8
billion in assets, $1.6 billion in deposits, 39 offices in Michigan and five
offices in western Ohio. In connection with the acquisition, TCF issued
approximately 4.8 million shares of its common stock for all of the outstanding
common shares of Great Lakes. In addition, each outstanding share of Great
Lakes preferred stock was exchanged for one share of TCF preferred stock with
substantially identical terms. TCF intends to redeem the 2.7 million shares of
preferred stock as soon as practicable after July 1, 1995, the date the
preferred stock first becomes redeemable at the option of the issuer. TCF also
assumed the obligation to issue common stock upon the exercise or conversion of
the outstanding warrants to purchase Great Lakes common stock, the outstanding
employee and director options to purchase Great Lakes common stock, and the
outstanding 7-1/4% convertible subordinated debentures due 2011 of Great Lakes.
This acquisition was accounted for as a pooling-of-interests and, accordingly,
TCF's historical financial statements presented in future reports will be
restated to include the accounts and results of operations of Great Lakes. In
connection with the acquisition, it is expected that a pretax merger-related
charge of approximately $51.4 million will be incurred during the 1995 first
quarter, primarily to accrue for specific, identified costs related to the
merger.
As a result of the acquisition, Great Lakes merged into TCF's existing
Michigan-based wholly owned savings bank subsidiary, TCF Michigan. The
resulting savings bank is operated as a direct subsidiary of TCF and retained
the Great Lakes name, certain members of its board of directors, and
headquarters in Ann Arbor, Michigan. The resulting savings bank operates 54
offices in Michigan and five offices in western Ohio.
Further detail on the business combination is provided in Note 2 of Notes
to Consolidated Financial Statements.
FINANCIAL CONDITION
INVESTMENTS -- Total investments increased $8.5 million in 1994 to $243.7
million at December 31, 1994. Interest-bearing deposits with banks increased
$180.2 million during 1994 to $190.7 million at December 31, 1994. Federal
funds sold decreased $98.6 million in 1994, totaling $6.9 million at December
31, 1994. U.S. Government and other marketable securities held to maturity
decreased $77.7 million in 1994 to $3.5 million at December 31, 1994, reflecting
decreases of $66.9 million in U.S. Government and agency obligations, $7 million
in bankers' acceptances and $3 million in corporate bonds. TCF had no non-
investment grade debt securities (junk bonds) and there were no open trading
account or investment option positions as of December 31, 1994.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. SFAS No.
115 does not apply to unsecuritized loans. SFAS No. 115 requires investments in
equity and debt securities to be classified in one of three categories and
accounted for as follows:
1. Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held to maturity
securities and reported at amortized cost.
2. Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
3. Debt and equity securities not classified in the first two categories
are classified as available for sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and
reported in a separate component of stockholders' equity.
TCF Financial Corporation and Subsidiaries 29
--
TCF adopted SFAS No. 115 effective January 1, 1994. In accordance with
SFAS No. 115, prior period financial statements have not been restated to
reflect the change in accounting method. As permitted by SFAS No. 115, TCF
reclassified $77.3 million of its debt securities from U.S. Government and other
marketable securities and $156.8 million of its mortgage-backed securities to
securities available for sale on January 1, 1994. Additional information on
TCF's adoption of SFAS No. 115 is provided in Note 1 of Notes to Consolidated
Financial Statements.
SECURITIES AVAILABLE FOR SALE -- Securities available for sale are carried at
fair value with the unrealized holding gains or losses, net of deferred income
taxes, reported as a separate component of stockholders' equity. Such
securities were carried at the lower of cost or market prior to 1994.
Securities available for sale increased $55.8 million during 1994 to $65.8
million at December 31, 1994. Securities available for sale totaled $10 million
at December 31, 1993, a decrease of $246.6 million from $256.6 million at
December 31, 1992.
LOANS HELD FOR SALE -- Residential real estate and education loans held for sale
are carried at the lower of cost or market. Loans held for sale decreased
$221.4 million during 1994, totaling $200.5 million at December 31, 1994. The
change in 1994 was due to a decrease of $252.6 million in residential real
estate loans held for sale partially offset by a $32.3 million increase in
education loans held for sale. The decrease in residential real estate loans
held for sale reflects a decrease in origination and refinancing demand due to
rising market interest rates. In addition, loan sales activity exceeded
production levels during 1994. The increase in education loans held for sale
reflects management's intention to hold a larger portfolio of these loans due to
the higher yields received on these loans as compared with alternative short-
term investments. Under a forward commitment agreement with the Student Loan
Marketing Association ("SLMA"), TCF can sell the education loans to SLMA once
they are fully disbursed, but must sell the loans to SLMA before they go into
repayment status. Loans held for sale totaled $421.9 million at December 31,
1993, an increase of $136.4 million from $285.5 million at December 31, 1992.
MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- Mortgage-backed securities held
to maturity totaled $1.1 billion at December 31, 1994, a decrease of $122.6
million from the December 31, 1993 balance of $1.2 billion. The decrease
reflects the previously mentioned reclassification of $156.8 million of
mortgage-backed securities to securities available for sale on January 1, 1994,
principal paydowns and prepayments, partially offset by purchases of $262.8
million of 15-year fixed-rate FNMA mortgage-backed securities and $25.2 million
of 30-year fixed-rate FNMA mortgage-backed securities. At December 31, 1994,
TCF's mortgage-backed securities held to maturity portfolio was comprised of
$130.1 million of adjustable-rate mortgage-backed securities and $980.8 million
of fixed-rate mortgage-backed securities, and had gross unrealized gains of $2.9
million and gross unrealized losses of $51.2 million. Mortgage-backed
securities held to maturity totaled $1.1 billion at December 31, 1992.
LOANS -- The following table sets forth information about loans held in TCF's
portfolio, excluding loans held for sale:
AT DECEMBER 31,
-----------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------
Residential real estate. . . . . . . . $1,261,690 $1,063,158 $ 858,685 $ 707,590 $ 721,129
Consumer . . . . . . . . . . . . . . . 1,105,971 919,027 906,661 892,166 977,037
Commercial real estate . . . . . . . . 634,770 687,202 828,995 902,330 955,884
Commercial business. . . . . . . . . . 100,397 89,368 80,312 89,496 100,468
Deferred fees and
unearned discounts
and finance charges . . . . . . . . (21,020) (13,609) (17,727) (25,498) (48,090)
-----------------------------------------------------------
Total loans. . . . . . . . . . . . $3,081,808 $2,745,146 $2,656,926 $2,566,084 $2,706,428
-----------------------------------------------------------
-----------------------------------------------------------
Residential real estate loans totaled $1.3 billion at December 31, 1994, an
increase of $198.5 million from December 31, 1993. This increase reflects the
origination and retention of $378 million of residential loans, partially offset
by loan repayments. During 1994, TCF retained a greater proportion of
residential real estate loans originated than in recent years. At December 31,
1994, TCF's residential real estate loan portfolio was comprised of $728.6
million of fixed-rate loans and $533.1 million of adjustable-rate loans.
Consumer loans totaled $1.1 billion at December 31, 1994, an increase of
$186.9 million from December 31, 1993. This change was primarily due to a $116
million increase in TCF's home equity loan portfolio, a $40.6 million increase
in automobile and recreational vehicle loans and a $15.7 million increase in
credit card loans. The growth in home equity loans is primarily due to the
expanded operations of TCF's consumer finance subsidiaries and the slowdown of
refinancings. The growth in automobile and recreational vehicle loans also
reflects the expanded operations of TCF's consumer finance subsidiaries.
30 TCF Financial Corporation and Subsidiaries
--
TCF is expanding its consumer lending and consumer finance operations and
anticipates opening more than 20 new consumer finance offices during 1995, most
of which will be in areas outside its traditional market areas. TCF opened 27
such offices in 1994 and now has 46 consumer finance offices in 11 states. As a
result of this expansion, TCF's consumer finance loan portfolio totaled $201
million at December 31, 1994, compared with $136.5 million at December 31, 1993.
Consumer finance lending is generally considered to involve a higher level of
risk than single-family residential lending due to the higher level of credit
risk and interest rates associated with these loans. The underwriting criteria
for loans originated by these consumer finance offices are generally less
stringent than those historically adhered to by TCF and as a result carry a
higher level of credit risk and higher interest rates. TCF believes that it has
in place experienced personnel and acceptable standards for maintaining credit
quality that are consistent with its goals for expanding its portfolio of these
higher-yielding loans.
Consumer loan growth in recent years reflects TCF's emphasis on expanding
its portfolio of these higher-yielding, shorter-term loans, including home
equity lines of credit. At December 31, 1994, TCF's average home equity line of
credit was approximately $36,000 and the average loan balance outstanding was
approximately $21,000, or 58% of the available line. The average combined loan
to value ratio for TCF's home equity credit line portfolio, based on the
combined total of any first mortgage lien and the maximum amount of the credit
line available, was approximately 70%. At December 31, 1994, TCF's consumer
loan delinquency rate was .68% (defined as accruing loans, including education
loans held for sale, greater than 30 days past due).
Commercial real estate loans decreased $52.4 million in 1994 to $634.8
million at December 31, 1994. Commercial business loans increased $11 million
to $100.4 million at December 31, 1994. TCF is seeking to expand its commercial
real estate and commercial business lending activity to borrowers located in its
primary markets of Minnesota, Illinois, Wisconsin, Michigan and other Midwestern
states in an attempt to maintain the size of these lending portfolios and, where
feasible under local economic conditions, achieve some growth in these lending
categories over time. These loans generally have larger individual balances and
a substantially greater inherent risk of loss. The risk of loss is difficult to
quantify and is subject to fluctuations in real estate values. At December 31,
1994, approximately 84% of TCF's commercial real estate loans outstanding were
secured by properties located in its primary markets. The average individual
balance of commercial real estate loans was $562,000 at December 31, 1994.
Apartment loans comprised $265.6 million, or 42%, of total commercial real
estate loans outstanding at December 31, 1994.
Included in performing loans at December 31, 1994 are commercial real
estate loans aggregating $3 million with terms that have been modified in
troubled debt restructurings, compared with $7.4 million of such loans at
December 31, 1993. The results of hotel and motel operations have suffered in
recent years. Included in commercial real estate loans at December 31, 1994 are
$73.9 million of loans secured by hotel or motel properties. Of this amount,
one loan totaling $11.6 million is included in loans subject to management
concern. TCF continues to closely monitor the performance of these loans and
properties.
TCF does not make highly leveraged corporate loans or agricultural, energy-
related or foreign loans.
ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND
RESERVES -- Credit risk is the risk of loss from a customer default. TCF has in
place a process to identify and manage its credit risks. The process includes
initial credit review and approval, periodic monitoring to measure compliance
with credit agreements and internal credit policies, identification of problem
loans and special procedures for collection of problem loans.
On an ongoing basis, TCF's loan and real estate portfolios are carefully
reviewed and thoroughly analyzed as to credit risk, performance, collateral
value and quality. The allowances for loan and real estate losses are
maintained at levels considered by management to be necessary to provide for
estimated loan and real estate losses. Management's judgment as to the adequacy
of the allowances is a result of ongoing review of individual loans greater than
$100,000, the overall risk characteristics of the portfolio, changes in the
character or size of the portfolio, the level of non-performing assets, net
charge-offs, geographic location and prevailing economic conditions. The
allowance for loan losses is established for known or anticipated problem loans,
as well as for loans which are not currently known to require specific
allowances for loss. The allowance for real estate losses is established to
reduce the carrying value of real estate to fair value less disposition costs.
Estimates of costs to complete or ready a project for sale, costs of disposal
and costs to carry real estate until estimated disposition are considered in
establishing the initial recorded investment in real estate.
Prior to being acquired by TCF, RCG had entered into agreements
guaranteeing certain industrial development and housing revenue bonds issued by
municipalities to finance commercial and multifamily real estate owned by third
parties. In the event a third-party borrower defaults on principal or interest
payments on the bonds, TCF, as acquiring entity, is required to either fund the
amount in default or acquire the then outstanding bonds. TCF may foreclose on
the underlying real estate to recover amounts in default. The balance of such
financial guarantees at December 31, 1994 was $18.6 million. Management has
considered these guarantees in its review of the adequacy of the industrial
revenue bond reserves.
The adequacy of the allowances for loan and real estate losses and
industrial revenue bond reserves is highly dependent upon management's estimates
of variables affecting valuation, appraisals of collateral, and evaluations of
performance and status. Such estimates, appraisals and evaluations may be
subject to frequent adjustments due to changing economic conditions and the
economic prospects of borrowers or properties. Management believes the
allowances for loan and real estate losses and industrial revenue bond reserves
are adequate.
TCF Financial Corporation and Subsidiaries 31
--
The provisions for credit and real estate losses included in the
consolidated statements of operations totaled $13.3 million in 1994, compared
with $33.7 million in 1993 and $35.2 million in 1992. Included in the provision
for credit losses and the provision for real estate losses in 1993 are $7
million and $700,000, respectively, in merger-related provisions related to
TCF's acquisition of RCG. The merger-related provisions were established to
conform RCG's accounting and credit loss reserve practices and methods to those
of TCF and to accelerate the disposition of RCG's problem assets.
While TCF's investments in commercial real estate loans, commercial
business loans and related properties acquired through foreclosure or by other
means have significantly decreased in recent years, such loans and investments
have larger individual balances and a substantially greater inherent risk of
loss. The risk of loss on such loans and properties is difficult to quantify
and is subject to fluctuations in real estate values. In addition, concerns
remain over the future course of the economy and particularly the related impact
on the real estate values associated with these loans and properties.
At December 31, 1994, the allowances for loan and real estate losses and
industrial revenue bond reserves totaled $35.1 million, compared with $30.7
million at December 31, 1993. Net loan, real estate and industrial revenue bond
charge-offs were $8.8 million in 1994 compared with $25.6 million in 1993. As
indicated by the significant reduction in loss provisions and net charge-offs
during 1994, TCF has experienced continued improvement in credit quality.
A summary of the allowance for loan losses and industrial revenue bond
reserves and selected statistics follows:
INDUSTRIAL
ALLOWANCE REVENUE
FOR LOAN BOND
(IN THOUSANDS) LOSSES RESERVES TOTAL
---------------------------------------------------------------------------
Balance, December 31, 1991 . . . . . $25,420 $2,881 $28,301
Provision for losses . . . . . . . 12,423 767 13,190
Charge-offs. . . . . . . . . . . . (21,519) (2,185) (23,704)
Recoveries . . . . . . . . . . . . 2,925 - 2,925
-----------------------------------
Net charge-offs. . . . . . . . . (18,594) (2,185) (20,779)
-----------------------------------
Balance, December 31, 1992 . . . . . 19,249 1,463 20,712
Adjustments for pooling-of-
interests. . . . . . . . . . . . (56) 225 169
Provision for losses . . . . . . . 20,207 1,726 21,933
Charge-offs. . . . . . . . . . . . (16,032) (725) (16,757)
Recoveries . . . . . . . . . . . . 2,687 - 2,687
-----------------------------------
Net charge-offs. . . . . . . . . (13,345) (725) (14,070)
-----------------------------------
Balance, December 31, 1993 . . . . . 26,055 2,689 28,744
Provision for losses . . . . . . . 10,901 - 10,901
Charge-offs. . . . . . . . . . . . (7,740) - (7,740)
Recoveries . . . . . . . . . . . . 2,432 70 2,502
-----------------------------------
Net charge-offs. . . . . . . . . (5,308) 70 (5,238)
-----------------------------------
BALANCE, DECEMBER 31, 1994 . . . . . $31,648 $2,759 $34,407
-----------------------------------
-----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
---------------------------------------------------------------------------
Ratio of net loan charge-offs to
average loans outstanding (1). . . .18% .50% .69%
Year-end allowance for loan losses
as a percentage of year-end gross
loan balances (1). . . . . . . . . 1.02 .94 .72
<FN>
___________________________________
(1) EXCLUDING LOANS HELD FOR SALE.
A summary of the allowance for real estate losses follows:
YEAR ENDED DECEMBER 31,
-----------------------------------
(IN THOUSANDS) 1994 1993 1992
---------------------------------------------------------------------------
Balance at beginning of year . . . . $1,968 $ 2,291 $ 7,603
Adjustments for pooling-of-
interests. . . . . . . . . . . . - (513) -
Provision for losses . . . . . . . 2,373 11,743 22,054
Charge-offs. . . . . . . . . . . . (3,611) (11,553) (27,366)
-----------------------------------
Balance at end of year . . . . . . . $ 730 $ 1,968 $ 2,291
-----------------------------------
-----------------------------------
Real estate acquired through foreclosure is carried at the lower of cost or
fair value minus estimated costs to sell the properties. Fair value represents
the amount that would be received in a current sale between a willing buyer and
a willing seller - that is, in other than a forced or liquidation sale.
Real estate charge-offs in 1993 reflect $4.2 million in charge-offs of
TCF's investment in New York City cooperative apartment units, and sales of
commercial real estate properties at less than previously estimated fair values.
TCF's remaining investment in the cooperative units (excluding loans to
purchasers of cooperative units and loans to the cooperative apartment
corporations secured by underlying real estate) totaled $528,000 and $1.8
million at December 31, 1994 and 1993, respectively.
Real estate charge-offs in 1992 exceeded the allowance for real estate
losses at December 31, 1991 primarily due to a decline in the market value of
cooperative units and other commercial real estate properties and sales of
commercial real estate properties at less than previously estimated fair values.
The presence of various factors added a degree of uncertainty to management's
determination of the estimated fair values of certain foreclosed commercial real
estate properties at December 31, 1991. These factors included the existence of
a number of large out-of-territory properties which have a substantially greater
risk of loss, the inability to gain access and obtain appraisals for certain in-
substance foreclosed properties, the limited market for certain of the
properties, and environmental concerns for one property which was subsequently
sold. TCF disposed of a number of foreclosed commercial real estate properties
in 1992 at lower prices in order to reduce future legal and other expenses,
minimize future holding costs and reduce TCF's exposure to further declines in
market values.
32 TCF Financial Corporation and Subsidiaries
--
The allowance for real estate losses is based on management's periodic
analysis of real estate holdings. In this analysis, management considers
factors including, but not limited to, general economic and market conditions,
geographic location, composition and appraisals of the real estate holdings and
property conditions. The carrying values of foreclosed real estate are based on
appraisals, prepared by certified appraisers, whenever possible. TCF reviews
each external commercial real estate appraisal it receives for accuracy,
completeness and reasonableness of assumptions used. A renewed weakness in
commercial real estate markets may result in further declines in values of the
properties or the sale of individual properties at less than previously
estimated values, resulting in additional charge-offs. TCF recognizes the
effect of such events in the periods in which they occur.
NON-PERFORMING ASSETS -- Non-performing assets (principally non-accrual loans
and real estate acquired through foreclosure) totaled $26.1 million at December
31, 1994, down $18.9 million, or 42%, from the December 31, 1993 total of $45
million. As indicated by the reduction in non-performing assets in 1994, TCF
has experienced continued improvement in credit quality. At December 31, 1994,
six commercial real estate loans or properties comprised $11.5 million, or 44%,
of total non-performing assets. These loans or properties had been written down
by $7.8 million as of year-end 1994. Properties acquired are being actively
marketed. Approximately 95% of non-performing assets consist of, or are secured
by, real estate. At December 31, 1994, TCF's real estate and other non-
performing assets of $16.6 million included commercial real estate of $10.5
million. The accrual of interest income is generally discontinued when loans
become 90 days past due with respect to either principal or interest unless such
loans are adequately secured and in the process of collection.
Non-performing assets are summarized in the following table:
AT DECEMBER 31,
------------------------------------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
Loans (1):
Residential real estate. . . $ 4,203 $ 5,956 $ 8,418 $ 9,663 $ 4,915
Commercial real estate . . . 2,624 8,368 3,663 7,261 18,190
Commercial business. . . . . 562 1,842 1,978 580 1,193
Consumer . . . . . . . . . . 2,127 1,258 1,997 3,149 3,512
------------------------------------------------
9,516 17,424 16,056 20,653 27,810
Real estate and other
assets. . . . . . . . . . . . 16,604 27,598 36,605 80,009 67,869
------------------------------------------------
Total non-performing
assets. . . . . . . . . . $26,120 $45,022 $52,661 $100,662 $95,679
------------------------------------------------
------------------------------------------------
Non-performing assets as a
percentage of net loans. . . .86% 1.66% 2.00% 3.96% 3.57%
Non-performing assets as a
percentage of total assets . .52 .90 1.05 2.02 1.87
<FN>
----------------------------
(1) INCLUDED IN TOTAL LOANS IN THE CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION.
The following table sets forth information regarding TCF's delinquent loan
portfolio, excluding non-accrual loans:
AT DECEMBER 31,
-----------------------------------------------------
1994 1993
-------------------------- --------------------------
(DOLLARS IN THOUSANDS) PRINCIPAL PERCENTAGE OF PRINCIPAL PERCENTAGE OF
BALANCES(1) GROSS LOANS(1) BALANCES(1) GROSS LOANS(1)
--------------------------------------------------------------------------------
Loans delinquent for:
30-59 days . . . . . . $ 6,925 .21% $ 6,481 .21%
60-89 days . . . . . . 4,847 .15 4,462 .14
90 days or more. . . . 2,017 .06 2,916 .09
----------------------------------------------------
Total . . . . . . . $13,789 .42% $13,859 .44%
----------------------------------------------------
----------------------------------------------------
<FN>
-----------------------
(1) INCLUDES LOANS HELD FOR SALE.
TCF had accruing loans 90 days or more past due totaling $2 million at
December 31, 1994 compared with $2.9 million at December 31, 1993. These loans
are in the process of collection and management believes they are adequately
secured.
In addition to the non-accrual, restructured and accruing loans 90 days or
more past due, there were commercial real estate and commercial business loans
with an aggregate principal balance of $23.8 million outstanding at December 31,
1994 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.
Although these loans
TCF Financial Corporation and Subsidiaries 33
--
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.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is applicable to all creditors and to all
loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases, and debt securities. SFAS No. 114 requires that impaired
loans be measured at the present value of expected future cash flows by
discounting those cash flows at the loan's effective interest rate. The fair
value of the collateral of an impaired collateral-dependent loan or an
observable market price, if one exists, may be used as an alternative to
discounting. As defined by SFAS No. 114, a loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 114 applies to all loans that are restructured in a
troubled debt restructuring involving a modification of terms. In October 1994,
the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures." SFAS No. 118 amends SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest income on
impaired loans, and to clarify disclosure requirements. SFAS No. 114 and SFAS
No. 118 apply to financial statements issued for fiscal years beginning after
December 15, 1994, with earlier application encouraged. Management has not yet
determined what effect, if any, these pronouncements will have on TCF's results
of operations.
LIQUIDITY MANAGEMENT -- TCF manages its liquidity position to ensure that the
funding needs of depositors and borrowers are met promptly and in a cost-
effective manner. Asset liquidity arises from the ability to convert assets to
cash as well as from the maturity of assets. Liability liquidity results from
the ability of TCF to attract a diversity of funding sources to meet funding
requirements promptly. TCF's wholly owned savings bank subsidiaries are
required by federal regulations to maintain a monthly average minimum asset
liquidity ratio of 5%. These subsidiaries have maintained average monthly
liquidity ratios in excess of this requirement.
Deposits are the primary source of TCF's funds for use in lending and for
other general business purposes. In addition to deposits, TCF derives funds
primarily from loan repayments, advances from the FHLB and proceeds from reverse
repurchase borrowing agreements. Deposit inflows and outflows are significantly
influenced by general interest rates, money market conditions, competition for
funds, and other factors. Although TCF's levels of deposits have recently
stabilized, its deposit inflows and outflows have been affected by these factors
and may continue to be affected in future periods. Borrowings may be used to
compensate for reductions in normal sources of funds, such as deposit inflows at
less than projected levels, net deposit outflows, or to support expanded
activities. Historically, TCF has borrowed primarily from the FHLB, from
institutional sources under reverse repurchase agreements and, to a lesser
extent, from other sources.
Cash and due from banks increased $4.8 million during the year ended
December 31, 1994 to $170.7 million. Cash of $307.2 million was provided by
operating activities as proceeds from sales of loans held for sale of $1 billion
were partially offset by originations and purchases of loans held for sale of
$802.4 million. Cash of $282.2 million was used by investing activities
reflecting loan originations of $1.2 billion, and purchases of loans, mortgage-
backed securities and securities available for sale of $915.7 million. These
cash outflows were partially offset by principal collections on loans and
mortgage-backed securities of $1.1 billion and proceeds from the sales and
maturities of securities available for sale of $808.9 million. Cash of $20.3
million was used by financing activities primarily due to net cash outflows on
deposits and repurchases of common stock of $17.5 million, offset by net cash
inflows on FHLB advances.
Cash and due from banks increased $25.1 million during the year ended
December 31, 1993 to $165.9 million. Cash of $60.6 million was used by
operating activities, as originations and purchases of loans held for sale of
$1.9 billion were substantially offset by proceeds from sales of loans held for
sale of $1.8 billion. Cash of $357.1 million was provided by investing
activities, reflecting proceeds from maturities of U.S. Government and other
marketable securities of $1.2 billion and principal collections on loans and
mortgage-backed securities of $1.3 billion. Also included in total cash
provided by investing activities is $154.3 million of cash acquired as part of
deposit acquisitions. These cash flows were substantially offset by loan
originations of $1.1 billion, purchases of loans and mortgage-backed securities
of $378 million and purchases of U.S. Government and other marketable securities
of $1.2 billion. Cash of $285.1 million was used by financing activities
primarily due to net cash outflows on deposits, FHLB advances, and other
borrowings and the repayment of $28.8 million of subordinated capital notes.
[Chart] -- Non-performing Assets at period-end
34 TCF Financial Corporation and Subsidiaries
--
Potential sources of liquidity for TCF Financial Corporation include cash
dividends from TCF Bank Minnesota fsb ("TCF Minnesota"), TCF's wholly owned
subsidiary, cash flows from other direct subsidiaries, issuance of equity
securities to employee benefit plans and interest income. TCF Minnesota's
ability to pay dividends or make other capital distributions to TCF Financial
Corporation is restricted by regulation and may require regulatory approval. At
December 31, 1994, in addition to TCF Minnesota, TCF Financial Corporation
directly owned four insurance agency subsidiaries engaging in the sale of single
premium tax-deferred annuities. Dividends from these and other non-bank
subsidiaries to TCF Financial Corporation were $4.6 million and $3.3 million for
the years ended December 31, 1994 and 1993, respectively. Future dividends from
these subsidiaries are dependent upon continued favorable tax treatment for
single premium annuities, and legislative proposals have sought to limit or
eliminate these tax benefits. Cash flows from the exercise of stock options
under the Stock Option and Incentive Plan of TCF Financial were $272,000 and
$1.1 million for the years ended December 31, 1994 and 1993, respectively.
[Graph] -- Number of Checking Accounts at period-end
DEPOSITS -- Deposits totaled $3.8 billion at December 31, 1994, down $282.9
million from December 31, 1993. Lower interest-cost checking and savings
deposits totaled $1.6 billion, down $91.5 million from year-end 1993, and
comprised 41% of total deposits at December 31, 1994. Checking and savings
deposits are an important source of lower cost funds and fee income for TCF.
TCF's weighted average rate for deposits, including non-interest bearing
deposits, increased to 3.34% at December 31, 1994 from 3.15% at December 31,
1993, reflecting higher market rates.
BORROWINGS -- Borrowings are used primarily to fund the purchases of investments
and mortgage-backed securities held to maturity. These borrowings totaled
$868.3 million as of December 31, 1994, compared with $575.4 million at year-end
1993. Securities sold under repurchase agreements totaled $170.1 million at
December 31, 1994, an increase of $40.3 million from December 31, 1993.
Advances from the FHLB increased $254.2 million from December 31, 1993 and
totaled $650.9 million at December 31, 1994. TCF's weighted average rate on
borrowings decreased to 6.07% at December 31, 1994, from 6.18% at December 31,
1993, and reflects the maturity of $115 million of higher rate FHLB advances
which were subsequently replaced at a lower weighted average rate.
STOCKHOLDERS' EQUITY -- Stockholders' equity at December 31, 1994 was $327.2
million, or 6.5% of total assets, up from $295.6 million, or 5.9% of total
assets, at December 31, 1993. The increase in stockholders' equity is primarily
due to net income of $57.4 million for the year ended December 31, 1994,
partially offset by purchases of 535,000 shares of treasury stock at a cost of
$17.5 million and the declaration of $12.3 million in common stock dividends.
On January 25, 1994, TCF's board of directors authorized the repurchase of
up to 5 percent of TCF common stock, or approximately 620,000 shares. The
repurchased shares will be used for employee benefit plans and other corporate
purposes. As previously mentioned, TCF purchased 535,000 shares of stock under
this plan during the year ended December 31, 1994. During this period, 212,120
shares were issued out of treasury stock for restricted stock grants and
employee benefit plans.
REGULATORY CAPITAL REQUIREMENTS -- The following table sets forth TCF
Minnesota's calculation of its tangible, core and risk-based capital and
applicable percentages of adjusted assets at December 31, 1994 and 1993,
together with the excess over the minimum capital requirements:
AT DECEMBER 31,
------------------------------------------
1994 1993
------------------- --------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-----------------------------------------------------------------------------
Tangible capital . . . . . . . . $292,825 5.81% $282,295 5.65%
Tangible capital requirement . . 75,634 1.50 75,000 1.50
-----------------------------------------
Excess . . . . . . . . . . . . $217,191 4.31% $207,295 4.15%
-----------------------------------------
-----------------------------------------
Core capital . . . . . . . . . . $320,673 6.34% $313,400 6.25%
Core capital requirement . . . . 151,704 3.00 150,496 3.00
-----------------------------------------
Excess . . . . . . . . . . . . $168,969 3.34% $162,904 3.25%
-----------------------------------------
-----------------------------------------
Risk-based capital . . . . . . . $350,096 12.01% $341,188 12.25%
Risk-based capital requirement . 233,292 8.00 222,906 8.00
-----------------------------------------
Excess . . . . . . . . . . . . $116,804 4.01% $118,282 4.25%
-----------------------------------------
-----------------------------------------
TCF Financial Corporation and Subsidiaries 35
--
At December 31, 1994, TCF Minnesota and its wholly owned savings bank
subsidiaries, TCF Bank Wisconsin fsb, TCF Bank Illinois fsb and TCF Michigan,
exceeded their fully phased-in capital requirements. TCF Minnesota and its
wholly owned savings bank subsidiaries believe that at December 31, 1994 they
would be considered well-capitalized under guidelines established pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991.
On January 1, 1995, the amount of qualifying supervisory goodwill
includable in core and risk-based capital decreased from .375% to 0% of tangible
assets. Although it will not impact TCF Minnesota's results of operations or
its ability to meet the minimum regulatory capital requirements, this scheduled
phase-out of supervisory goodwill reduced TCF Minnesota's computed core and
risk-based capital levels by approximately $13.4 million on January 1, 1995.
On January 1, 1994, the Office of Thrift Supervision ("OTS") adopted an
amendment to its risk-based capital requirements that requires institutions with
more than a normal level of interest rate risk to maintain additional risk-based
capital. On October 13, 1994, the OTS issued a memorandum stating that the
interest-rate risk capital deduction will be waived until the OTS publishes the
process under which institutions may appeal such deductions. The revised
anticipated effective date of this amendment is expected to be March 31, 1995.
Management does not believe the interest rate risk component will have a
significant impact on the risk-based capital requirements of TCF's wholly owned
savings bank subsidiaries.
ASSET/LIABILITY MANAGEMENT - 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. Like most financial
institutions, TCF's interest income and cost of funds are significantly affected
by general economic conditions and by policies of regulatory authorities. The
mismatch between maturities and interest rate sensitivities of assets and
liabilities results in interest rate risk. Although the measure is subject to a
number of assumptions and is only one of a number of measurements, management
believes the interest rate gap (difference between interest-earning assets and
interest-bearing liabilities repricing within a given period) is an important
indication of TCF's exposure to interest rate risk and the related volatility of
net interest income in a changing interest rate environment. In addition to the
interest rate gap analysis, management also utilizes a simulation model to
measure and manage TCF's interest rate risk.
For an institution with a negative interest rate gap for a given period,
the amount of its interest-bearing liabilities maturing or otherwise repricing
within such period exceeds the amount of interest-earning assets repricing
within the same period. In a rising interest rate environment, institutions
with negative interest rate gaps will generally experience more immediate
increases in the cost of their liabilities than in the yield on their assets.
Conversely, the yield on assets 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 one-year adjusted interest rate gap was a negative $212.9 million, or
(4)% of total assets, at December 31, 1994, compared with a positive $434.4
million, or 9% of total assets, at December 31, 1993. This reflects the decline
in loan prepayment activity during 1994 as a result of the general increase in
interest rates.
Certain of TCF's assets and liabilities have repricing characteristics that
are dependent on the direction of market interest rate changes, including
consumer loans with interest rate floors and certificates of deposit that allow
depositors to exercise a one-time option to reprice their certificates at the
then current interest rates. As a result, although TCF's one-year adjusted
interest rate gap was (4)% at December 31, 1994, TCF's interest rate gap
calculated under rising or falling interest rate scenarios would be based on
repricing assumptions different from those utilized to calculate the interest
rate gap at December 31, 1994.
TCF's Asset/Liability Management Committee manages TCF's interest rate risk
based on interest rate expectations and other factors. The amounts in the
maturity/rate sensitivity table below represent management's estimates and
assumptions, which in some cases may differ from regulatory assumptions. Also,
the amounts could be significantly affected by external factors such as
prepayment rates other than those assumed, early withdrawals of deposits,
changes in the correlation of various interest-bearing instruments and
competition. Decisions by management to purchase or sell assets, or retire debt
could change the maturity/repricing and spread relationships.
36 TCF Financial Corporation and Subsidiaries
--
The following table summarizes TCF's interest rate gap position at December
31, 1994:
MATURITY/RATE SENSITIVITY
------------------------------------------------
WITHIN
(DOLLARS IN THOUSANDS) 1 YEAR 1-3 YEARS 3+ YEARS TOTAL
----------------------------------------------------------------------------------------
Interest-earning assets:
Loans held for sale. . . . . . . . $ 200,509 $ - $ - $ 200,509
Securities available for sale. . . 64,771 1,014 - 65,785
Mortgage-backed securities held to
maturity (1). . . . . . . . . . 266,895 267,587 580,131 1,114,613
Real estate loans (1). . . . . . . 699,731 542,950 647,509 1,890,190
Other loans (1). . . . . . . . . . 1,133,765 38,087 19,766 1,191,618
Investments (2) . . . . . . . . . 243,651 - - 243,651
------------------------------------------------
2,609,322 849,638 1,247,406 4,706,366
------------------------------------------------
Interest-bearing liabilities:
Deposits (3) . . . . . . . . . . . 2,259,579 621,081 938,954 3,819,614
Federal Home Loan Bank advances. . 388,405 261,114 1,344 650,863
Other borrowings . . . . . . . . . 179,198 1,340 2,382 182,920
Subordinated capital notes . . . . - - 34,500 34,500
------------------------------------------------
2,827,182 883,535 977,180 4,687,897
------------------------------------------------
Interest-earning assets over (under)
interest-bearing liabilities . . . (217,860) (33,897) 270,226 18,469
Impact of interest rate exchange
agreement. . . . . . . . . . . . . 5,000 (5,000) - -
------------------------------------------------
Adjusted gap . . . . . . . . . . . . $ (212,860) $ (38,897) $ 270,226 $ 18,469
------------------------------------------------
------------------------------------------------
Adjusted cumulative gap. . . . . . . $ (212,860) $(251,757) $ 18,469 $ 18,469
------------------------------------------------
------------------------------------------------
Adjusted cumulative gap as a
percentage of total assets:
At December 31, 1994 . . . . . . (4)% (5)% - % - %
------------------------------------------------
------------------------------------------------
At December 31, 1993. . . . . . 9 % 3 % (1)% (1)%
------------------------------------------------
------------------------------------------------
<FN>
___________________________________
(1) BASED UPON A) CONTRACTUAL MATURITY, B) REPRICING DATE, IF APPLICABLE, C)
SCHEDULED REPAYMENTS OF PRINCIPAL AND D) PROJECTED PREPAYMENTS OF PRINCIPAL
BASED UPON EXPERIENCE.
(2) INCLUDES INTEREST-BEARING DEPOSITS WITH BANKS, FEDERAL FUNDS SOLD, U.S.
GOVERNMENT AND OTHER MARKETABLE SECURITIES HELD TO MATURITY AND FHLB STOCK.
(3) INCLUDES NON-INTEREST BEARING DEPOSITS. MONEY MARKET ACCOUNTS AND 11% OF
CHECKING ACCOUNTS ARE INCLUDED IN AMOUNTS REPRICING WITHIN ONE YEAR. IN
ADDITION, 51% AND 34% OF PASSBOOK AND STATEMENT ACCOUNTS ARE INCLUDED IN
THE "WITHIN 1 YEAR" AND "1-3 YEARS" CATEGORIES, RESPECTIVELY. ALL
REMAINING PASSBOOK AND STATEMENT AND CHECKING ACCOUNTS ARE ASSUMED TO
MATURE IN THE "3+ YEARS" CATEGORY. WHILE MANAGEMENT BELIEVES THESE
ASSUMPTIONS ARE WELL BASED, NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON
DEPOSIT IN CHECKING, PASSBOOK AND STATEMENT ACCOUNTS WILL NOT SIGNIFICANTLY
DECREASE OR BE REPRICED IN THE EVENT OF A GENERAL RISE IN INTEREST RATES.
AT DECEMBER 31, 1993, 10% OF CHECKING ACCOUNTS WERE INCLUDED IN AMOUNTS
REPRICING WITHIN ONE YEAR, AND 46% AND 35% OF PASSBOOK AND STATEMENT
ACCOUNTS WERE INCLUDED IN THE "WITHIN 1 YEAR" AND "1-3 YEARS" CATEGORIES,
RESPECTIVELY.
TCF Financial Corporation and Subsidiaries 37
--
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per-share data)
AT DECEMBER 31,
-----------------------
1994 1993
-----------------------------------------------------------------------------
ASSETS
Cash and due from banks. . . . . . . . . . . . . . $ 170,687 $ 165,905
Interest-bearing deposits with banks . . . . . . . 190,698 10,512
Federal funds sold . . . . . . . . . . . . . . . . 6,900 105,500
U.S. Government and other marketable securities
held to maturity (fair value of $3,526
and $81,344) . . . . . . . . . . . . . . . . . . 3,528 81,260
Federal Home Loan Bank stock, at cost. . . . . . . 42,525 37,849
Securities available for sale (amortized
cost of $65,935 in 1994 and fair value
of $10,236 in 1993). . . . . . . . . . . . . . . 65,785 10,003
Loans held for sale. . . . . . . . . . . . . . . . 200,509 421,893
Mortgage-backed securities held to maturity
(fair value of $1,066,390 and $1,270,743) . . . 1,114,613 1,237,202
Loans:
Residential real estate. . . . . . . . . . . . . 1,261,690 1,063,158
Commercial real estate . . . . . . . . . . . . . 634,770 687,202
Commercial business. . . . . . . . . . . . . . . 100,397 89,368
Consumer . . . . . . . . . . . . . . . . . . . . 1,105,971 919,027
Unearned discounts and deferred fees . . . . . . (21,020) (13,609)
-----------------------
Total loans . . . . . . . . . . . . . . . . . 3,081,808 2,745,146
Allowance for loan losses . . . . . . . . . . (31,648) (26,055)
-----------------------
Net loans . . . . . . . . . . . . . . . . . 3,050,160 2,719,091
Premises and equipment . . . . . . . . . . . . . . 85,083 79,654
Real estate:
Total real estate. . . . . . . . . . . . . . . . 16,286 27,521
Allowance for real estate losses . . . . . . . . (730) (1,968)
-----------------------
Net real estate . . . . . . . . . . . . . . . 15,556 25,553
Accrued interest receivable. . . . . . . . . . . . 33,076 29,418
Goodwill . . . . . . . . . . . . . . . . . . . . . 13,355 14,549
Deposit base intangibles . . . . . . . . . . . . . 14,493 16,556
Other assets . . . . . . . . . . . . . . . . . . . 61,301 70,585
-----------------------
$5,068,269 $5,025,530
-----------------------
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking . . . . . . . . . . . . . . . . . . . . $ 818,823 $ 800,123
Passbook and statement . . . . . . . . . . . . . 745,546 855,781
Money market . . . . . . . . . . . . . . . . . . 431,309 469,694
Certificates . . . . . . . . . . . . . . . . . . 1,823,936 1,976,960
-----------------------
Total deposits. . . . . . . . . . . . . . . . 3,819,614 4,102,558
-----------------------
Securities sold under repurchase agreements. . . . 170,143 129,812
Federal Home Loan Bank advances. . . . . . . . . . 650,863 396,692
Subordinated capital notes . . . . . . . . . . . . 34,500 34,500
Other borrowings . . . . . . . . . . . . . . . . . 12,777 14,428
-----------------------
Total borrowings . . . . . . . . . . . . . . 868,283 575,432
Accrued interest payable . . . . . . . . . . . . . 7,603 10,248
Accrued expenses and other liabilities . . . . . . 45,578 41,684
-----------------------
Total liabilities . . . . . . . . . . . . . . 4,741,078 4,729,922
-----------------------
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,
70,000,000 shares authorized; 12,412,071
and 12,361,569 shares issued . . . . . . . . 124 124
Additional paid-in capital . . . . . . . . . . . 153,740 150,602
Unamortized deferred compensation. . . . . . . . (6,986) (1,272)
Retained earnings, subject to certain
restrictions. . . . . . . . . . . . . . . . . 191,608 146,502
Loan to Executive Deferred Compensation Plan . . (195) (348)
Unrealized loss on securities available
for sale, net . . . . . . . . . . . . . . . . (88) -
Treasury stock, at cost, 322,880 shares in 1994. (11,012) -
-----------------------
Total stockholders' equity. . . . . . . . . . 327,191 295,608
-----------------------
$5,068,269 $5,025,530
-----------------------
-----------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38 TCF Financial Corporation and Subsidiaries
--
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1994 1993 1992
------------------------------------------------------------------------------
INTEREST INCOME:
Interest on loans. . . . . . . . . . . . $250,286 $230,606 $249,897
Interest on loans held for sale. . . . . 16,486 21,986 19,685
Interest on mortgage-backed
securities held to maturity. . . . . . 79,219 93,254 106,424
Interest on investments. . . . . . . . . 7,977 10,284 20,019
Interest on securities available
for sale . . . . . . . . . . . . . . . 3,673 1,471 2,406
-------- -------- --------
Total interest income. . . . . . . . . 357,641 357,601 398,431
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits . . . . . . . . . . 120,614 136,253 185,539
Interest on borrowings . . . . . . . . . 31,898 36,924 45,686
-------- -------- --------
Total interest expense . . . . . . . . 152,512 173,177 231,225
-------- -------- --------
Net interest income . . . . . . . . 205,129 184,424 167,206
Provision for credit losses. . . . . . . 10,901 21,933 13,190
-------- -------- --------
Net interest income after provision
for credit losses . . . . . . . . . 194,228 162,491 154,016
-------- -------- --------
NON-INTEREST INCOME:
Fee and service charge revenues. . . . . 75,449 72,130 66,582
Data processing revenue. . . . . . . . . 8,988 8,120 7,310
Commissions on sales of annuities. . . . 10,818 9,446 9,327
Title insurance revenues . . . . . . . . 10,274 15,229 9,984
Gain on sale of mortgage-backed
securities, net. . . . . . . . . . . . - - 718
Gain on sale of investments, net . . . . - - 114
Gain on sale of loans held for
sale, net. . . . . . . . . . . . . . . 2,367 10,059 6,889
Gain on sale of securities available
for sale, net. . . . . . . . . . . . . 2,035 649 3,362
Gain on sale of loan servicing, net. . . 2,353 137 -
Other . . . . . . . . . . . . . . . . . 5,010 3,845 3,058
-------- -------- --------
Total non-interest income. . . . . . . 117,294 119,615 107,344
-------- -------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits . . . 99,071 90,045 82,388
Occupancy and equipment, net . . . . . . 35,357 32,834 29,542
Advertising and promotions . . . . . . . 11,666 11,254 9,423
Federal deposit insurance premiums
and assessments. . . . . . . . . . . . 9,871 8,979 9,606
Amortization of goodwill and
other intangibles. . . . . . . . . . . 3,257 2,957 3,830
Provision for real estate losses . . . . 2,373 11,743 22,054
Merger-related expense . . . . . . . . . - 5,494 -
Other . . . . . . . . . . . . . . . . . 52,262 52,182 46,302
-------- -------- --------
Total non-interest expense . . . . . . 213,857 215,488 203,145
-------- -------- --------
Income before income tax expense. . 97,665 66,618 58,215
Income tax expense . . . . . . . . . . . 40,302 28,647 12,956
-------- -------- --------
Net income . . . . . . . . . . . . $ 57,363 $ 37,971 $ 45,259
-------- -------- --------
-------- -------- --------
PER COMMON SHARE:
Net income . . . . . . . . . . . . . . . $ 4.63 $ 3.04 $ 3.74
-------- -------- --------
-------- -------- --------
Dividends declared . . . . . . . . . . . $ 1.00 $ .6875 $ .475
-------- -------- --------
-------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TCF Financial Corporation and Subsidiaries 39
--
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------
(In Thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,363 $ 37,971 $ 45,259
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 9,299 7,304 7,559
Amortization of goodwill and other intangibles. . . . . . . . . . . . . . . 3,257 2,957 3,830
Amortization of fees, discounts and premiums. . . . . . . . . . . . . . . . (2,149) (7,672) (7,718)
Proceeds from sales of loans held for sale. . . . . . . . . . . . . . . . . 1,013,475 1,781,103 1,584,988
Principal collected on loans held for sale. . . . . . . . . . . . . . . . . 9,508 18,373 11,588
Originations and purchases of loans held for sale . . . . . . . . . . . . . (802,364) (1,932,202) (1,639,234)
Net (increase) decrease in other assets and
liabilities, and accrued interest . . . . . . . . . . . . . . . . . . . . 7,487 1,719 (21,237)
Provisions for credit and real estate losses. . . . . . . . . . . . . . . . 13,274 33,676 35,244
Gain on sale of securities available for sale, net. . . . . . . . . . . . . (2,035) (649) (3,362)
Gain on sale of mortgage-backed securities and investments, net . . . . . . - - (832)
Gain on sale of loan servicing, net . . . . . . . . . . . . . . . . . . . . (2,353) (137) -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,451 (3,055) 1,692
---------------------------------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,850 (98,583) (27,482)
---------------------------------------
Net cash provided (used) by operating activities . . . . . . . . . . . 307,213 (60,612) 17,777
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of mortgage-backed securities . . . . . . . . . . . . . - - 23,752
Principal collected on mortgage-backed securities . . . . . . . . . . . . . 252,129 404,569 322,549
Purchases of mortgage-backed securities . . . . . . . . . . . . . . . . . . (288,229) (376,615) (356,760)
Principal collected on loans . . . . . . . . . . . . . . . . . . . . . . . 821,035 887,846 727,160
Loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,174,244) (1,051,272) (857,135)
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . (426) (1,411) (12,123)
Net (increase) decrease in interest-bearing deposits with banks . . . . . . (180,186) 115,965 2,030
Proceeds from sales of securities available for sale. . . . . . . . . . . . 155,217 146,884 91,723
Proceeds from maturities of securities available for sale . . . . . . . . . 653,731 34,455 1,009
Purchases of securities available for sale. . . . . . . . . . . . . . . . . (627,059) - (37,828)
Proceeds from sales of U.S. Government and other marketable securities . . - - 4,048
Proceeds from maturities of U.S. Government and
other marketable securities . . . . . . . . . . . . . . . . . . . . . . . 667 1,195,348 611,236
Purchases of U.S. Government and other marketable securities . . . . . . . - (1,158,945) (554,110)
Proceeds from redemption of FHLB stock. . . . . . . . . . . . . . . . . . . - 1,121 2,953
Purchases of term federal funds sold. . . . . . . . . . . . . . . . . . . . (76,000) (80,800) (160,000)
Proceeds from maturities of term federal funds sold . . . . . . . . . . . . 91,000 115,800 180,000
Net decrease (increase) in short-term federal funds sold. . . . . . . . . . 83,600 (39,500) (20,000)
Proceeds from sales of real estate. . . . . . . . . . . . . . . . . . . . . 22,613 30,302 37,073
Payments for acquisition and improvement of real estate . . . . . . . . . . (2,291) (3,591) (7,039)
Proceeds from sale of loan servicing. . . . . . . . . . . . . . . . . . . . 2,807 137 -
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . (14,806) (17,341) (8,652)
Acquisitions of deposits, net of cash acquired. . . . . . . . . . . . . . . - 154,257 -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,723) (143) 4,605
---------------------------------------
Net cash provided (used) by investing activities. . . . . . . . . . . . . (282,165) 357,066 (5,509)
---------------------------------------
CONTINUED ON FOLLOWING PAGE.
40 TCF Financial Corporation and Subsidiaries
--
CONSOLIDATED STATEMENTS OF CASH FLOWS ( CONTINUED )
YEAR ENDED DECEMBER 31,
------------------------------------------
(IN THOUSANDS) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (282,944) $ (140,661) $ (52,282)
Proceeds from securities sold under repurchase agreements. . . . . . . . . . . . 2,241,212 1,158,036 414,702
Payments on securities sold under repurchase agreements. . . . . . . . . . . . . (2,200,881) (1,128,224) (414,702)
Proceeds from subordinated capital notes . . . . . . . . . . . . . . . . . . . . - - 34,500
Payments on subordinated capital notes . . . . . . . . . . . . . . . . . . . . . - (28,750) -
Proceeds from FHLB advances. . . . . . . . . . . . . . . . . . . . . . . . . . . 924,663 733,291 441,409
Payments on FHLB advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . (670,492) (862,930) (450,120)
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 148,350 5,000 -
Payments on other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (150,249) (9,612) (5,120)
Proceeds from issuance of common stock, net. . . . . . . . . . . . . . . . . . . - - 32,019
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . (17,524) - -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,401) (11,285) (1,330)
---------------------------------------
Net cash used by financing activities. . . . . . . . . . . . . . . . . . . . . (20,266) (285,135) (924)
---------------------------------------
Net increase in cash and due from banks. . . . . . . . . . . . . . . . . . . . . 4,782 11,319 11,344
RCG cash flows for six months ended December 31, 1992. . . . . . . . . . . . . . - 13,807 -
Cash and due from banks at beginning of year . . . . . . . . . . . . . . . . . . 165,905 140,779 129,435
---------------------------------------
Cash and due from banks at end of year . . . . . . . . . . . . . . . . . . . . . $ 170,687 $ 165,905 $ 140,779
---------------------------------------
---------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest on deposits and borrowings. . . . . . . . . . . . . . . . . . . . . . $ 154,859 $ 173,715 $ 235,677
---------------------------------------
---------------------------------------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,750 $ 23,126 $ 14,249
---------------------------------------
---------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Transfer of loans to real estate acquired through foreclosure and
other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,771 $ 36,102 $ 32,069
---------------------------------------
---------------------------------------
Loans to facilitate sale of real estate acquired through foreclosure . . . . . . $ 1,764 $ 9,680 $ 25,526
---------------------------------------
---------------------------------------
Transfer of loans to loans held for sale . . . . . . . . . . . . . . . . . . . . $ - $ 2,325 $ 48,917
---------------------------------------
---------------------------------------
Transfer of U.S. Government and other marketable securities to
securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . $ 77,297 $ 33,258 $ 73,858
---------------------------------------
---------------------------------------
Transfer of mortgage-backed securities to securities available for sale. . . . . $ 156,755 $ - $ 215,473
---------------------------------------
---------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TCF Financial Corporation and Subsidiaries 41
--
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
LOANS TO UNREALIZED
EXECUTIVE GAIN
COMMON STOCK DEFERRED (LOSS) ON
----------------- UNAMORTIZED COMPEN- SECURITIES
NUMBER ADDITIONAL DEFERRED SATION AVAILABLE
OF SHARES PAID-IN COMPEN- RETAINED PLAN FOR SALE, TREASURY
(DOLLARS IN THOUSANDS) ISSUED AMOUNT CAPITAL SATION EARNINGS AND ESOP NET STOCK TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991.......... 9,786,381 $ 98 $106,809 $(1,917) $ 76,952 $(1,307) $ - $ - $180,635
Net income.......................... - - - - 45,259 - - - 45,259
Dividends on common stock........... - - - - (5,642) - - - (5,642)
Issuance of shares of
common stock, net................. 1,840,000 18 32,001 - - - - - 32,019
Cancellation of shares of
restricted stock and
compensatory stock option
grants............................ (2,400) - (43) 21 - - - - (22)
Amortization of deferred
compensation...................... - - - 737 - - - - 737
Exercise of stock options........... 360,761 4 5,266 - - - - - 5,270
Issuance of stock to
employee benefit plans............ 121,873 1 2,857 - - - - - 2,858
Payments on Loan to Executive
Deferred Compensation Plan........ - - - - - 613 - - 613
Payments on Loan to Employee
Stock Ownership Plan.............. - - - - - 58 - - 58
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992.......... 12,106,615 121 146,890 (1,159) 116,569 (636) - - 261,785
RCG activity for six months
ended December 31, 1992:
Net income...................... - - - - 946 - - - 946
Dividends on common stock....... - - - - (525) - - - (525)
Exercise of stock options....... 43,076 - 223 - - - - - 223
Payments on Loan to Employee
Stock Ownership Plan.......... - - - - - 32 - - 32
Pooled operations for year ended
December 31, 1993:
Net income.......................... - - - - 37,971 - - - 37,971
Dividends on common stock........... - - - - (8,459) - - - (8,459)
Issuance of shares of
restricted stock.................. 21,000 - 689 (689) - - - - -
Issuance of shares under
Officers' Stock Performance
Investment Plan................... 29,961 1 971 (322) - - - - 650
Repurchase and cancellation of
shares............................ (464) - (15) - - - - - (15)
Grant of shares of restricted
stock to outside directors........ - - - (49) - - - - (49)
Cancellation of shares of
restricted stock ................. (500) - (9) (2) - - - - (11)
Amortization of deferred
compensation...................... - - - 949 - - - - 949
Exercise of stock options........... 161,881 2 1,853 - - - - - 1,855
Payments on Loan to Executive
Deferred Compensation Plan........ - - - - - 253 - - 253
Payments on Loan to Employee
Stock Ownership Plan.............. - - - - - 3 - - 3
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993.......... 12,361,569 124 150,602 (1,272) 146,502 (348) - - 295,608
Cumulative effect of change
in accounting for securities
available for sale at
January 1, 1994, net of tax....... - - - - - - 1,331 - 1,331
Net income.......................... - - - - 57,363 - - - 57,363
Dividends on common stock........... - - - - (12,257) - - - (12,257)
Purchase of 535,000 shares to
be held in treasury............... - - - - - - - (17,524) (17,524)
Issuance of 189,200 shares
of restricted stock, of
which 183,200 shares were
from treasury..................... 6,000 - 2,007 (7,541) - - - 5,550 16
Grant of 28,500 shares of
restricted stock to outside
directors from treasury........... - - 117 (1,065) - - - 948 -
Issuance of 420 shares to employee
benefit plans from treasury....... - - 4 - - - - 14 18
Issuance of shares under Officers'
Stock Performance Investment
Plan.............................. 23,045 - 705 - - - - - 705
Cancellation of shares of
restricted stock.................. (1,500) - (56) 40 - - - - (16)
Amortization of deferred
compensation...................... - - - 2,852 - - - - 2,852
Exercise of stock options........... 22,957 - 361 - - - - - 361
Payments on Loan to Executive
Deferred Compensation Plan........ - - - - - 153 - - 153
Change in unrealized gain (loss)
on securities available for
sale, net......................... - - - - - - (1,419) - (1,419)
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994.......... 12,412,071 $124 $153,740 $(6,986) $191,608 $ (195) $ (88) $(11,012) $327,191
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42 TCF Financial Corporation and Subsidiaries
--
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of TCF Financial Corporation and its wholly owned subsidiaries. TCF
Financial Corporation ("TCF" or the "Company") is a holding company engaged
primarily in retail community banking through its wholly owned subsidiary, TCF
Bank Minnesota fsb ("TCF Minnesota" or the "Bank"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior years' financial statements to
conform to the current year presentation. For consolidated statements of cash
flows purposes, cash and cash equivalents include cash and due from banks.
CHANGE IN METHOD OF ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES -- In May 1993, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." TCF adopted SFAS No.
115 effective January 1, 1994. In accordance with SFAS No. 115, prior period
financial statements have not been restated to reflect the change in accounting
method. Under the provisions of SFAS No. 115, debt securities that TCF has both
the positive intent and ability to hold to maturity are classified as held to
maturity and carried at amortized cost. Debt securities that TCF does not have
the positive intent and ability to hold to maturity and all marketable equity
securities are classified as available for sale and carried at fair value.
Unrealized holding gains and losses on securities classified as available for
sale are reported as a separate component of TCF's stockholders' equity, net of
deferred income taxes. Prior to 1994, debt and equity securities were either
classified as U.S. Government and other marketable securities or mortgage-backed
securities and were carried at amortized cost, or as securities held for sale
and carried at the lower of cost or market.
As permitted by SFAS No. 115, TCF reclassified $77.3 million of its debt
securities from U.S. Government and other marketable securities and $156.8
million of its mortgage-backed securities to securities available for sale on
January 1, 1994. The cumulative effect of adopting SFAS No. 115 at January 1,
1994 increased TCF's beginning stockholders' equity by $1.3 million, net of
deferred income taxes of $925,000.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- Investments and
mortgage-backed securities classified as held to maturity are carried at cost,
adjusted for amortization of premiums or accretion of discounts using methods
which approximate a level yield.
SECURITIES AVAILABLE FOR SALE -- Investments and mortgage-backed securities
classified as available for sale are carried at fair value with the unrealized
holding gains or losses, net of deferred income taxes, reported as a separate
component of stockholders' equity. Cost of securities sold is determined on a
specific identification basis and gains or losses on sales of securities
available for sale are recognized at trade dates. Securities classified as
available for sale at December 31, 1993 were carried at the lower of cost or
market.
LOANS HELD FOR SALE -- Residential real estate and education loans held for sale
are carried at the lower of cost or market determined on an aggregate basis.
Cost of loans sold is determined on a specific identification basis and gains or
losses on sales of loans held for sale are recognized at settlement dates. Net
fees and costs associated with originating and acquiring loans held for sale are
deferred and are included in the basis for determining the gain or loss on sales
of loans held for sale.
LOANS -- Net fees and costs associated with originating and acquiring loans are
deferred and amortized over the lives of the loans. Net fees and costs
associated with loan commitments are deferred in other assets or other
liabilities until the loan is advanced. Discounts and premiums on loans
purchased, net deferred fees and unearned discounts and finance charges, which
are considered yield adjustments, are amortized using methods which approximate
a level yield over the estimated remaining lives of the loans.
The provision for credit losses is based on management's periodic analysis
of the loan portfolio and off-balance-sheet financial guarantees. In this
analysis, management considers factors including, but not limited to, general
economic conditions, loan portfolio composition, appraisals of collateral,
financial guarantee exposure and historical experience. Loans are charged off
to the extent they are deemed to be uncollectible. The provision for credit
losses is based on estimates and ultimate losses may vary from current
estimates. These estimates are reviewed periodically and, as adjustments become
necessary, are reported in earnings in the periods in which they become known.
Interest income is accrued on loan balances outstanding. Loans are
reviewed regularly by management and are placed on non-accrual status when the
collection of interest or principal is more than 90 days past due, unless the
loan is adequately secured and in the process of collection. When a loan is
placed on non-accrual status, unless collection of all principal and interest is
considered to be assured, uncollected interest accrued in prior years is charged
against the allowance for loan losses. Interest accrued in the current year is
reversed. Interest payments received on non-accrual loans are generally applied
to principal unless the remaining loan principal balance has been determined to
be fully collectible.
Cost of loans sold is determined on a specific identification basis and
gains or losses on sales of loans are recognized at trade dates.
TCF Financial Corporation and Subsidiaries 43
--
PREMISES AND EQUIPMENT -- Premises and equipment are carried at cost and are
depreciated or amortized on a straight-line basis over their estimated useful
lives.
REAL ESTATE -- Real estate in judgment, real estate acquired through foreclosure
and in-substance foreclosures are recorded at the lower of cost or fair value
minus estimated costs to sell at the date of transfer to real estate. If the
fair value of an asset minus the estimated costs to sell should decline to less
than the carrying amount of the asset, the deficiency is recognized through the
allowance for real estate losses. In-substance foreclosures consist of loans
accounted for as foreclosed property even though actual foreclosure has not
occurred. Although the collateral underlying these loans has not been
repossessed, the borrower has little or no equity in the collateral at its
current estimated fair value, proceeds for repayment are expected to come only
from the operation or sale of the collateral, and either the borrower has
abandoned control of the property or it is doubtful that the borrower will
rebuild equity in the collateral or repay the loan by other means in the
foreseeable future.
The provision for real estate losses is based on management's periodic
analysis of real estate holdings. In this analysis, management considers
factors including, but not limited to, general economic and market conditions,
geographic location, the composition and appraisals of the real estate holdings
and property conditions.
PURCHASED MORTGAGE SERVICING RIGHTS -- The costs of purchased mortgage servicing
rights are capitalized and are amortized over the estimated remaining lives of
the underlying loans using methods which approximate a level yield. The
carrying value of purchased mortgage servicing rights is periodically evaluated
in relation to estimated future servicing net revenues.
INVESTMENT IN JOINT VENTURE -- TCF participates in a joint venture engaged in
the origination of residential real estate loans. The investment, which is 50%
owned by TCF, is accounted for using the equity method of accounting. TCF's
investment in the joint venture is included in other assets in the Consolidated
Statements of Financial Condition and totaled $335,000 and $288,000 at December
31, 1994 and 1993, respectively.
INTANGIBLE ASSETS -- Goodwill resulting from acquisitions initiated or completed
prior to September 30, 1982 is amortized over 25 years on a straight-line basis.
For acquisitions initiated or completed after September 30, 1982, goodwill is
amortized by the level-yield method based upon the outstanding balances, and
over the estimated remaining lives, of the long-term assets acquired. Deposit
base intangibles are amortized over 10 years on a straight-line basis. The
accumulated reduction, write-off and amortization of goodwill and deposit base
intangibles totaled $166.8 million and $163.6 million at December 31, 1994 and
1993, respectively.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS -- TCF enters into sales of
securities under repurchase agreements (reverse repurchase agreements). Such
agreements are treated as financings, and the obligations to repurchase
securities sold are reflected as liabilities in the Consolidated Statements of
Financial Condition. The securities underlying the agreements remain in the
asset accounts in the Consolidated Statements of Financial Condition.
ADVERTISING AND PROMOTIONS -- Expenditures for advertising costs are expensed in
the year incurred.
INCOME TAXES -- Income taxes are accounted for using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS PER SHARE -- The weighted average number of common and common
equivalent shares outstanding used to compute earnings per share were
12,382,677, 12,503,989 and 12,111,940 for the years ended December 31, 1994,
1993 and 1992, respectively.
2) BUSINESS COMBINATIONS AND ACQUISITIONS
GREAT LAKES BANCORP, A FEDERAL SAVINGS BANK -- On February 8, 1995, TCF
completed its acquisition of Great Lakes Bancorp, A Federal Savings Bank ("Great
Lakes"), a Michigan-based savings bank with $2.8 billion in assets, $1.6 billion
in deposits, 39 offices in Michigan and five offices in western Ohio. In
connection with the acquisition, TCF issued approximately 4.8 million shares of
its common stock for all of the outstanding common shares of Great Lakes. In
addition, each outstanding share of Great Lakes preferred stock was exchanged
for one share of TCF preferred stock with substantially identical terms. TCF
intends to redeem the 2.7 million shares of preferred stock as soon as
practicable after July 1, 1995, the date the preferred stock first becomes
redeemable at the option of the issuer. TCF also assumed the obligation to
issue common stock upon the exercise or conversion of the outstanding warrants
to purchase Great Lakes common stock, the outstanding employee and director
options to purchase Great Lakes common stock, and the outstanding 7-1/4%
convertible subordinated debentures due 2011 of Great Lakes. This acquisition
was accounted for as a pooling-of-interests and, accordingly, TCF's historical
financial statements presented in future reports will be restated to include the
accounts and results of operations of Great Lakes. In connection with the
acquisition, it is expected that a pretax merger-related charge of approximately
$51.4 million will be incurred during the 1995 first quarter, primarily to
accrue for specific, identified costs related to the merger.
44 TCF Financial Corporation and Subsidiaries
--
As a result of the acquisition, Great Lakes merged into TCF's existing
Michigan-based wholly owned savings bank subsidiary, TCF Bank Michigan fsb ("TCF
Michigan"). The resulting savings bank is operated as a direct subsidiary of
TCF and retained the Great Lakes name, certain members of its board of
directors, and headquarters in Ann Arbor, Michigan. The resulting savings bank
operates 54 offices in Michigan and five offices in western Ohio.
The following unaudited pro forma data summarizes the combined results of
operations and financial condition of TCF and Great Lakes as if the acquisition
had been consummated at the beginning of each period presented.
SELECTED OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
-------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1994 1993 1992
-----------------------------------------------------------------------------
Interest income............................ $552,482 $558,645 $630,442
Interest expense........................... 273,330 297,449 383,170
-------------------------------
Net interest income...................... 279,152 261,196 247,272
Provision for credit losses................ 11,951 31,933 34,790
-------------------------------
Net interest income after provision
for credit losses...................... 267,201 229,263 212,482
Non-interest income........................ 125,219 139,005 125,524
Non-interest expense....................... 275,835 276,143 270,112
-------------------------------
Income before income tax expense and
extraordinary item..................... 116,585 92,125 67,894
Income tax expense......................... 46,402 36,797 15,906
-------------------------------
Income before extraordinary item......... 70,183 55,328 51,988
Extraordinary item, net.................... - (157) 339
-------------------------------
Net income............................... 70,183 55,171 52,327
Dividends on preferred stock............... 2,710 2,769 2,911
-------------------------------
Net income available to common
stockholders........................... $ 67,473 $ 52,402 $ 49,416
-------------------------------
-------------------------------
Earnings per common share.................. $ 3.91 $ 3.07 $ 3.03
-------------------------------
-------------------------------
SELECTED FINANCIAL CONDITION DATA:
AT DECEMBER 31,
---------------------
(IN THOUSANDS) 1994 1993
-----------------------------------------------------------------------------
Total assets.......................................... $7,845,588 $7,630,654
---------------------
---------------------
Total loans........................................... $5,104,686 $4,628,858
---------------------
---------------------
Total mortgage-backed securities held to maturity..... $1,601,200 $1,751,916
---------------------
---------------------
Total deposits........................................ $5,399,718 $5,695,928
---------------------
---------------------
Total borrowings...................................... $1,884,995 $1,413,367
---------------------
---------------------
Total stockholders' equity............................ $ 475,469 $ 428,065
---------------------
---------------------
The significant accounting and reporting policies of TCF and Great Lakes
differ in certain respects. As required in a pooling-of-interests business
combination, the unaudited pro forma data above reflects certain adjustments to
conform Great Lakes' accounting methods to those of TCF.
REPUBLIC CAPITAL GROUP, INC. -- On April 21, 1993, TCF issued approximately 2.2
million shares of its common stock for all of the outstanding common stock of
Republic Capital Group, Inc. ("RCG"), a Milwaukee-based thrift holding company
with approximately $1 billion in assets. As a result of the merger, TCF
acquired RCG's two wholly owned subsidiaries, Republic Capital Bank, F.S.B. (now
TCF Bank Wisconsin fsb), and Peerless Federal Savings Bank (now TCF Bank
Illinois fsb). Both TCF Bank Wisconsin fsb ("TCF Wisconsin") and TCF Bank
Illinois fsb ("TCF Illinois") are wholly owned subsidiaries of TCF Minnesota.
Subsequent to the merger, TCF Minnesota's Illinois Division was merged into TCF
Illinois. The consolidated financial statements of TCF give effect to the
merger, which has been accounted for as a pooling-of-interests combination.
Accordingly, TCF's consolidated financial statements for periods prior to the
combination have been restated to include the accounts and the results of
operations of RCG for all periods presented, except for dividends declared per
share. Prior to the merger, RCG's fiscal year ended June 30. RCG's results of
operations for the six months ended December 31, 1992 are not reflected in the
Consolidated Statements of Operations or the Consolidated Statements of Cash
Flows. An adjustment has been made to stockholders' equity as of January 1,
1993 to adjust for the effect of excluding RCG's results of operations for the
six months ended December 31, 1992.
ACQUISITIONS ACCOUNTED FOR AS PURCHASES -- On August 27, 1993, TCF Michigan, a
newly formed subsidiary of TCF Minnesota, acquired from the Resolution Trust
Corporation ("RTC") $220.8 million of insured deposits and 15 branch offices of
First Federal Savings and Loan Association, Pontiac, Michigan, for which TCF
Michigan received approximately $129.1 million in cash and $79.6 million in
short-term investments. TCF has accounted for this acquisition using the
purchase method of accounting. TCF Michigan paid the RTC a premium of
approximately $14.6 million which has been classified as deposit base
intangibles in the accompanying Consolidated Statements of Financial Condition.
The amortization and accretion of discounts, premiums, goodwill and deposit
base intangibles related to TCF's acquisition of certain associations and
deposits which were accounted for as purchases decreased TCF's income before
taxes by $2.1 million for 1994 and $1.1 million for both 1993 and 1992. The
unamortized discount related to acquired loans was $1.2 million and $2.3 million
at December 31, 1994 and 1993, respectively.
TCF Financial Corporation and Subsidiaries 45
--
3) INVESTMENTS
Investments consist of the following:
AT DECEMBER 31,
-----------------------------------------------------------------------------------------
1994 1993
----------------------------------------- --------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits with banks.. $190,698 $- $ - $190,698 $ 10,512 $ - $ - $ 10,512
Federal funds sold.................... 6,900 - - 6,900 105,500 - - 105,500
U.S. Government and other marketable
securities held to maturity:
U.S. Government and agency
obligations..................... 50 - (2) 48 66,961 77 - 67,038
Corporate bonds................... - - - - 3,000 6 - 3,006
Bankers' acceptances.............. - - - - 6,997 2 - 6,999
Commercial paper.................. 3,478 - - 3,478 3,244 - - 3,244
Other............................. - - - - 1,058 - (1) 1,057
------------------------------------------------------------------------------------------
3,528 - (2) 3,526 81,260 85 (1) 81,344
Federal Home Loan Bank stock, at cost. 42,525 - - 42,525 37,849 - - 37,849
------------------------------------------------------------------------------------------
$243,651 $- $(2) $243,649 $235,121 $85 $(1) $235,205
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Weighted average yield................ 6.27% 3.97%
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
The carrying value and fair value of investments at December 31, 1994, by
contractual maturity, are shown below:
CARRYING FAIR
(IN THOUSANDS) VALUE VALUE
---------------------------------------------------------------------
Due in one year or less............... $201,076 $201,076
Due after one year through five years. 50 48
No stated maturity.................... 42,525 42,525
-----------------------
$243,651 $243,649
-----------------------
-----------------------
Interest income on investments consists of the following:
YEAR ENDED DECEMBER 31,
-----------------------------
(IN THOUSANDS) 1994 1993 1992
-----------------------------------------------------------------------------
Interest-bearing deposits with banks.......... $ 979 $ 917 $ 1,808
Federal funds sold............................ 3,670 2,449 4,676
U.S. Government and other marketable
securities held to maturity................. 271 4,267 10,792
Federal Home Loan Bank stock.................. 3,057 2,651 2,743
-----------------------------
$7,977 $10,284 $20,019
-----------------------------
-----------------------------
Accrued interest receivable on investments totaled $51,000 and $268,000 at
December 31, 1994 and 1993, respectively.
There were no sales of U.S. Government and other marketable securities held
to maturity during 1994 or 1993. Proceeds from sales of U.S. Government and
other marketable securities held to maturity totaled $4 million during 1992.
Gross gains of $127,000 and gross losses of $13,000 were recognized during 1992.
46 TCF Financial Corporation and Subsidiaries
--
4) SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
AT DECEMBER 31,
---------------------------------------------------------------------------------------------
1994 1993
--------------------------------------------- ---------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------------
U.S. Government and
agency obligations........ $50,977 $ 6 $ (71) $50,912 $ - $ - $- $ -
Commercial paper............ 14,955 - (112) 14,843 - - - -
Other....................... 3 27 - 30 10,003 233 - 10,236
---------------------------------------------------------------------------------------------
$65,935 $33 $(183) $65,785 $10,003 $233 $- $10,236
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Weighted average yield...... 5.95% 4.66%
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
The fair value and amortized cost of securities available for sale at
December 31, 1994, by contractual maturity, is shown below:
FAIR AMORTIZED
(IN THOUSANDS) VALUE COST
----------------------------------------------------------------
Due in one year or less................... $64,740 $64,923
Due after one year through five years..... 1,015 1,009
-------------------
65,755 65,932
Marketable equity securities.............. 30 3
-------------------
$65,785 $65,935
-------------------
-------------------
Accrued interest receivable on securities available for sale was $33,000
and $40,000 at December 31, 1994 and 1993, respectively.
Proceeds from sales of securities available for sale totaled $155.2
million, $146.9 million and $91.7 million during 1994, 1993 and 1992,
respectively. Gross gains of $2 million were recognized during 1994. No gross
losses were recognized during 1994. Gross gains of $1.4 million and $3.4
million and gross losses of $747,000 and $69,000 were recognized during 1993 and
1992, respectively.
5) LOANS HELD FOR SALE
Loans held for sale consist of the following:
AT DECEMBER 31,
-------------------
(IN THOUSANDS) 1994 1993
----------------------------------------------------------------
Residential real estate................... $ 44,742 $297,334
Education................................. 155,524 123,233
-------------------
200,266 420,567
Less:
Deferred loan fees (costs), net...... (489) 282
Unearned discounts (premiums), net... 246 (1,608)
-------------------
$200,509 $421,893
-------------------
-------------------
Accrued interest receivable on loans held for sale was $5.7 million and
$4.4 million at December 31, 1994 and 1993, respectively.
6) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity consist of the following:
AT DECEMBER 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) VALUE VALUE VALUE VALUE
---------------------------------------------------------------------------
FHLMC.............. $ 297,268 $ 285,451 $ 510,855 $ 525,212
FNMA............... 641,648 610,822 499,499 515,657
GNMA............... 154,513 152,928 198,520 208,623
Private issuers.... 17,441 17,189 21,028 21,251
--------------------------------------------------------
1,110,870 1,066,390 1,229,902 1,270,743
Net premiums....... 3,743 - 7,300 -
--------------------------------------------------------
$1,114,613 $1,066,390 $1,237,202 $1,270,743
--------------------------------------------------------
--------------------------------------------------------
Included in mortgage-backed securities held to maturity at December 31,
1994 are $68.1 million of first mortgage loans which TCF has pooled and formed
FNMA certificates. TCF has retained the credit risk on these certificates.
Accrued interest receivable on mortgage-backed securities held to maturity
totaled $7.6 million and $8.9 million at December 31, 1994 and 1993,
respectively.
At December 31, 1994 and 1993, TCF's mortgage-backed securities held to
maturity portfolio had gross unrealized gains of $2.9 million and $35 million
and gross unrealized losses of $51.2 million and $1.5 million, respectively.
There were no sales of mortgage-backed securities held to maturity during 1994
or 1993. Proceeds from sales of mortgage-backed securities held to maturity
totaled $23.8 million during 1992. Gross gains of $718,000 were recognized
during 1992. No gross losses were recognized during 1992.
TCF Financial Corporation and Subsidiaries 47
--
7) LOANS
Loans consist of the following:
AT DECEMBER 31,
-------------------------
(IN THOUSANDS) 1994 1993
----------------------------------------------------------------------
Residential real estate.................... $1,261,690 $1,063,158
-------------------------
Commercial real estate:
Apartments............................... 265,557 329,575
Other permanent.......................... 355,666 353,819
Construction and development............. 13,547 3,808
-------------------------
634,770 687,202
-------------------------
Total real estate...................... 1,896,460 1,750,360
-------------------------
Commercial business........................ 100,397 89,368
-------------------------
Consumer:
Home equity.............................. 875,395 759,390
Automobile and recreational vehicle...... 95,375 54,762
Credit card.............................. 34,698 18,989
Loans secured by deposits................ 9,676 11,411
Other.................................... 90,827 74,475
-------------------------
1,105,971 919,027
-------------------------
3,102,828 2,758,755
Less:
Unearned discounts on loans purchased.... 1,280 2,262
Deferred loan fees, net.................. 2,606 2,419
Unearned discounts and finance
charges, net........................... 17,134 8,928
-------------------------
$3,081,808 $2,745,146
-------------------------
-------------------------
Accrued interest receivable on loans was $19.7 million and $15.8 million at
December 31, 1994 and 1993, respectively.
At December 31, 1994, 1993 and 1992, loans on non-accrual status totaled
$9.5 million, $17.4 million and $16.1 million, respectively. Had the loans
performed in accordance with their original terms throughout 1994, TCF would
have recorded gross interest income of $1.3 million for these loans. Interest
income of $594,000 has been recorded on these loans for the year ended December
31, 1994.
Included in loans at December 31, 1994 and 1993, are commercial real estate
loans aggregating $3 million and $7.4 million, respectively, with terms that
have been modified in troubled debt restructurings. Had the loans performed in
accordance with their original terms throughout 1994, TCF would have recorded
gross interest income of $312,000 for these loans. Interest income of $280,000
has been recorded on these loans for the year ended December 31, 1994. There
were no material commitments to lend additional funds to customers whose loans
were classified as restructured or non-accrual at December 31, 1994.
Included in commercial real estate loans at December 31, 1994 and 1993, are
$52.2 million and $57.1 million, respectively, of loans to facilitate the sale
of real estate accounted for by the installment method. The installment method
of accounting was applied because the borrower's initial and continuing
investment was not adequate for full accrual profit recognition under SFAS No.
66, "Accounting for Sales of Real Estate."
At December 31, 1994, 1993 and 1992, TCF was servicing real estate loans
for others with aggregate unpaid principal balances of approximately $3.9
billion, $3.6 billion and $3.3 billion, respectively. During 1994 and 1993, TCF
sold servicing rights on $169 million and $44 million of loans serviced for
others at net gains of $2.4 million and $137,000, respectively. No sales of
servicing rights occurred in 1992.
8) ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES AND INDUSTRIAL REVENUE BOND
RESERVES
Following is a summary of the allowances for loan and real estate losses and
industrial revenue bond reserves:
INDUSTRIAL ALLOWANCE
ALLOWANCE REVENUE FOR REAL
FOR LOAN BOND ESTATE
(IN THOUSANDS) LOSSES RESERVES TOTAL LOSSES TOTAL
-------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991................. $25,420 $2,881 $28,301 $ 7,603 $35,904
Provision for losses..................... 12,423 767 13,190 22,054 35,244
Charge-offs.............................. (21,519) (2,185) (23,704) (27,366) (51,070)
Recoveries............................... 2,925 - 2,925 - 2,925
---------------------------------------------------------------------
Balance, December 31, 1992................. 19,249 1,463 20,712 2,291 23,003
Adjustments for pooling-of-interests..... (56) 225 169 (513) (344)
Provision for losses..................... 20,207 1,726 21,933 11,743 33,676
Charge-offs.............................. (16,032) (725) (16,757) (11,553) (28,310)
Recoveries............................... 2,687 - 2,687 - 2,687
---------------------------------------------------------------------
Balance, December 31, 1993................. 26,055 2,689 28,744 1,968 30,712
Provision for losses..................... 10,901 - 10,901 2,373 13,274
Charge-offs.............................. (7,740) - (7,740) (3,611) (11,351)
Recoveries............................... 2,432 70 2,502 - 2,502
---------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994................. $31,648 $2,759 $34,407 $ 730 $35,137
---------------------------------------------------------------------
---------------------------------------------------------------------
48 TCF Financial Corporation and Subsidiaries
--
Prior to being acquired by TCF, RCG had entered into agreements
guaranteeing certain industrial development and housing revenue bonds issued by
municipalities to finance commercial and multi-family real estate owned by third
parties. In the event a third-party borrower defaults on principal or interest
payments on the bonds, TCF, as acquiring entity, is required to either fund the
amount in default or acquire the then outstanding bonds. TCF may foreclose on
the underlying real estate to recover amounts in default. The balance of such
financial guarantees totaled $18.6 million and $20.8 million at December 31,
1994 and 1993, respectively. Management has considered these guarantees in its
review of the adequacy of the industrial revenue bond reserves, which are
included in other liabilities in the Consolidated Statements of Financial
Condition.
9) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
-----------------------------------------------------
Land............................. $ 15,962 $ 15,153
Office buildings................. 66,986 63,423
Leasehold improvements........... 13,449 12,366
Furniture and equipment.......... 64,319 56,165
------------------
160,716 147,107
Less accumulated depreciation
and amortization............... 75,633 67,453
------------------
$ 85,083 $ 79,654
------------------
------------------
TCF leases certain premises and equipment under operating leases. Net
lease expense was $11.5 million, $11.2 million and $9.9 million in 1994, 1993
and 1992, respectively.
At December 31, 1994, the total annual minimum lease commitments for
operating leases were as follows:
(IN THOUSANDS)
--------------------------------------
1995........................ $ 9,256
1996........................ 7,223
1997........................ 6,538
1998........................ 5,531
1999........................ 4,230
Thereafter.................. 9,237
-------
$42,015
-------
-------
10) REAL ESTATE
Real estate is summarized as follows:
AT DECEMBER 31,
-----------------
(IN THOUSANDS) 1994 1993
------------------------------------------------------------------------
In-substance foreclosures........................... $ 8,560 $15,257
Real estate in judgment, subject to redemption...... 3,663 3,792
Real estate acquired through foreclosure............ 4,063 8,472
-----------------
$16,286 $27,521
-----------------
-----------------
The net costs of operation of real estate are as follows:
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------
Gain on sales............................ $(1,140) $ (640) $ (382)
Provision for losses..................... 2,373 11,743 22,054
Net operations........................... 818 1,687 2,837
----------------------------
$ 2,051 $12,790 $24,509
----------------------------
----------------------------
11) PURCHASED MORTGAGE SERVICING RIGHTS
Purchased mortgage servicing rights are included in other assets and are
summarized as follows:
YEAR ENDED DECEMBER 31,
---------------------------
(IN THOUSANDS) 1994 1993 1992
------------------------------------------------------------------------
Balance at beginning of year............. $12,381 $15,180 $17,762
Adjustments for pooling-of-interests... - (565) -
Purchased mortgage servicing rights
capitalized.......................... 3,516 5,026 2,015
Amortization........................... (3,394) (3,633) (3,464)
Sale of servicing...................... (256) - -
Valuation adjustments due to
accelerated prepayments.............. - (3,627) (1,133)
---------------------------
Balance at end of year................... $12,247 $12,381 $15,180
---------------------------
---------------------------
TCF Financial Corporation and Subsidiaries 49
--
12) DEPOSITS
Deposits are summarized as follows:
AT DECEMBER 31,
-------------------------------------------------------------------
1994 1993
------------------------------- --------------------------------
WEIGHTED WEIGHTED
AVERAGE % OF AVERAGE % OF
(DOLLARS IN THOUSANDS) RATE AMOUNT TOTAL RATE AMOUNT TOTAL
-----------------------------------------------------------------------------------------------------------
Checking:
Non-interest bearing................. 0.00% $ 402,368 10.5% 0.00% $ 369,692 9.0%
Interest bearing..................... 1.28 416,455 10.9 1.21 430,431 10.5
----------------- -----------------
.65 818,823 21.4 .65 800,123 19.5
----------------- -----------------
Passbook and statement................. 2.09 745,546 19.5 1.77 855,781 20.9
Money market........................... 3.39 431,309 11.3 2.31 469,694 11.4
Certificates:
6 months and less.................... 3.90 139,604 3.7 3.07 217,788 5.3
over 6 to 18 months.................. 4.80 878,795 23.0 3.64 677,092 16.5
over 18 to 30 months................. 4.53 267,497 7.0 4.65 381,264 9.3
over 30 months....................... 6.10 467,859 12.3 7.19 654,942 16.0
Negotiable rate...................... 5.28 70,181 1.8 3.74 45,874 1.1
----------------- -----------------
5.04 1,823,936 47.8 4.95 1,976,960 48.2
----------------- -----------------
3.34 $3,819,614 100.0% 3.15 $4,102,558 100.0%
----------------- -----------------
----------------- -----------------
Certificates had the following remaining maturities:
AT DECEMBER 31,
------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1994 1993
------------------------------------------ ---------------------------------------------
WEIGHTED WEIGHTED
NEGOTIABLE AVERAGE NEGOTIABLE AVERAGE
MATURITY RATE OTHER TOTAL RATE RATE OTHER TOTAL RATE
------------------------------------------------------------------------------------------------------------
0-3 months...... $48.7 $ 331.8 $ 380.5 4.59% $26.8 $ 401.9 $ 428.7 4.14%
4-6 months...... 10.0 408.9 418.9 4.87 3.3 420.7 424.0 4.86
7-12 months..... 8.6 506.3 514.9 5.03 5.4 498.2 503.6 5.12
13-24 months.... 1.1 305.6 306.7 5.48 7.7 420.3 428.0 5.30
25-36 months.... 1.0 106.3 107.3 5.40 1.0 88.9 89.9 5.66
37-48 months.... .8 65.5 66.3 5.82 1.0 51.0 52.0 5.69
49-60 months.... - 12.8 12.8 5.47 .7 33.0 33.7 5.62
Over 60 months.. - 16.5 16.5 5.94 - 17.1 17.1 6.16
------------------------------ ----------------------------------------
$70.2 $1,753.7 $1,823.9 5.04 $45.9 $1,931.1 $1,977.0 4.95
------------------------------ ----------------------------------------
------------------------------ ----------------------------------------
50 TCF Financial Corporation and Subsidiaries
--
Interest expense on deposits is summarized as follows:
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
--------------------------------------------------------------------
Checking.............................. $ 5,259 $ 4,989 $ 9,820
Passbook and statement................ 14,384 16,359 21,725
Money market.......................... 11,644 12,436 16,258
Certificates.......................... 89,799 102,979 138,341
----------------------------
121,086 136,763 186,144
Less early withdrawal penalties....... 472 510 605
----------------------------
$120,614 $136,253 $185,539
----------------------------
----------------------------
Accrued interest on deposits totaled $4.7 million and $8.9 million at
December 31, 1994 and 1993, respectively.
Mortgage-backed securities aggregating $52.7 million were pledged as
collateral to secure certain deposits at December 31, 1994.
At December 31, 1994, TCF was required by Federal Reserve regulations to
maintain reserve balances of approximately $67.3 million in cash on hand or at
the Federal Reserve Bank.
13) BORROWINGS
Borrowings consist of the following:
AT DECEMBER 31,
------------------------------------------------------
1994 1993
----------------------- ------------------------
WEIGHTED WEIGHTED
YEAR OF AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) MATURITY AMOUNT RATE AMOUNT RATE
---------------------------------------------------------------------------------------------------------------
Securities sold under
repurchase agreements................ 1994-1995 $170,143 5.94% $129,812 4.53%
-------- --------
Federal Home Loan Bank advances........ 1994 - - 115,000 7.61
1995 388,405 5.83 20,000 5.18
1996 251,100 5.94 251,100 5.94
1997 10,014 6.24 10,014 6.24
2000 74 7.10 74 7.10
2006 - - 144 8.42
2008 345 6.27 360 6.27
2009 925 6.86 - -
-------- --------
650,863 5.88 396,692 6.40
-------- --------
Subordinated capital notes of TCF
Financial Corporation, callable
beginning January 1, 1995............ 2002 34,500 10.00 34,500 10.00
-------- --------
Other borrowings:
Collateralized mortgage obligations.. 2006 488 6.50 2,880 6.50
2008 3,000 6.50 3,000 6.50
2010 1,443 5.90 1,361 5.90
-------- --------
4,931 6.32 7,241 6.39
Less unamortized discount.......... 306 - 522 -
-------- --------
4,625 6.74 6,719 6.88
-------- --------
Industrial development
revenue bonds...................... 2015 3,125 4.65 3,175 3.05
-------- --------
Bank loan, maturing
serially through 1998.............. 1998 3,500 9.50 4,500 7.00
-------- --------
Other................................ 1995 1,500 6.13 - -
1998 27 7.60 34 7.60
-------- --------
1,527 6.16 34 7.60
-------- --------
12,777 6.92 14,428 6.08
-------- --------
$868,283 6.07 $575,432 6.18
-------- --------
-------- --------
TCF Financial Corporation and Subsidiaries 51
--
At December 31, 1994, borrowings with a maturity of one year or less
consisted of the following:
WEIGHTED
AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT RATE
------------------------------------------------------------------------
Securities sold under repurchase agreements..... $170,143 5.94%
Federal Home Loan Bank advances................. 388,405 5.83
Bank loan....................................... 1,000 9.50
Other........................................... 1,500 6.13
--------
$561,048 5.87
--------
--------
Accrued interest on borrowings totaled $2.9 million and $1.4 million at
December 31, 1994 and 1993, respectively.
At December 31, 1994, securities sold under repurchase agreements were
collateralized by mortgage-backed securities and had the following maturities:
REPURCHASE BORROWING COLLATERAL SECURITIES
-------------------- ---------------------
INTEREST CARRYING MARKET
(DOLLARS IN THOUSANDS) AMOUNT RATE AMOUNT (1) VALUE (1)
-------------------------------------------------------------------------------
Maturity:
January 1995............... $170,143 5.94% $188,947 $178,270
-------- ---------------------
-------- ---------------------
<FN>
_____________________________
(1) INCLUDES ACCRUED INTEREST.
The securities underlying the repurchase agreements are book entry
securities. During the period, book entry securities were delivered by
appropriate entry into the counterparties' accounts through the Federal Reserve
System. The dealers may sell, loan or otherwise dispose of such securities to
other parties in the normal course of their operations, but have agreed to
resell to TCF identical or substantially the same securities upon the maturities
of the agreements. At December 31, 1994, all of the securities sold under
repurchase agreements provided for the repurchase of identical securities.
Securities sold under repurchase agreements averaged $122.2 million and $123.1
million during 1994 and 1993, respectively, and the maximum amount outstanding
at any month-end during 1994 and 1993 was $403.5 million and $218.5 million,
respectively.
At December 31, 1994, mortgage-backed securities collateralizing the
collateralized mortgage obligations had a carrying amount of $4.7 million and a
market value of $4.4 million.
The bank loan is unsecured and contains certain covenants common to such
agreements with which TCF is in compliance. In December 1994, TCF negotiated a
$7.5 million unsecured bank line of credit which bears interest at the prime
rate and matures on April 30, 1996. There were no borrowings under this line of
credit in 1994.
TCF has recorded its obligations to pay the amount in default on Industrial
Development Revenue Bond issues for which RCG had entered into financial
guarantee agreements. As permitted under the agreements, TCF has commenced
foreclosure proceedings relative to the underlying real estate and has also
recorded the fair value of such real estate as in-substance foreclosures at
December 31, 1994.
FHLB advances are collateralized by FHLB stock, interest-bearing deposits
with banks, residential real estate loans and mortgage-backed securities with an
aggregate carrying value of approximately $803.3 million at December 31, 1994.
Interest expense on borrowings is summarized as follows:
YEAR ENDED DECEMBER 31,
---------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------
FHLB advances........................ $20,781 $25,085 $28,471
Securities sold under repurchase
agreements...................... 6,441 6,184 7,763
Subordinated capital notes........... 3,718 4,418 7,470
Other borrowings..................... 958 1,237 1,982
---------------------------
$31,898 $36,924 $45,686
---------------------------
---------------------------
14) INCOME TAXES
Income tax expense (benefit) consists of:
(IN THOUSANDS) CURRENT DEFERRED TOTAL
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994:
FEDERAL....................... $32,562 $(1,489) $31,073
STATE......................... 9,670 (441) 9,229
---------------------------
$42,232 $(1,930) $40,302
---------------------------
---------------------------
Year ended December 31, 1993:
Federal....................... $22,201 $ (15) $22,186
State......................... 6,466 (5) 6,461
---------------------------
$28,667 $ (20) $28,647
---------------------------
---------------------------
Year ended December 31, 1992:
Federal....................... $12,912 $(2,349) $10,563
State......................... 2,684 (291) 2,393
---------------------------
$15,596 $(2,640) $12,956
---------------------------
---------------------------
52 TCF Financial Corporation and Subsidiaries
--
The significant components of deferred income tax expense (benefit) are
summarized as follows:
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------
Deferred tax expense (benefit)
(exclusive of the effects of
other components listed below)........ $(1,930) $(20) $ 5,708
Charge in lieu of taxes resulting
from the recognition of acquired
tax benefits that are allocated
to reduce goodwill related to the
acquired entity....................... - - 1,884
Decrease in the valuation allowance
for deferred tax assets............... - - (10,232)
----------------------------
$(1,930) $(20) $(2,640)
----------------------------
----------------------------
Total income tax expense of $40.3 million, $28.6 million and $13
million for the years ended December 31, 1994, 1993 and 1992, respectively, did
not include tax benefits specifically allocated to goodwill and stockholders'
equity. The amounts allocated to goodwill for the initial recognition of
acquired tax benefits that were previously included in the tax valuation
allowance totaled $1.9 million for the year ended December 31, 1992. No
suchamounts were allocated during 1994 or 1993. No tax valuation allowance was
required as of December 31, 1994 or 1993 since TCF paid taxes, which are
available for carryback, in excess of its deferred tax assets. The tax benefit
allocated to additional paid-in capital for compensation expense for tax
purposes in excess of amounts recognized for financial reporting purposes
totaled $90,000, $728,000 and $1.5 million for the years ended December 31,
1994, 1993 and 1992, respectively.
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% for both 1994 and 1993 and 34% for 1992 to income
before income tax expense as a result of the following:
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------
Computed "expected" tax expense............ $34,183 $23,316 $19,793
Increase (reduction) in income tax
expense resulting from:
Change in the valuation allowance
for federal income tax deferred
assets allocated to income
tax expense......................... - - (6,011)
Change in the valuation allowance
for state income tax deferred
assets allocated to income
tax expense, net of federal
income tax impact................... - - (2,337)
Benefit of net operating loss
carryovers.......................... - - (2,800)
Amortization of goodwill.............. 418 664 1,109
Tax exempt income..................... (115) (134) (207)
State income tax, exclusive of
valuation allowance change, net
of federal income tax benefit....... 5,999 4,200 3,703
Other, net............................ (183) 601 (294)
----------------------------
$40,302 $28,647 $12,956
----------------------------
----------------------------
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan and real estate losses....... $17,910 $14,739
Discounts on loans arising from acquisitions.... 513 1,006
Other........................................... 3,643 3,677
------------------
Total deferred tax assets.................... 22,066 19,422
------------------
Deferred tax liabilities:
FHLB stock...................................... 3,757 4,135
Pension and other compensation plans............ 2,378 3,214
Loan basis differences.......................... 5,002 5,535
Loan fees and discounts......................... 2,660 260
------------------
Total deferred tax liabilities............... 13,797 13,144
------------------
Net deferred tax assets.................... $ 8,269 $ 6,278
------------------
------------------
At December 31, 1994, TCF had no remaining federal net operating loss
("NOL") or tax credit carryovers.
The consolidated tax returns for the years ended 1979 through 1982 have
been reviewed by the Internal Revenue Service ("IRS"). The IRS had proposed
certain adjustments. In October 1992, the Joint Committee of Congress approved
a settlement agreement between TCF and the IRS. The settlement allowed a loss
deduction on the sale of mortgage loans which the IRS had contended should be
disallowed. The settlement also allowed, based on a tax court ruling, certain
tax bad debt losses that were not previously deducted in TCF's tax returns. The
allowance of the bad debt deductions created a $2.8 million NOL benefit during
1992.
TCF Financial Corporation and Subsidiaries 53
--
15) STOCKHOLDERS' EQUITY
RESTRICTED RETAINED EARNINGS -- TCF Minnesota may not declare or pay a dividend
to TCF in excess of 100% of its annual net income plus the amount that would
reduce by one-half TCF Minnesota's surplus capital ratio at the beginning of the
calendar year without prior Office of Thrift Supervision ("OTS") approval.
Additional limitations on dividends declared or paid on, or repurchases of, TCF
Minnesota's capital stock are tied to TCF Minnesota's level of compliance with
its regulatory capital requirements.
Retained earnings at December 31, 1994 includes approximately $76.6 million
for which no provision for federal income tax has been made. This amount
represents earnings appropriated to bad debt reserves and deducted for federal
income tax purposes and is not available for payment of cash dividends or other
distributions to shareholders. Payments or distributions of these appropriated
earnings could invoke a tax liability for the Bank based on the amount of
earnings removed and current tax rates.
At December 31, 1994, TCF's savings bank subsidiaries, TCF Minnesota, TCF
Illinois, TCF Wisconsin and TCF Michigan, exceeded their fully phased-in capital
requirements.
SHAREHOLDER RIGHTS PLAN -- On May 23, 1989, TCF's Board of Directors (the
"Board") declared a dividend of one preferred share purchase right for each
share of common stock, payable on June 9, 1989, to holders of record on that
date. The rights will become exercisable only if a person or group acquires or
announces an offer to acquire 15% or more of TCF's common stock. This
triggering percentage may be reduced to no less than 10% by the Board under
certain circumstances. When exercisable, each right will entitle the holder to
buy one one-hundredth of a share of a new series of junior participating
preferred stock at a price of $60 per share. In addition, upon the occurrence
of certain events, holders of the rights will be entitled to purchase either
TCF's common stock or shares in an "acquiring entity" at half of the market
value. The Board is generally entitled to redeem the rights at 1 cent per right
at any time before they become exercisable. The rights will expire on June 9,
1999, if not previously redeemed or exercised.
TREASURY STOCK -- On January 25, 1994, the Board authorized the repurchase of up
to 5% of TCF common stock, or approximately 620,000 shares. The repurchased
shares will be used for employee benefit plans and other general corporate
purposes. TCF purchased 535,000 shares of stock under this plan during the year
ended December 31, 1994. During this period, 212,120 shares were issued out of
treasury stock for restricted stock grants and employee benefit plans.
16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
TCF is a party to financial instruments with off-balance-sheet risk in the
normal course of business, primarily to meet the financing needs of its
customers. These financial instruments, which are issued or held by TCF for
purposes other than trading, include commitments to extend credit, standby
letters of credit, financial guarantees written, forward mortgage loan sales
commitments, an interest rate swap agreement and financial guarantees on certain
loans sold with recourse and on other contingent obligations. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the Consolidated Statements of Financial Condition.
The contract or notional amounts of those instruments reflect the extent of
involvement TCF has in particular classes of financial instruments.
TCF's exposure to credit loss in the event of non-performance by the
counterparty to the financial instrument for commitments to extend credit,
standby letters of credit, financial guarantees written and financial guarantees
on certain loans sold with recourse is represented by the contractual amount of
the commitments. TCF uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. For
Veterans Administration ("VA") loans serviced with partial recourse, forward
mortgage loan sales commitments and interest rate swap agreements, the contract
or notional amount exceeds TCF's exposure to credit loss. TCF controls the
credit risk of forward mortgage loan sales commitments through credit approvals,
credit limits and monitoring procedures.
Unless noted otherwise, TCF does not require collateral or other security
to support financial instruments with credit risk. The contract or notional
amounts of these financial instruments are as follows:
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
--------------------------------------------------------------------
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit............... $783,921 $782,584
Standby letters of credit.................. 18,098 18,033
Financial guarantees written............... 18,595 20,756
Loans sold with recourse................... 36,368 48,979
Financial instruments whose credit risk is
less than the notional or contract amount:
VA loans serviced with partial recourse.... 398,261 365,517
Forward mortgage loan sales commitments.... 51,030 444,789
Interest rate swap agreement............... 5,000 5,000
As part of its normal business operations, and in order to meet the ongoing
credit needs of its customers, TCF has outstanding at any time a significant
number of commitments to extend credit. Commitments to extend credit are
agreements to lend to a customer provided there is no violation of any condition
established in the contract. These commitments take the form of mortgage loan
54 TCF Financial Corporation and Subsidiaries
--
applications, approved loans, consumer credit line products and credit card
limits. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since certain of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. TCF evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by TCF upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral predominantly consists of
residential and commercial real estate and personal property. Included in the
total commitments to extend credit at December 31, 1994 were mortgage loan
commitments and loans in process aggregating $504.7 million, including
commercial and residential construction and development commitments totaling
$34.3 million. Of the total mortgage loan commitments and loans in process at
December 31, 1994, $106.4 million were for fixed-rate loans. Also included in
the total commitments to extend credit were various consumer credit line
products aggregating $457.7 million, of which $163.5 million were unsecured.
Standby letters of credit are conditional commitments issued by TCF
guaranteeing the performance of a customer to a third party. The standby
letters of credit are primarily issued to support public and private borrowing
arrangements including bond financing, and expire in various years through the
year 1999. The credit risk involved in issuing standby letters of credit is
essentially the same as that involved in making commercial loans to customers.
The amount of collateral TCF obtains to support standby letters of credit is
based on management's credit evaluation of the borrower. Collateral held
primarily consists of commercial real estate mortgages. Since the conditions
under which TCF is required to fund standby letters of credit may not
materialize, the cash requirements are expected to be less than the total
outstanding commitments. TCF's commitments to the beneficiaries under its
outstanding standby letters of credit at December 31, 1994 were collateralized
by $24.5 million of TCF's mortgage-backed securities.
Financial guarantees written represent agreements whereby, for a fee,
certain of TCF's investment and mortgage-backed securities are pledged as
collateral for Housing Revenue Bonds and Industrial Development Revenue Bonds
which were issued by municipalities to finance commercial and multi-family real
estate owned by third parties. In the event the third party borrowers default
on principal or interest payments on the bonds, TCF is required to either pay
the amount in default or acquire the then outstanding bonds. TCF may foreclose
on the underlying real estate to recover amounts in default. At December 31,
1994, mortgage-backed securities aggregating approximately $43 million were held
by the trustees as collateral for these financial guarantees. Further, in order
to protect TCF's ability to recover losses in the event of default by the third
party borrowers, TCF may also be required to pay real estate taxes and other
liabilities of the underlying collateral. The collateral agreements expire in
1995 through 2005.
During the normal course of business, TCF may sell certain loans with
limited recourse provisions. In addition, TCF services VA loans on which it
must cover any principal loss in excess of the VA's guarantee if the VA elects
its "no-bid" option upon the foreclosure of a loan. A significant portion of
the loans is partially supported by government-sponsored insurance, private
mortgage insurance or the VA partial guarantee, and all of the loans are
collateralized by residential real estate.
As part of its residential mortgage banking operation, TCF enters into
forward mortgage loan sales commitments in order to manage the market exposure
on its residential loans held for sale and its commitments to extend credit for
residential loans. Because gains or losses to be realized on the sale of
residential loans held for sale are dependent on interest rates, forward
mortgage loan sales commitments are used to reduce the impact of changes in
interest rates on TCF's mortgage banking operation. Forward mortgage loan sales
commitments are contracts for the delivery of mortgage loans or pools of loans
in which TCF agrees to make delivery at a specified future date of a specified
instrument, at a specified price or yield. Risks arise from the possible
inability of the counterparties to meet the terms of their contracts and from
movements in mortgage loan values and interest rates. Included in the total at
December 31, 1994 and 1993 were $1 million and $49 million, respectively, of
standby forward mortgage loan sales commitments for which TCF has the option to
deliver the mortgage loans. Also included in the total at December 31, 1994 and
1993 were $2 million and $28.5 million, respectively, of standby forward
mortgage loan sales commitments for which the third parties have the option to
purchase the mortgage loans. Premiums paid for standby forward mortgage loan
sales commitments are amortized to gain on sale of loans held for sale over the
terms of the agreements. The fair value of the forward mortgage loan sales
commitments is not recognized in the financial statements.
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payments without the exchange of the underlying notional
amount on which the interest payments are calculated. Prior to being acquired
by TCF, RCG entered into an interest rate swap agreement to manage the impact of
fluctuating interest rates. The credit risk associated with interest rate swap
agreements revolves around the ability of the counterparty to perform its
TCF Financial Corporation and Subsidiaries 55
--
obligation under the agreement. Under the terms of the agreement with the FHLB,
which expires in March 1997, TCF makes periodic interest payments based on a
fixed interest rate of 8.55% and receives periodic interest payments based on
the six-month London Interbank Offered Rate ("LIBOR"). The net amount payable
or receivable from the interest rate swap agreement is accrued and recognized as
an adjustment to interest income on loans. The related amount payable to or
receivable from the counterparty is included in accrued interest payable or
receivable. The fair value of the interest rate swap agreement is not
recognized in the financial statements.
17) FAIR VALUES OF FINANCIAL INSTRUMENTS
TCF is required to disclose the estimated fair value of financial instruments,
both assets and liabilities on and off the balance sheet, for which it is
practicable to estimate fair value. Fair value estimates are made at a specific
point in time, based on relevant market information and information about the
financial instruments. These estimates do not reflect any premium or discount
that could result from offering for sale at one time TCF's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of TCF's financial instruments, fair value estimates are subjective in
nature, involving uncertainties and matters of significant judgment, and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, TCF has established customer relationships
that contribute significant fee income annually. These customer relationships
are not considered financial instruments, and their values have not been
incorporated into the fair value estimates. Certain financial instruments and
all nonfinancial instruments are excluded from fair value of financial
instrument disclosure requirements. In addition, the tax effects of unrealized
gains and losses have not been considered in the estimates, nor have costs
necessary to execute a sale been considered. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of TCF, or the
value TCF would realize in a negotiated sale of these instruments.
Fair value estimates, methods and assumptions are set forth below for TCF's
financial instruments. These financial instruments are issued or held by TCF
for purposes other than trading. The carrying amounts disclosed below are
included in the Consolidated Statements of Financial Condition under the
indicated captions, except where noted otherwise. The carrying amount of
accrued interest approximates its fair value.
CASH AND DUE FROM BANKS -- The carrying amount of cash and due from banks
approximates its fair value and totaled $170.7 million and $165.9 million at
December 31, 1994 and 1993, respectively.
INVESTMENTS -- The carrying amounts of short-term investments approximate their
fair values since they mature in 90 days or less and do not present
unanticipated credit concerns. The fair values of longer-term interest-bearing
deposits with banks and federal funds sold are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
estimated based on discounted cash flow analyses using interest rates currently
being offered for investments with similar terms. The fair values of U.S.
Government and other marketable securities held to maturity are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. The
carrying amount of FHLB stock approximates its fair value. The carrying amounts
and fair values of TCF's investment portfolio are as follows:
AT DECEMBER 31,
---------------------------------------
1994 1993
------------------- ------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------
Interest-bearing deposits
with banks.......................... $190,698 $190,698 $ 10,512 $ 10,512
Federal Funds sold.................... 6,900 6,900 105,500 105,500
U.S. Government and other
marketable securities held
to maturity:
U.S. Government and agency
obligations.................... 50 48 66,961 67,038
Corporate bonds.................. - - 3,000 3,006
Bankers' acceptances............. - - 6,997 6,999
Commercial paper................. 3,478 3,478 3,244 3,244
Other............................ - - 1,058 1,057
---------------------------------------
3,528 3,526 81,260 81,344
Federal Home Loan Bank stock,
at cost............................. 42,525 42,525 37,849 37,849
---------------------------------------
$243,651 $243,649 $235,121 $235,205
---------------------------------------
---------------------------------------
56 TCF Financial Corporation and Subsidiaries
--
SECURITIES AVAILABLE FOR SALE -- The fair values of U.S. Government and other
marketable securities available for sale are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments. The amortized cost and
fair values of TCF's securities available for sale portfolio are as follows:
AT DECEMBER 31,
-------------------------------------------
1994 1993
------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
(IN THOUSANDS) COST VALUE COST VALUE
------------------------------------------------------------------------------
U.S. Government and agency
obligations..................... $50,977 $50,912 $ - $ -
Commercial paper.................. 14,955 14,843 - -
Other............................. 3 30 10,003 10,236
-------------------------------------------
$65,935 $65,785 $10,003 $10,236
-------------------------------------------
-------------------------------------------
LOANS HELD FOR SALE -- Financial instruments associated with TCF's residential
mortgage banking operation include residential loans held for sale, commitments
to extend credit and forward mortgage loan sales commitments. The estimated
fair values of these financial instruments are based on quoted market prices.
The carrying amounts for commitments to extend credit and forward mortgage loan
sales commitments are included in other assets in the Consolidated Statements of
Financial Condition. The contract amounts, carrying amounts and fair values of
the financial instruments associated with TCF's residential loans held for sale
are as follows:
AT DECEMBER 31,
------------------------------------------------------------------------------------
1994 1993
--------------------------------------- ---------------------------------------
ESTIMATED ESTIMATED
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
(IN THOUSANDS) AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
Residential loans held for sale (1)....... $ 44,461 $44,461 $45,233 $298,660 $298,660 $297,968
Commitments to extend credit.............. 166,942 155 54 329,385 - (275)
Forward mortgage loan sales commitments... 51,030 12 114 444,789 126 2,923
------------------------ ------------------------
$44,628 $45,401 $298,786 $300,616
------------------------ ------------------------
------------------------ ------------------------
<FN>
---------------------------------------
(1) NET OF UNEARNED DISCOUNTS, PREMIUMS AND DEFERRED FEES.
The fair value estimates above do not include the value of residential
mortgage loan servicing rights on TCF's residential loan servicing portfolio
which totaled $5.4 billion and $5.2 billion at December 31, 1994 and 1993,
respectively. The gross fair value of these rights is estimated to be $90.9
million and $56.7 million at December 31, 1994 and 1993, respectively.
Purchased mortgage servicing rights totaling $12.2 million and $12.4 million
related to TCF's residential loan servicing portfolio are included as other
assets in TCF's Consolidated Statements of Financial Condition at December 31,
1994 and 1993, respectively.
The fair value of education loans held for sale is estimated based on an
existing forward sale agreement TCF has with the Student Loan Marketing
Association, or on sales of comparable loans. The estimated fair value of
education loans held for sale of $159.5 million and $126.5 million compares with
carrying amounts of $156 million and $123.2 million at December 31, 1994 and
1993, respectively.
TCF Financial Corporation and Subsidiaries 57
--
MORTGAGE-BACKED SECURITIES HELD TO MATURITY -- The fair values of mortgage-
backed securities held to maturity are based on quoted market prices. The
carrying amounts and fair values of TCF's mortgage-backed securities held to
maturity portfolio are as follows:
AT DECEMBER 31,
------------------------------------------------------
1994 1993
-------------------------- ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------
FHLMC.................. $ 297,268 $ 285,451 $ 510,855 $ 525,212
FNMA................... 641,648 610,822 499,499 515,657
GNMA................... 154,513 152,928 198,520 208,623
Private Issuers........ 17,441 17,189 21,028 21,251
------------------------------------------------------
1,110,870 1,066,390 1,229,902 1,270,743
Net premiums........... 3,743 - 7,300 -
------------------------------------------------------
$1,114,613 $1,066,390 $1,237,202 $1,270,743
------------------------------------------------------
------------------------------------------------------
LOANS -- The fair values of loans are estimated for portfolios of loans with
similar characteristics. Loans are segregated by type, and include residential,
commercial real estate, commercial business and consumer, and by sub-type within
these categories. Each of these categories is further segmented into fixed- and
adjustable-rate interest terms, and by performing and non-performing status.
For certain variable-rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values are based on
carrying values. For certain homogeneous categories of loans, such as certain
residential and consumer loans, fair values are estimated using quoted market
prices. The fair values of other performing loans are estimated by discounting
contractual cash flows adjusted for prepayment estimates, using interest rates
currently being offered for loans with similar terms to borrowers with similar
credit risk characteristics. The fair values of significant non-performing
loans are based on recent internal or external appraisals, or estimated cash
flows discounted using rates commensurate with the risks associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows and
discount rates are judgmentally determined using available market information
and specific borrower information.
The carrying amounts and fair values of TCF's loan portfolio are as
follows:
AT DECEMBER 31,
------------------------------------------------------
1994 1993
-------------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT(1) FAIR VALUE AMOUNT(1) FAIR VALUE
-------------------------------------------------------------------------------
Residential real
estate............... $1,257,263 $1,191,918 $1,057,474 $1,072,766
Commercial real
estate............... 632,927 620,423 685,460 659,259
Commercial business.... 100,560 99,745 89,432 89,494
Consumer (2)........... 1,087,298 1,129,170 911,614 943,585
------------------------------------------------------
3,078,048 3,041,256 2,743,980 2,765,104
Less: Allowance for
loan losses.......... 31,648 - 26,055 -
------------------------------------------------------
$3,046,400 $3,041,256 $2,717,925 $2,765,104
------------------------------------------------------
------------------------------------------------------
<FN>
_______________________________
(1) NET OF UNEARNED DISCOUNTS AND DEFERRED FEES.
(2) EXCLUDES LEASE RECEIVABLES NOT SUBJECT TO FAIR VALUE DISCLOSURE OF $3.8
MILLION AND $1.2 MILLION AT DECEMBER 31, 1994 AND 1993, RESPECTIVELY.
DEPOSITS -- The fair value of deposits with no stated maturity, such as
checking, passbook and statement, and money market accounts, is deemed equal to
the amount payable on demand. The fair value of certificates is estimated based
on discounted cash flow analyses using interest rates offered by TCF at
December 31, 1994 and 1993 for certificates of similar remaining maturities.
58 TCF Financial Corporation and Subsidiaries
--
The carrying amounts and fair values of TCF's deposit liabilities are as
follows:
AT DECEMBER 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------------------------------------------------------------------------------
Checking............... $ 818,823 $ 818,823 $ 800,123 $ 800,123
Passbook and statement. 745,546 745,546 855,781 855,781
Money market........... 431,309 431,309 469,694 469,694
Certificates........... 1,823,936 1,830,176 1,976,960 2,010,984
-------------------------------------------------------
$3,819,614 $3,825,854 $4,102,558 $4,136,582
-------------------------------------------------------
-------------------------------------------------------
The fair value estimates above do not include the benefit that results from
the lower-cost funding provided by deposits compared with the cost of wholesale
borrowings. That benefit is commonly referred to as a deposit base intangible.
BORROWINGS -- The carrying amounts of short-term borrowings approximate their
fair values. The fair values of TCF's long-term borrowings (other than
subordinated capital notes) are estimated based on discounted cash flow analyses
using interest rates offered at December 31, 1994 and 1993 for borrowings of
similar remaining maturities. The fair values of subordinated capital notes are
based on quoted market prices. The carrying amounts and fair values of TCF's
borrowings are as follows:
AT DECEMBER 31,
----------------------------------------
1994 1993
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------------------------------------------------------------------------
Securities sold under repurchase
agreements...................... $170,143 $170,143 $129,812 $130,829
Federal Home Loan Bank advances... 650,863 641,356 396,692 404,722
Subordinated capital notes........ 34,500 34,414 34,500 35,363
Other borrowings.................. 12,777 12,879 14,428 15,216
----------------------------------------
$868,283 $858,792 $575,432 $586,130
----------------------------------------
----------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- The fair values of
residential commitments to extend credit and forward mortgage loan sales
commitments are included in the estimated fair value disclosures of TCF's
residential loans held for sale portfolio. The fair values of TCF's remaining
commitments to extend credit, standby letters of credit and financial guarantees
written are estimated using fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments
and standby letters of credit issued in conjunction with fixed-rate loan
agreements, fair value also considers the difference between current levels of
interest rates and the committed rates. For financial guarantees written, fair
value also considers reserves established relating to TCF's potential obligation
on the outstanding guarantees. The fair value of the interest rate swap
agreement is based on the estimated cost to terminate the agreement at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparty. The carrying amounts for commitments to
extend credit are included in other assets in the Consolidated Statements of
Financial Condition. The carrying amounts for standby letters of credit and
financial guarantees written are included in accrued expenses and other
liabilities in the Consolidated Statements of Financial Condition. The contract
amounts, carrying amounts and estimated fair values of TCF's financial
instruments with off-balance-sheet risk are as follows:
AT DECEMBER 31,
---------------------------------------------------------------------------------
1994 1993
--------------------------------------- ---------------------------------------
CONTRACT CARRYING ESTIMATED CONTRACT CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT AMOUNT(1) FAIR VALUE(1) AMOUNT AMOUNT(1) FAIR VALUE(1)
-------------------------------------------------------------------------------------------------------------------------
Commitments to extend credit(2)....... $616,979 $1,823 $ (540) $453,199 $2,024 $ (537)
Standby letters of credit............. 18,098 - (8) 18,033 (34) (44)
Financial guarantees written.......... 18,595 (3,064) (3,064) 20,756 (2,689) (2,689)
Interest rate swap agreement.......... 5,000 - (55) 5,000 - (600)
<FN>
________________________
(1) POSITIVE AMOUNTS REPRESENT ASSETS, NEGATIVE AMOUNTS REPRESENT LIABILITIES.
(2) EXCLUDES COMMITMENTS TO EXTEND CREDIT FOR RESIDENTIAL REAL ESTATE LOANS HELD
FOR SALE.
TCF Financial Corporation and Subsidiaries 59
--
In addition to the financial instruments with off-balance-sheet risk noted
above, TCF had $36.4 million and $49 million of loans sold with recourse and
serviced $398.3 million and $365.5 million of VA loans with partial recourse at
December 31, 1994 and 1993, respectively. TCF has not incurred, and does not
anticipate, significant losses as a result of the recourse provisions associated
with these financial instruments. As a result, the carrying amounts and related
estimated fair values of these financial instruments were not material at
December 31, 1994 and 1993.
18) STOCK OPTION AND INCENTIVE PLAN
The Stock Option and Incentive Plan of TCF Financial was adopted to enable TCF
to attract and retain key personnel. Options generally become exercisable over
a period of three to five years from the date of the grant and expire after 10
years. Restricted stock granted in 1991 under the Stock Option and Incentive
Plan of TCF Financial vested over four years in accordance with a vesting
formula based on TCF's return on tangible equity. Restricted stock granted in
1994 under the Stock Option and Incentive Plan of TCF Financial generally vests
within five years, but may vest more rapidly or be subject to forfeiture in
accordance with a vesting schedule based on TCF's return on average equity.
Other restricted stock grants generally vest over periods from three to eight
years. Compensation expense for restricted stock is recorded over the vesting
periods, and totaled $2.7 million, $707,000 and $718,000 in 1994, 1993 and 1992,
respectively.
The following table summarizes TCF's restricted stock and stock option
transactions since December 31, 1991:
OPTIONS RESTRICTED STOCK
------------------------ ----------------------
SHARES PRICE RANGE SHARES PRICE RANGE
------------------------------------------------------------------------------
December 31, 1991............ 873,240 $ 7.75-15.50 362,340 $ 8.19-16.81
Granted................. 57,123 16.64-21.31 - -
Exercised............... (360,761) 7.75-15.50 - -
Cancelled............... (32,885) 8.19-16.64 (2,400) 8.19-12.56
-------- --------
December 31, 1992............ 536,717 7.75-21.31 359,940 8.19-16.81
Adjustments for
pooling-of-
interests............. (61,791) 11.34-14.49 - -
Granted................. 35,000 30.94-37.13 50,961 31.50-35.00
Exercised............... (161,881) 7.75-21.31 - -
Cancelled............... (52,062) 10.27-17.46 - -
-------- --------
December 31, 1993............ 295,983 7.75-37.13 410,901 8.19-35.00
Granted................. - - 212,245 30.63-38.56
Exercised............... (22,957) 8.88-21.31 - -
-------- --------
DECEMBER 31, 1994............ 273,026 7.75-37.13 623,146 8.19-38.56
-------- --------
-------- --------
EXERCISABLE AT
DECEMBER 31, 1994.......... 208,066 $7.75-37.13
--------
--------
VESTED AT DECEMBER 31, 1994.. 330,859 $8.19-38.56
--------
--------
At December 31, 1994, there were 461,002 shares reserved for issuance under
the Stock Option and Incentive Plan of TCF Financial, including 273,026 shares
for which options had been granted but had not yet been exercised.
19) EMPLOYEE BENEFIT PLANS
PENSION PLAN -- The TCF Cash Balance Pension Plan (the "Plan") is a defined
benefit qualified plan covering all "regular stated salary" employees who are at
least 21 years old and have completed a year of service with TCF. TCF makes a
monthly allocation to the participant's account based on a percentage of the
participant's compensation. The percentage is based on the sum of the
participant's age and years of employment with TCF. Participants are fully
vested after five years of vesting service. The projected unit credit method is
the actuarial cost method used to compute the pension credit.
Net pension credits included the following components:
YEAR ENDED DECEMBER 31,
--------------------------
(IN THOUSANDS) 1994 1993 1992
----------------------------------------------------------------------------
Service cost - benefits earned during the year.. $ 1,750 $1,527 $1,268
Interest cost on projected benefit obligation... 529 378 209
Gain on plan assets............................. (23) (3,130) (2,429)
Net amortization and deferral................... (2,418) 836 310
--------------------------
Net pension credit......................... $ (162) $ (389) $ (642)
--------------------------
--------------------------
60 TCF Financial Corporation and Subsidiaries
--
The following tables set forth the Plan's funded status at the dates
indicated:
AT OCTOBER 1,
------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------
Actuarial present value of accumulated benefit
obligations:
Vested benefits............................ $ 6,163 $ 4,805
Non-vested benefits........................ 859 382
------------------
Total accumulated benefits............ $ 7,022 $ 5,187
------------------
------------------
AT DECEMBER 31,
------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date................................... $ 8,008 $ 5,699
Plan assets at fair value............................ 23,211 23,477
------------------
Plan assets in excess of projected benefit
obligation......................................... 15,203 17,778
Unrecognized prior service cost...................... (600) (843)
Unrecognized net gain................................ (549) (3,043)
------------------
Prepaid pension cost included in other assets... $14,054 $13,892
------------------
------------------
The Plan's assets consist primarily of listed stocks and government bonds.
At December 31, 1994 and 1993, the Plan's assets included TCF common stock with
a market value of $3.7 million and $3.4 million, respectively.
The weighted average discount rate and rate of increase in future
compensation used to measure the projected benefit obligation and the expected
long-term rate of return on plan assets were as follows:
AT DECEMBER 31,
-------------------------
1994 1993 1992
-------------------------------------------------------------------------------
Weighted average discount rate..................... 8.00% 7.50% 7.75%
Rate of increase in future compensation............ 5.00 5.00 5.50
Expected long-term rate of return on plan assets... 9.00 9.00 9.75
POSTRETIREMENT PLANS -- In addition to providing retirement income benefits, TCF
currently provides health care benefits for eligible retired employees, and in
some cases life insurance benefits which were offered under prior plans.
Substantially all full-time employees may become eligible for health care
benefits if they reach retirement age and have completed 10 years of service
with the Company. These and similar benefits for active employees are provided
through insurance companies or through self-funded programs.
In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Although it applies to all forms
of postretirement benefits, SFAS No. 106 focuses principally on postretirement
health care benefits. TCF adopted SFAS No. 106 on a prospective basis effective
January 1, 1993. SFAS No. 106 significantly changed TCF's method of accounting
for postretirement benefits by requiring accrual, during the years that the
employee renders the necessary service, of the expected cost of providing those
benefits to an employee and the employee's beneficiaries and covered dependents.
TCF's transition obligation of $5.5 million at January 1, 1993 is being
amortized over 20 years as permitted by SFAS No. 106.
TCF's postretirement benefit plan is currently unfunded. The following
table reconciles the status of the plan with the amounts recognized in TCF's
Consolidated Statements of Financial Condition at the dates indicated:
AT DECEMBER 31,
(IN THOUSANDS) 1994 1993
------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees and beneficiaries............................... $(5,640) $(4,800)
Fully eligible active plan participants.................. (849) (702)
Other active plan participants........................... (780) (944)
------ ------
Total accumulated postretirement benefit obligation.... (7,269) (6,446)
Unrecognized net loss...................................... 1,399 760
Unrecognized transition obligation......................... 4,954 5,229
------ ------
Accrued postretirement benefit cost included in
other liabilities...................................... $ (916) $ (457)
------ ------
------ ------
Net periodic postretirement benefit cost included the following components:
YEAR ENDED
DECEMBER 31,
---------------
(IN THOUSANDS) 1994 1993
---------------------------------------------------------------------------
Service cost - benefits earned during the year............ $160 $124
Interest cost on accumulated postretirement benefit
obligation.............................................. 466 423
Amortization of unrecognized transition obligation........ 275 275
Other..................................................... 16 -
---------------
Net periodic postretirement benefit cost............. $917 $822
---------------
---------------
Prior to 1993, the cost of providing these benefits was recognized by
expensing the insurance company assessments, or as claims were paid in the case
of the self-funded programs, and totaled $344,000 in 1992.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% and 7.5% at December 31, 1994 and
1993, respectively. For active participants, a 9.6% annual rate of increase in
the per capita cost of covered health care benefits was assumed for 1995. This
rate is assumed to decrease gradually to 6% for the year 2004 and remain at that
level thereafter. For retired participants, the annual rate of increase is
assumed to be
TCF Financial Corporation and Subsidiaries 61
--
4% for all future years, which represents the plan's annual limit on increases
in TCF's contributions for retirees. The health care cost trend rate assumption
has a significant effect on the amounts reported. Increasing the assumed health
care cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1994 by
$104,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1994 by $29,000.
EMPLOYEE STOCK OWNERSHIP PLAN -- TCF's Employee Stock Ownership Plan generally
allows participants to make contributions by salary deduction of up to 12% of
their salary on a tax-deferred basis pursuant to section 401(k) of the Internal
Revenue Code. Through December 31, 1994, TCF matched the contributions for tax-
favored deposits of employees who are non-highly compensated (as defined in the
Internal Revenue Code) at the rate of 75 cents per dollar, with a maximum
employer contribution of 4.5% of the employee's salary. TCF matched the
contributions of remaining employees at the rate of 50 cents per dollar with a
maximum employer contribution of 3% of the employee's salary. Beginning January
1, 1995, TCF will match the contributions of all employees at the rate of 50
cents per dollar with a maximum employer contribution of 3% of the employee's
salary. TCF, at its discretion, may make additional contributions. Employee
contributions vest immediately while the Company's matching contributions are
subject to a graduated vesting schedule based on an employee's years of vesting
service. The Company's matching contributions are expensed when made. TCF's
contribution to the plan was $1.8 million, $1.6 million and $1.3 million in
1994, 1993 and 1992, respectively.
EMPLOYEES' SAVINGS PLAN -- Prior to being acquired by TCF, RCG established an
Employees' Savings Plan that covered substantially all employees over 21 years
of age who had met certain minimum service requirements. This plan was
terminated on October 1, 1993. Participants were generally allowed to make
contributions by salary deduction of up to 12% of their salary on a tax-deferred
basis. RCG made profit-sharing contributions to the plan based on a percentage
of participants' compensation as determined each plan year by the board of
directors. In addition, participant contributions of up to 2% of compensation
could be matched by RCG at its discretion. RCG's matching contributions and
participant contributions to the plan vested immediately. RCG's profit-sharing
contributions vested over seven years. Expenses recognized for the plan totaled
$423,000 and $470,000 for the years ended December 31, 1993 and 1992,
respectively.
20) PARENT COMPANY FINANCIAL INFORMATION
TCF Financial Corporation's (parent company only) condensed statements of
financial condition as of December 31, 1994 and 1993, and the condensed
statements of operations and cash flows for the years ended December 31, 1994,
1993 and 1992 are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31,
----------------------
(IN THOUSANDS) 1994 1993
-------------------------------------------------------------------------------
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 65 $ 5
Interest-bearing deposits with banks . . . . . . . . 36,178 15,361
Investment in subsidiaries:
Savings bank subsidiary. . . . . . . . . . . . . . 324,175 316,225
Other subsidiaries . . . . . . . . . . . . . . . . 697 471
Premises and equipment . . . . . . . . . . . . . . . 2,169 -
Loan to unconsolidated subsidiary . . . . . . . . . 1,346 1,397
Other assets . . . . . . . . . . . . . . . . . . . . 6,003 2,958
----------------------
$370,633 $336,417
----------------------
----------------------
Liabilities and Stockholders' Equity:
Subordinated capital notes . . . . . . . . . . . . . $ 34,500 $ 34,500
Note payable to commercial bank . . . . . . . . . . 3,500 4,500
Notes payable to non-savings bank subsidiaries . . . 509 464
Other liabilities . . . . . . . . . . . . . . . . . 4,933 1,345
----------------------
Total liabilities . . . . . . . . . . . . . . . . 43,442 40,809
----------------------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . 124 124
Additional paid-in capital . . . . . . . . . . . . 153,740 150,602
Unamortized deferred compensation . . . . . . . . (6,986) (1,272)
Retained earnings, subject to certain
restrictions . . . . . . . . . . . . . . . . . . 191,608 146,502
Loan to Executive Deferred Compensation Plan . . . (195) (348)
Unrealized loss on securities available for
sale, net . . . . . . . . . . . . . . . . . . . (88) -
Treasury stock, at cost . . . . . . . . . . . . . (11,012) -
----------------------
Total stockholders' equity . . . . . . . . . . . 327,191 295,608
----------------------
$370,633 $336,417
----------------------
----------------------
62 TCF Financial Corporation and Subsidiaries
--
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------
(IN THOUSANDS) 1994 1993 1992
------------------------------------------------------------------------------
Interest income ............................ $ 620 $ 394 $ 474
Interest expense ........................... 4,090 4,013 4,377
-------------------------------
Net interest expense...................... (3,470) (3,619) (3,903)
Dividends received from subsidiaries:
Dividends received from savings bank
subsidiary ............................. 56,380 15,947 11,304
Dividends received from other
subsidiaries ........................... 4,562 3,327 3,806
-------------------------------
Total dividends received from
subsidiaries........................ 60,942 19,274 15,110
-------------------------------
Other non-interest income:
Affiliate service fee revenues............ 25,942 15 16
Other..................................... 4 326 1
-------------------------------
Total other non-interest income ...... 25,946 341 17
-------------------------------
Non-interest expense:
Compensation and employee benefits........ 22,630 2,607 4,627
Occupancy and equipment, net.............. 7,515 152 3
Other..................................... 12,254 1,832 1,155
-------------------------------
Total non-interest expense ........... 42,399 4,591 5,785
-------------------------------
Income before income tax benefit and
equity in undistributed earnings of
subsidiaries .......................... 41,019 11,405 5,439
Income tax benefit ...................... 8,169 2,857 3,727
-------------------------------
Income before equity in undistributed
earnings of subsidiaries............... 49,188 14,262 9,166
Equity in undistributed earnings of
subsidiaries ............................ 8,175 23,709 36,093
-------------------------------
Net income ................................ $57,363 $37,971 $45,259
-------------------------------
-------------------------------
All dividends were received from consolidated subsidiaries during the
three-year period ended December 31, 1994. Effective January 1, 1994, TCF
Minnesota completed the transfer of certain support service functions and
certain related assets and liabilities to TCF Financial Corporation. Also
effective January 1, 1994, TCF Financial Corporation commenced allocating a
portion of the operating costs of these service functions to its subsidiaries.
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1994 1993 1992
------------------------------------------------------------------------------
Cash flows from operating activities:
Net income.................................... $57,363 $37,971 $45,259
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries............................. (8,175) (23,709) (36,093)
(Increase) decrease in other assets
and liabilities, net..................... 179 (435) (3,840)
Other, net................................. 4,871 949 737
----------------------------
Total adjustments........................ (3,125) (23,195) (39,196)
----------------------------
Net cash provided by operating activities... 54,238 14,776 6,063
----------------------------
Cash flows from investing activities:
Net increase in interest-bearing deposits
with banks.................................. (20,817) (6,720) (2,416)
Investments in and advances to
subsidiaries, net........................... - (1) (70,022)
Loan to Executive Deferred Compensation Plan.. 153 253 613
Loan to Employee Stock Ownership Plan......... - 3 58
Loan originations, net........................ 51 (1,397) -
Purchases of premises and equipment, net...... (3,135) - -
----------------------------
Net cash used by investing activities....... (23,748) (7,862) (71,767)
----------------------------
Cash flows from financing activities:
Dividends paid on common stock................ (12,257) (8,724) (5,642)
Proceeds from issuance of common stock, net... - - 32,019
Repurchases of common stock................... (17,524) - -
Proceeds from subordinated capital notes...... - - 34,500
Proceeds from commercial bank note............ - 5,000 -
Repayment of commercial bank notes............ (1,000) (5,503) (1,058)
Issuance of stock to employee benefit plans... 18 - 2,858
Net increase (decrease) in notes payable to
subsidiaries ............................... 45 (137) (19)
Other, net.................................... 288 1,052 3,722
----------------------------
Net cash provided (used) by financing
activities................................. (30,430) (8,312) 66,380
----------------------------
Net increase (decrease) in cash................. 60 (1,398) 676
RCG cash flows for six months ended
December 31, 1992............................. - 196 -
Cash at beginning of year....................... 5 1,207 531
----------------------------
Cash at end of year............................. $ 65 $ 5 $ 1,207
----------------------------
----------------------------
TCF Financial Corporation and Subsidiaries 63
--
21) BUSINESS SEGMENTS
The following summarizes financial data for TCF's business segments:
YEAR ENDED DECEMBER 31,
-----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------------
Revenues:
Financial institution...................... $418,168 $407,874 $449,434
Mortgage banking operations................ 35,163 49,984 47,470
Insurance operations....................... 26,316 28,366 22,027
Real estate development.................... - 5,205 6,212
Eliminations............................... (4,712) (9,036) (13,156)
-----------------------------
$474,935 $482,393 $511,987
-----------------------------
-----------------------------
Earnings (loss) from continuing
operations before income tax
expense:
Financial institution...................... $77,940 $45,319 $42,981
Mortgage banking operations................ 5,725 13,560 12,245
Insurance operations....................... 13,175 14,476 11,453
Real estate development.................... - (5,163) (6,936)
Eliminations............................... 825 (1,574) (1,528)
-----------------------------
$97,665 $66,618 $58,215
-----------------------------
-----------------------------
AT DECEMBER 31,
--------------------------
(IN THOUSANDS) 1994 1993
----------------------------------------------------------------------------
Identifiable assets:
Financial institution...................... $5,045,127 $4,994,378
Mortgage banking operations................ 70,838 331,041
Insurance operations....................... 11,401 9,224
Real estate development.................... - 212
Eliminations............................... (59,097) (309,325)
--------------------------
$5,068,269 $5,025,530
--------------------------
--------------------------
Real estate development revenues in the Consolidated Statements of
Operations are presented net of costs of operations of real estate and are
included in other non-interest expense.
22) LITIGATION AND CONTINGENT LIABILITIES
TCF is involved in certain lawsuits in the course of its general lending
business and other operations. Management, after review with its legal counsel,
is of the opinion that the ultimate disposition of its litigation will not have
a material adverse effect on TCF's financial condition or results of operations.
64 TCF Financial Corporation and Subsidiaries
--
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK LLP
To the Board of Directors and Stockholders
of TCF Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of TCF Financial Corporation and Subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TCF
Financial Corporation and Subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, TCF
Financial Corporation changed its method of accounting for certain investments
in debt and equity securities as of January 1, 1994 to adopt the provisions of
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 12, 1995
except for note 2, which is as of February 8, 1995
TCF Financial Corporation and Subsidiaries 65
--
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER-SHARE DATA) AT DECEMBER 31, 1994 AT SEPTEMBER 30, 1994
------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA:
Total assets . . . . . . . . . . . . . . . . . $5,068,269 $5,041,018
Investments (1) . . . . . . . . . . . . . . . 243,651 326,597
Securities available for sale. . . . . . . . . 65,785 63,806
Mortgage-backed securities held to maturity. . 1,114,613 1,152,918
Loans . . . . . . . . . . . . . . . . . . . . 3,081,808 2,949,690
Deposits . . . . . . . . . . . . . . . . . . . 3,819,614 3,869,993
Federal Home Loan Bank advances. . . . . . . . 650,863 357,877
Subordinated capital notes . . . . . . . . . . 34,500 34,500
Other borrowings . . . . . . . . . . . . . . . 182,920 415,657
Stockholders' equity . . . . . . . . . . . . . 327,191 316,700
------------------------------------------
THREE MONTHS ENDED
------------------------------------------
DECEMBER 31, 1994 SEPTEMBER 30, 1994
-------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income. . . . . . . . . . . . . . . . $94,294 $91,481
Interest expense . . . . . . . . . . . . . . . 38,977 36,947
------------------------------------------
Net interest income. . . . . . . . . . . . . 55,317 54,534
Provision for credit losses. . . . . . . . . . 3,986 2,891
------------------------------------------
Net interest income after
provision for credit losses . . . . . . . 51,331 51,643
------------------------------------------
Non-interest income:
Gain on sale of loan servicing, net. . . . . 581 518
Gain on sale of securities
available for sale, net . . . . . . . . . 8 -
Other non-interest income. . . . . . . . . . 28,476 29,119
------------------------------------------
Total non-interest income . . . . . . . . 29,065 29,637
------------------------------------------
Non-interest expense:
Provision for real estate losses . . . . . . 283 853
Amortization of goodwill and
other intangibles . . . . . . . . . . . . 807 817
Merger-related expense . . . . . . . . . . . - -
Other non-interest expense . . . . . . . . . 52,773 53,184
------------------------------------------
Total non-interest expense. . . . . . . . 53,863 54,854
------------------------------------------
Income before income tax expense . . . . . 26,533 26,426
Income tax expense . . . . . . . . . . . . . . 10,780 10,967
------------------------------------------
Net income . . . . . . . . . . . . . . . . . $15,753 $15,459
------------------------------------------
------------------------------------------
Per common share:
Net income . . . . . . . . . . . . . . . . . $ 1.28 $ 1.25
------------------------------------------
------------------------------------------
Dividends declared . . . . . . . . . . . . . $ .25 $ .25
------------------------------------------
------------------------------------------
FINANCIAL RATIOS:
Return on average assets (2) . . . . . . . . . 1.32% 1.29%
Return on average equity (2) . . . . . . . . . 19.63 19.96
Average equity to average assets . . . . . . . 6.73 6.48
Net interest margin (2)(3) . . . . . . . . . . 4.98 4.90
<FN>
---------------------------
(1) INCLUDES INTEREST-BEARING DEPOSITS WITH BANKS, FEDERAL FUNDS SOLD, U.S.
GOVERNMENT AND OTHER MARKETABLE SECURITIES HELD TO MATURITY AND FHLB STOCK.
(2) ANNUALIZED.
(3) NET INTEREST INCOME DIVIDED BY AVERAGE INTEREST-EARNING ASSETS.
66 TCF Financial Corporation and Subsidiaries
--
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
AT AT AT AT AT AT
(DOLLARS IN THOUSANDS, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
EXCEPT PER-SHARE DATA) 1994 1994 1993 1993 1993 1993
----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA:
Total assets . . . . . . . . . . . . . . . $4,986,127 $5,044,620 $5,025,530 $5,009,367 $4,874,598 $4,840,649
Investments (1) . . . . . . . . . . . . . 362,000 275,897 235,121 242,971 169,973 203,434
Securities available for sale. . . . . . . 27,441 260,961 10,003 10,003 10,127 12,241
Mortgage-backed securities
held to maturity . . . . . . . . . . . . 1,202,277 1,134,373 1,237,202 1,360,944 1,354,113 1,407,306
Loans . . . . . . . . . . . . . . . . . . 2,834,177 2,760,647 2,745,146 2,715,036 2,629,784 2,626,344
Deposits . . . . . . . . . . . . . . . . . 3,900,028 4,024,575 4,102,558 4,068,007 3,905,569 3,961,360
Federal Home Loan Bank advances. . . . . . 527,618 562,339 396,692 396,332 461,332 448,343
Subordinated capital notes . . . . . . . . 34,500 34,500 34,500 34,500 34,500 34,500
Other borrowings . . . . . . . . . . . . . 173,460 63,748 144,240 164,426 152,087 65,031
Stockholders' equity . . . . . . . . . . . 305,108 298,825 295,608 285,510 274,446 272,164
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THREE MONTHS ENDED
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JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1994 1994 1993 1993 1993 1993
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SELECTED OPERATIONS DATA:
Interest income. . . . . . . . . . . . . . $87,177 $84,689 $88,310 $89,198 $89,854 $90,239
Interest expense . . . . . . . . . . . . . 37,628 38,960 41,976 42,539 42,753 45,909
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Net interest income. . . . . . . . . . . 49,549 45,729 46,334 46,659 47,101 44,330
Provision for credit losses. . . . . . . . 1,880 2,144 2,140 4,282 9,810 5,701
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Net interest income after
provision for credit losses . . . . . 47,669 43,585 44,194 42,377 37,291 38,629
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Non-interest income:
Gain on sale of loan
servicing, net. . . . . . . . . . . . 693 561 - 137 - -
Gain on sale of securities
available for sale, net . . . . . . . - 2,027 - - 40 609
Other non-interest income. . . . . . . . 28,013 27,298 31,818 31,642 29,611 25,758
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Total non-interest income . . . . . . 28,706 29,886 31,818 31,779 29,651 26,367
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Non-interest expense:
Provision for real estate
losses. . . . . . . . . . . . . . . . 942 295 1,100 1,849 5,638 3,156
Amortization of goodwill and
other intangibles . . . . . . . . . . 816 817 988 737 616 616
Merger-related expense . . . . . . . . . - - - - 5,386 108
Other non-interest expense . . . . . . . 50,786 51,484 52,633 50,413 48,123 44,125
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Total non-interest expense. . . . . . 52,544 52,596 54,721 52,999 59,763 48,005
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Income before income tax
expense . . . . . . . . . . . . . . 23,831 20,875 21,291 21,157 7,179 16,991
Income tax expense . . . . . . . . . . . . 9,892 8,663 9,156 9,098 3,195 7,198
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Net income . . . . . . . . . . . . . . . $13,939 $12,212 $12,135 $12,059 $ 3,984 $ 9,793
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Per common share:
Net income . . . . . . . . . . . . . . . $ 1.12 $ .98 $ .97 $ .96 $ .32 $ .78
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Dividends declared . . . . . . . . . . . $ .25 $ .25 $ .1875 $ .1875 $ .1875 $ .125
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FINANCIAL RATIOS:
Return on average assets (2) . . . . . . . 1.16% 1.00% .97% .98% .33% .81%
Return on average equity (2) . . . . . . . 18.49 16.43 16.76 17.29 5.88 14.66
Average equity to average assets . . . . . 6.25 6.10 5.81 5.69 5.60 5.49
Net interest margin (2)(3) . . . . . . . . 4.42 4.05 4.00 4.09 4.18 3.91
67 TCF Financial Corporation and Subsidiaries
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OTHER FINANCIAL DATA
SUMMARY OF INVESTMENT YIELDS BY SCHEDULED MATURITIES
U.S. GOVERNMENT
AND AGENCY SECURITIES
OBLIGATIONS ALL OTHER TOTAL AVAILABLE
HELD TO MATURITY INVESTMENTS INVESTMENTS FOR SALE
---------------- ------------------- --------------- --------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1994:
Due in one year or less..... $ - -% $201,076 5.91% $201,076 5.91% $64,740 5.91%
Due after one year
through five years........ 50 4.30 - - 50 4.30 1,015 8.06
No stated maturity.......... - - 42,525(1) 7.97 42,525 7.97 30(2) -
------- -------- -------- --------
Total....................... $ 50 4.30 $243,601 6.27 $243,651 6.27 $65,785 5.95
------- -------- -------- --------
------- -------- -------- --------
Weighted average life
(in years)............... .1 .1 .1 .1
AT DECEMBER 31, 1993:
Due in one year or less.... $65,895 3.25% $126,921 3.20% $192,816 3.22% $10,000 4.66%
Due after one year
through five years....... 1,066 7.88 3,000 3.57 4,066 4.70 - -
Due after 10 years......... - - 390 8.90 390 8.90 - -
No stated maturity......... - - 37,849(1) 7.67 37,849 7.67 3(2) -
------- -------- -------- --------
Total...................... $66,961 3.32 $168,160 4.23 $235,121 3.97 $10,003 4.66
------- -------- -------- --------
------- -------- -------- --------
Weighted average life
(in years)............... .1 .1 .1 .1
<FN>
____________________
(1) BALANCE REPRESENTS FHLB STOCK, A REQUIRED REGULATORY INVESTMENT AT
ADJUSTABLE RATES HAVING NO STATED MATURITY. FHLB STOCK HAS BEEN EXCLUDED
FROM THE WEIGHTED AVERAGE LIFE CALCULATION.
(2) BALANCE REPRESENTS MARKETABLE EQUITY SECURITIES WHICH HAVE BEEN EXCLUDED
FROM THE WEIGHTED AVERAGE LIFE CALCULATION.
MAXIMUM AND AVERAGE BORROWING LEVELS
YEAR ENDED DECEMBER 31,
-----------------------------
(IN THOUSANDS) 1994 1993 1992
-------------------------------------------------------------------------------
MAXIMUM BALANCES (1):
FHLB advances................................... $650,863 $525,343 $585,334
Securities sold under repurchase agreements..... 403,521 218,452 100,000
Subordinated capital notes...................... 34,500 63,250 63,250
Other borrowings................................ 15,513 17,884 27,019
<FN>
_____________________________
(1) MAXIMUM MONTH-END BALANCES.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992
----------------- ----------------- ----------------
(DOLLARS IN THOUSANDS) BALANCE RATE BALANCE RATE BALANCE RATE
----------------------------------------------------------------------------------------------------------
AVERAGE BALANCES AND RATES:
FHLB advances.................................. $369,780 5.62% $435,693 5.76% $500,495 5.69%
Securities sold under repurchase agreements.... 122,216 5.27 123,119 5.02 103,285 7.52
Subordinated capital notes..................... 34,500 10.78 39,147 11.29 62,401 11.97
Other borrowings............................... 13,059 7.34 15,239 8.12 18,120 10.94
68 TCF Financial Corporation and Subsidiaries
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LOAN AND MORTGAGE-BACKED SECURITIES ACTIVITY
(IN THOUSANDS) YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
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ORIGINATIONS:
Residential (1)........................ $ 452,601 $1,221,773 $1,047,080
Commercial real estate................. 75,452 33,624 38,349
Commercial business.................... 54,607 27,235 19,168
Consumer (1)........................... 787,550 605,846 540,201
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Total originations................... 1,370,210 1,888,478 1,644,798
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PURCHASES:
Mortgage-backed securities............. 288,030 376,615 356,760
Residential (1)........................ 608,588 1,113,619 879,336
Consumer............................... - 680 1,409
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Total purchases...................... 896,618 1,490,914 1,237,505
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Total additions.................... 2,266,828 3,379,392 2,882,303
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SALES:
Mortgage-backed securities............. - - 23,034
Residential (1)........................ 933,137 1,700,275 1,561,222
Commercial real estate (1)............. - 2,066 -
Consumer (1)........................... 80,338 65,310 36,626
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Total sales.......................... 1,013,475 1,767,651 1,620,882
Principal payments and other
reductions........................... 1,099,180 1,358,477 1,084,521
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Total reductions..................... 2,112,655 3,126,128 2,705,403
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Decrease in other items, net........... (10,322) (12,132) (3,828)
Transfer of mortgage-backed
securities to securities available
for sale............................. (156,755) - (215,473)
Adjustments for pooling-of-interests... - 74,270 -
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Net increase (decrease).............. $ (12,904) $ 315,402 $ (42,401)
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---------------------------------------
<FN>
---------------------------------
(1) INCLUDES LOANS HELD FOR SALE.
COMMERCIAL REAL ESTATE LOANS BY PROPERTY TYPE
AT DECEMBER 31,
----------------------------------------
1994 1993
------------------- ------------------
NUMBER NUMBER
(DOLLARS IN THOUSANDS) BALANCE OF LOANS BALANCE OF LOANS
------------------------------------------------------------------------------
Apartments........................... $265,557 565 $329,575 709
Office buildings..................... 109,242 161 94,364 177
Retail services...................... 89,050 152 90,693 169
Hospitality facilities............... 73,903 30 75,521 26
Warehouse/industrial buildings....... 52,409 92 55,828 95
Health care facilities............... 20,321 17 24,468 19
Other................................ 24,288 113 16,753 109
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$634,770 1,130 $687,202 1,304
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Average balance...................... $562 $527
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TCF Financial Corporation and Subsidiaries 69
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