TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Financial Review
FINANCIAL REVIEW
The financial review presents management's discussion and analysis of the
consolidated financial condition and results of operations of TCF Financial
Corporation ("TCF" or the "Company"). This review should be read in conjunction
with the consolidated financial statements and other financial data beginning on
page 30.
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY -- TCF reported net income of $156.2 million for 1998, up
from $145.1 million for 1997 and $100.4 million for 1996. Diluted earnings per
common share was $1.76 for 1998, compared with $1.69 for 1997 and $1.20 for
1996. Return on average assets was 1.62% in 1998, compared with 1.77% in 1997
and 1.39% in 1996. Return on average realized common equity was 17.51% in 1998,
compared with 19.57% in 1997 and 16.77% in 1996. Diluted cash earnings per
common share, which excludes amortization and reduction of goodwill and deposit
base intangibles, was $1.91 for 1998, compared with $1.81 for 1997 and $1.24 for
1996. On the same basis, cash return on average assets was 1.76% for 1998,
compared with 1.91% for 1997 and 1.44% for 1996, and cash return on average
tangible equity was 23.83% for 1998, compared with 23.96% for 1997 and 18.08%
for 1996. As TCF's September 4, 1997 acquisition of Standard Financial, Inc.
("Standard") was accounted for as a purchase transaction, TCF's results for
periods prior to the acquisition have not been restated. Since Standard's
performance ratios were lower than TCF's, the Company's performance ratios for
1998 were negatively impacted by the acquisition of Standard due to the
inclusion of Standard for the entire year.
TCF significantly expanded its retail banking franchise in recent periods
and had 311 retail banking branches at December 31, 1998. In the past three
years, TCF opened 147 new branches, of which 128 were supermarket branches. This
expansion includes TCF's January 30, 1998 acquisition of 76 branches and 178
automated teller machines ("ATM") in Jewel-Osco stores in the Chicago area
previously operated by Bank of America. TCF anticipates opening approximately 40
new branches in 1999, and additional branches in subsequent years, including
approximately 25 Jewel-Osco supermarket branches per year in subsequent years
until branches have been installed in all targeted stores, including newly
constructed stores. See "Financial Condition -- Forward-Looking Information."
Further detail on the acquisitions of Standard and the Jewel-Osco branches
is provided in Note 2 of Notes to Consolidated Financial Statements.
In December 1998, TCF restructured its consumer finance company operations,
including the discontinuation of indirect automobile lending, the consolidation
of offices and a renewed focus on home equity lending. TCF recorded a pretax
charge of $1.8 million for the reorganization, and increased the provision for
credit losses by $3.9 million from the 1997 fourth quarter, primarily in
connection with the finance company automobile loan portfolio.
TCF's 1997 results reflect a branch reorganization at Great Lakes National
Bank Michigan ("Great Lakes Michigan") and Great Lakes National Bank Ohio
("Great Lakes Ohio"), including the sale of all eight Great Lakes Ohio branches
and related deposits for a net gain of $10.6 million, the accelerated
amortization of Great Lakes Michigan's remaining $8.7 million of deposit base
intangibles, and the write-off of $1.5 million of Great Lakes Michigan's teller
equipment.
TCF's 1996 results included a one-time special assessment of $34.8 million
from the Federal Deposit Insurance Corporation ("FDIC") to recapitalize the
Savings Association Insurance Fund ("SAIF") under federal legislation enacted on
September 30, 1996. On an after-tax basis, the FDIC special assessment totaled
$21.7 million, or 26 cents per diluted common share. Net income totaled $122.1
million for 1996 before the FDIC special assessment. On the same basis, diluted
earnings per common share was $1.46, diluted cash earnings per common share was
$1.50, return on average assets was 1.70%, return on average realized common
equity was 20.40%, cash return on average assets was 1.74% and cash return on
average tangible equity was 21.87%.
NET INTEREST INCOME -- A significant component of TCF's earnings is net
interest income, which is the difference between interest earned on loans and
leases, securities available for sale, investments and other interest-earning
assets (interest income), and interest paid on deposits and borrowings
(interest expense). This amount, when divided by average interest-earning
assets, is referred to as the net interest margin, expressed as a percentage.
Net interest income and net interest margin are affected by changes in
interest rates, the volume and the mix of interest-earning assets and
interest-bearing liabilities, and the level of non-performing assets.
Net interest income was $425.7 million for the year ended December 31,
1998, up from $393.6 million in 1997 and $354.6 million in 1996. This
represents an increase of 8.2% in 1998, following increases of 11% in 1997
and 7.7% in 1996. Total average interest-earning assets increased 16.2% in
1998, compared with an increase of 12.5% in 1997 and a decrease of 5.6% in
1996. The net interest margin for 1998 was 4.84%, compared with 5.20% in 1997
and 5.27% in 1996. The increase in net interest income for 1998 was primarily
due to the 1997 acquisition of Standard and the growth of lower interest-cost
retail deposits. TCF's net interest margin for 1998 was negatively impacted
due to the impact of Standard's lower net interest margin, loan prepayments
and the purchase of $822.4 million of mortgage-backed securities in the
second half of 1998 yielding approximately 6.5%. Although these
mortgage-backed securities are expected to contribute to future earnings,
they will continue to negatively impact TCF's net interest margin.
14 TCF
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
DECEMBER 31, 1998 DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST INTEREST
YIELDS YIELDS
AVERAGE AND AVERAGE AND
(DOLLARS IN THOUSANDS) BALANCE INTEREST(1) RATES BALANCE INTEREST(1) RATES
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments ......................... $ 161,239 $ 10,356 6.42% $ 96,146 $ 7,192 7.48%
---------- ---------- ---------- ----------
Securities available for sale(2) .... 1,359,698 93,124 6.85 1,338,295 95,701 7.15
---------- ---------- ---------- ----------
Loans held for sale ................. 197,969 14,072 7.11 211,192 15,755 7.46
---------- ---------- ---------- ----------
Loans and leases:
Residential real estate ........... 3,687,579 267,916 7.27 2,674,107 206,853 7.74
Commercial real estate ............ 831,287 73,546 8.85 856,712 77,829 9.08
Commercial business ............... 263,257 22,169 8.42 205,402 18,068 8.80
Consumer ........................ 1,922,943 218,837 11.38 1,856,299 221,758 11.95
Lease financing ................... 378,824 48,874 12.90 335,534 39,458 11.76
---------- ---------- ---------- ----------
Total loans and leases(3) ....... 7,083,890 631,342 8.91 5,928,054 563,966 9.51
---------- ---------- ---------- ----------
Total interest-
earning assets .............. 8,802,796 748,894 8.51 7,573,687 682,614 9.01
---------- ----- ---------- -----
Other assets(4) ..................... 826,741 600,083
---------- ----------
Total assets ...................... $9,629,537 $8,173,770
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ....... $1,017,245 $ 782,836
---------- ----------
Interest-bearing deposits:
Checking .......................... 666,956 6,207 .93 551,501 6,133 1.11
Passbook and statement ............ 1,130,067 18,305 1.62 901,576 17,653 1.96
Money market ...................... 700,400 20,496 2.93 658,894 20,533 3.12
Certificates ...................... 3,249,742 167,484 5.15 2,868,833 150,863 5.26
---------- ---------- ---------- ----------
Total interest-bearing
deposits ...................... 5,747,165 212,492 3.70 4,980,804 195,182 3.92
---------- ---------- ---------- ----------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased ......... 140,414 7,863 5.60 346,339 19,892 5.74
FHLB advances ..................... 1,367,104 79,237 5.80 817,464 48,142 5.89
Discounted lease rentals .......... 205,393 16,744 8.15 222,558 18,430 8.28
Other borrowings .................. 92,467 6,824 7.38 97,547 7,372 7.56
---------- ---------- ---------- ----------
Total borrowings ................. 1,805,378 110,668 6.13 1,483,908 93,836 6.32
---------- ---------- ---------- ----------
Total interest-bearing
liabilities ................. 7,552,543 323,160 4.28 6,464,712 289,018 4.47
---------- ----- ---------- ------
Other liabilities(4) ................ 159,292 180,585
---------- ----------
Total liabilities ................. 8,729,080 7,428,133
Stockholders' equity(4) ............. 900,457 745,637
---------- ----------
Total liabilities
and stockholders' equity ........ $9,629,537 $8,173,770
---------- ----------
Net interest income .................... $ 425,734 $ 393,596
---------- ----------
Net interest-rate spread ............... 4.23% 4.54%
----- -----
Net interest margin .................... 4.84% 5.20%
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1996
- ------------------------------------------------------------------------------------
INTEREST
YIELDS
AVERAGE AND
(DOLLARS IN THOUSANDS) BALANCE INTEREST(1) RATES
- ------------------------------------------------------------------------------------
ASSETS:
Investments ......................... $ 65,853 $ 4,447 6.75%
---------- ----------
Securities available for sale(2) .... 1,054,434 75,303 7.14
---------- ----------
Loans held for sale ................. 227,226 17,080 7.52
---------- ----------
Loans and leases:
Residential real estate ........... 2,416,865 191,348 7.92
Commercial real estate ............ 923,838 82,971 8.98
Commercial business ............... 157,400 13,905 8.83
Consumer .......................... 1,624,449 197,916 12.18
Lease financing ................... 263,709 29,914 11.34
---------- ----------
Total loans and leases(3) ....... 5,386,261 516,054 9.58
---------- ----------
Total interest-
earning assets .............. 6,733,774 612,884 9.10
---------- -----
Other assets(4) ..................... 467,328
----------
Total assets ...................... $7,201,102
----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing deposits ....... $ 608,213
----------
Interest-bearing deposits:
Checking .......................... 510,979 5,571 1.09
Passbook and statement ............ 793,975 14,389 1.81
Money market ...................... 630,382 19,256 3.05
Certificates ...................... 2,458,291 132,159 5.38
---------- ----------
Total interest-bearing
deposits ...................... 4,393,627 171,375 3.90
---------- ----------
Borrowings:
Securities sold under
repurchase agreements and
federal funds purchased ......... 506,298 28,597 5.65
FHLB advances ..................... 674,703 37,277 5.52
Discounted lease rentals .......... 180,586 14,906 8.25
Other borrowings .................. 85,571 6,161 7.20
---------- ----------
Total borrowings ................ 1,447,158 86,941 6.01
---------- ----------
Total interest-bearing
liabilities ................. 5,840,785 258,316 4.42
---------- -----
Other liabilities(4) ................ 153,373
----------
Total liabilities ................. 6,602,371
Stockholders' equity(4) ............. 598,731
----------
Total liabilities
and stockholders' equity ........ $7,201,102
----------
Net interest income .................... $ 354,568
----------
Net interest-rate spread ............... 4.68%
-----
Net interest margin .................... 5.27%
- ------------------------------------------------------------------------------------
(1) Tax-exempt income was not significant and thus has not been presented on a
tax equivalent basis. Tax-exempt income of $147,000, $201,000 and $363,000
was recognized during the years ended December 31, 1998, 1997 and 1996,
respectively.
(2) Average balance and yield of securities available for sale is based upon
the historical amortized cost balance.
(3) Average balance of loans and leases includes non-accrual loans and leases,
and is presented net of unearned income.
(4) Average balance is based upon month-end balances.
TCF 15
The following table presents the components of the changes in net interest
income by volume and rate:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
VERSUS SAME PERIOD IN 1997 VERSUS SAME PERIOD IN 1996
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
- ----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) VOLUME(1) RATE(1) TOTAL VOLUME(1) RATE(1) TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS ...................... $ 4,302 $ (1,138) $ 3,164 $ 2,222 $ 523 $ 2,745
-------- -------- -------- -------- -------- --------
SECURITIES AVAILABLE FOR SALE .... 1,505 (4,082) (2,577) 20,293 105 20,398
-------- -------- -------- -------- -------- --------
LOANS HELD FOR SALE .............. (962) (721) (1,683) (1,191) (134) (1,325)
-------- -------- -------- -------- -------- --------
LOANS AND LEASES:
Residential real estate ...... 74,296 (13,233) 61,063 19,946 (4,441) 15,505
Commercial real estate ....... (2,311) (1,972) (4,283) (6,061) 919 (5,142)
Commercial business .......... 4,910 (809) 4,101 4,210 (47) 4,163
Consumer ..................... 7,833 (10,754) (2,921) 27,655 (3,813) 23,842
Lease financing .............. 5,376 4,040 9,416 8,401 1,143 9,544
-------- -------- -------- -------- -------- --------
Total loans and leases .... 90,104 (22,728) 67,376 54,151 (6,239) 47,912
-------- -------- -------- -------- -------- --------
Total interest
income .............. 94,949 (28,669) 66,280 75,475 (5,745) 69,730
-------- -------- -------- -------- -------- --------
DEPOSITS:
Checking ..................... 1,161 (1,087) 74 457 105 562
Passbook and statement ....... 4,026 (3,374) 652 2,026 1,238 3,264
Money market ................. 1,254 (1,291) (37) 847 430 1,277
Certificates ................. 19,812 (3,191) 16,621 21,705 (3,001) 18,704
-------- -------- -------- -------- -------- --------
Total deposits ............ 26,253 (8,943) 17,310 25,035 (1,228) 23,807
-------- -------- -------- -------- -------- --------
BORROWINGS:
Securities sold under
repurchase agree-
ments and federal
funds purchased ........... (11,555) (474) (12,029) (9,155) 450 (8,705)
FHLB advances ................ 31,843 (748) 31,095 8,251 2,614 10,865
Discounted lease rentals ..... (1,401) (285) (1,686) 3,470 54 3,524
Other borrowings ............. (376) (172) (548) 675 536 1,211
-------- -------- -------- -------- -------- --------
Total borrowings .......... 18,511 (1,679) 16,832 3,241 3,654 6,895
-------- -------- -------- -------- -------- --------
Total interest
expense ............. 44,764 (10,622) 34,142 28,276 2,426 30,702
-------- -------- -------- -------- -------- --------
Net interest income .............. $ 50,185 $(18,047) $ 32,138 $ 47,199 $ (8,171) $ 39,028
- ----------------------------------------------------------------------------------------------------------------------------
(1) Changes attributable to the combined impact of volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
In 1998, TCF's net interest income increased primarily due to the
acquisition of Standard and the growth of lower interest-cost retail deposits.
Net interest income increased $32.1 million, or 8.2%, and total average
interest-earning assets increased by $1.2 billion, or 16.2%, from 1997 levels.
TCF's net interest income improved by $50.2 million due to volume changes and
decreased $18 million due to rate changes. The favorable impact of the growth in
residential real estate, consumer and commercial business loan and lease
financing volumes, decreased volumes of securities sold under repurchase
agreements and federal funds purchased and decreased rates paid on
interest-bearing liabilities was partially offset by decreased yields on
securities available for sale and consumer and residential real estate loans,
and increased certificate of deposit and Federal Home Loan Bank ("FHLB") advance
volumes. TCF's net interest margin for the fourth quarter of 1998 was 4.65%,
compared with 4.82% for the third quarter of 1998 and 4.93% for the fourth
quarter of 1997. As previously noted, TCF's net interest margin for 1998 was
negatively impacted by Standard's lower net interest margin, loan prepayments
and purchases of mortgage-backed securities. Achieving net interest margin
growth is dependent on TCF's ability to generate higher-yielding assets. The
current interest rate environment and resulting increase in prepayment activity
has made it more difficult for TCF to increase the balance of such
higher-yielding assets. Interest income increased $66.3 million in 1998,
reflecting an increase of $94.9 million due to volume, partially offset by a
decrease of $28.7 million due to rate changes. Interest
16 TCF
expense increased $34.1 million in 1998, reflecting an increase of $44.8
million due to volume, partially offset by a decrease of $10.6 million due to
a lower cost of funds. The increase in net interest income due to volume was
primarily due to the acquisition of Standard. The decrease in net interest
income due to rate changes reflects the impact of Standard's lower net
interest margin, and loan prepayments, partially offset by TCF's changing
asset/liability mix, with greater emphasis on higher-yielding consumer loans
and lease financings.
As a result of recent declines in variable index rates (e.g., prime), or if
such rates were to decline further, TCF may experience additional compression of
its net interest margin depending on the timing and amount of any reductions, as
it is possible that interest rates paid on retail deposits will not decline as
quickly, or to the same extent, as the decline in the yield on
interest-rate-sensitive assets such as home equity loans. In addition,
competition for checking, savings and money market deposits, an important source
of lower cost funds for TCF, has intensified among depository and other
financial institutions. TCF may also experience compression in its net interest
margin if the rates paid on deposits increase. See "Financial Condition --
Deposits" and "Financial Condition - Market Risk -- Interest-Rate Risk."
In 1997, TCF's net interest income increased primarily due to the
acquisition of Standard, the growth of higher-yielding consumer loans,
commercial business loans, lease financings and lower interest-cost retail
deposits, and increased capital. Net interest income increased $39 million, or
11%, and total average interest-earning assets increased by $839.9 million, or
12.5%, from 1996 levels. TCF's net interest income improved by $47.2 million due
to volume changes and decreased $8.2 million due to rate changes. The favorable
impact of the growth in consumer loan, securities available for sale,
residential real estate loan and lease financing volumes was partially offset by
decreased yields on consumer and residential real estate loans, decreased
volumes in commercial real estate loans, and increased certificate of deposit
volumes. Interest income increased $69.7 million in 1997, reflecting an increase
of $75.5 million due to volume, partially offset by a decrease of $5.7 million
due to rate changes. Interest expense increased $30.7 million in 1997, primarily
due to the acquisition of Standard, reflecting increases of $28.3 million due to
volume and $2.4 million due to a higher cost of funds. The decrease in net
interest income due to rate changes reflects the acquisition of Standard,
partially offset by TCF's changing asset/liability mix.
In 1996, TCF's net interest income and net interest margin increased
primarily due to the growth of higher-yielding consumer loans and lease
financings, the favorable impact of merger-related restructuring activities
related to TCF's 1995 acquisition of Great Lakes Bancorp, A Federal Savings
Bank, the November 30, 1995 redemption of $34.5 million of 10% subordinated
capital notes, lower average levels of non-performing assets, and increased
capital. Net interest income increased $25.5 million, or 7.7%, even though total
average interest-earning assets decreased by $400.4 million, or 5.6%, from 1995
levels. TCF's net interest income improved by $8.9 million due to volume changes
and by $16.6 million due to rate changes. The favorable impact of the lower cost
of funds and growth in consumer loan, lease financing and securities available
for sale volumes was partially offset by decreased volumes in mortgage-backed
securities and residential real estate loans. Interest income decreased $18.3
million in 1996, reflecting a decrease of $19.6 million due to volume and an
increase of $1.3 million due to rate changes. Interest expense decreased $43.8
million in 1996, reflecting decreases of $28.5 million due to volume and $15.3
million due to a lower cost of funds. The increase in net interest income due to
the favorable impact of rate changes reflects in part TCF's changing
asset/liability mix.
PROVISION FOR CREDIT LOSSES -- TCF provided $23.3 million for credit losses in
1998, compared with $18 million in 1997 and $21.4 million in 1996. The
allowance for loan and lease losses totaled $80 million at December 31, 1998,
compared with $82.6 million at December 31, 1997, and was 237% of non-accrual
loans and leases. See "Financial Condition -- Allowance for Loan and Lease
Losses."
NON-INTEREST INCOME -- Non-interest income is a significant source of revenues
for TCF and an important factor in TCF's results of operations. Providing a
wide range of retail banking services is an integral component of TCF's
business philosophy and a major strategy for generating additional
non-interest income. Excluding gains on sales of securities available for
sale, loan servicing, branches, loans and a joint venture interest,
non-interest income increased $60.3 million, or 29.8%, during 1998 to $262.7
million. The increase was primarily due to increased fee and service charge
revenues, electronic funds transfer revenues and title insurance revenues,
and reflects TCF's expanded retail banking activities.
TCF 17
The following table presents the components of non-interest income:
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
- ---------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1998/97 1997/96
- ---------------------------------------------------------------------------------------------------------------
Fee and service charge revenues ........... $127,952 $101,329 $ 90,424 26.3% 12.1%
Electronic funds transfer revenues ........ 50,556 30,808 21,478 64.1 43.4
Leasing revenues .......................... 31,344 32,025 23,814 (2.1) 34.5
Title insurance revenues .................. 20,161 13,730 13,492 46.8 1.8
Commissions on sales of annuities ......... 8,413 7,894 9,134 6.6 (13.6)
Commissions on sales of mutual funds ...... 5,513 3,998 3,372 37.9 18.6
Gain on sale of loans held for sale ....... 7,575 4,777 5,038 58.6 (5.2)
Other ..................................... 11,156 7,789 6,584 43.2 18.3
-------- --------- --------
262,670 202,350 173,336 29.8 16.7
-------- --------- --------
Gain on sale of securities
available for sale .................... 2,246 8,509 86 (73.6) N.M.
Gain on sale of loan servicing ............ 2,414 1,622 -- 48.8 100.0
Gain on sale of branches .................. 18,585 14,187 2,747 31.0 416.5
Gain on sale of joint venture interest .... 5,580 -- -- 100.0 --
Gain on sale of loans ..................... -- -- 5,443 -- (100.0)
-------- --------- --------
28,825 24,318 8,276 18.5 193.8
-------- --------- --------
Total non-interest income ....... $291,495 $226,668 $181,612 28.6 24.8
- ---------------------------------------------------------------------------------------------------------------
N.M. Not meaningful.
Fee and service charge revenues increased $26.6 million in 1998, or 26.3%,
and $10.9 million in 1997, or 12.1%, primarily as a result of expanded retail
banking activities. Included in fee and service charge revenues are fees of
$13.7 million, $14.6 million and $15.3 million received for the servicing of
loans owned by others during 1998, 1997 and 1996, respectively. At December 31,
1998, 1997 and 1996, TCF was servicing real estate loans for others with
aggregate unpaid principal balances of $3.7 billion, $4.4 billion and $4.5
billion, respectively.
Electronic funds transfer revenues increased $19.7 million, or 64.1%, in
1998 and $9.3 million, or 43.4%, in 1997. These increases reflect TCF's efforts
to provide banking services through its ATM network. TCF expanded its network to
1,431 ATMs at December 31, 1998, an increase of 275 ATMs during 1998. As
previously noted, on January 30, 1998, TCF acquired 178 ATMs in connection with
its acquisition of 76 branches in Jewel-Osco stores. The Company anticipates
installing additional ATMs during 1999. Included in electronic funds transfer
revenues are debit card interchange fees of $11.1 million, $3.7 million and
$20,000 for 1998, 1997 and 1996, respectively. The significant increase in these
fees during 1998 reflects an increase in the distribution of debit cards, and a
significant increase in their utilization by TCF's customers. TCF initiated its
debit card program at the end of 1996. TCF had 774,000 debit cards outstanding
at December 31, 1998.
Leasing revenues decreased $681,000 in 1998 to $31.3 million, following an
increase of $8.2 million in 1997 to $32 million. Leasing revenues can fluctuate
as a result of changes in the mix of leases classified as sales-type, direct
financing or operating leases in accordance with generally accepted accounting
principles. In addition, leasing revenues may be negatively impacted by a
decline in economic activity and a resulting decrease in demand for leased
equipment.
Title insurance revenues increased $6.4 million in 1998 to $20.2 million,
following an increase of $238,000 in 1997 to $13.7 million. Title insurance
revenues are cyclical in nature and are largely dependent on industry levels of
residential real estate loan originations and refinancings.
Commissions on sales of annuities increased $519,000 to $8.4 million in
1998, following a decrease of $1.2 million to $7.9 million in 1997. Commissions
on sales of mutual funds increased $1.5 million to $5.5 million in 1998,
following an increase of $626,000 in 1997. Sales of annuities and mutual funds
may fluctuate from period to period, and future sales levels will depend upon
general economic conditions and investor preferences. Sales of annuities will
also depend upon continued favorable tax treatment and may be negatively
impacted by the current interest rate environment.
Gains on sales of loans held for sale increased $2.8 million in 1998
following a decrease of $261,000 in 1997. Gains or losses on sales of loans held
for sale may fluctuate significantly from period to period due to changes in
interest rates and volumes, and results in any period related to these
transactions may not be indicative of results which will be obtained in future
periods.
Gains on sales of securities available for sale totaled $2.2 million in
1998, a decrease of $6.3 million from the $8.5 million recognized in 1997. Gains
on sales of third-party loan servicing rights totaled $2.4 million in 1998 on
the sale of $200.4 million of third-party loan servicing rights. Gains of $1.6
million were recognized in 1997 on the sale of $144.7 million of third-party
loan servicing rights. TCF periodically sells securities available for sale and
loan servicing rights depending on market conditions.
18 TCF
During 1998, TCF recognized gains of $5.6 million on the sale of its joint
venture interest in Burnet Home Loans and $18.6 million on the sales of 14
branches, compared with gains of $14.2 million on the sales of 11 branches
during 1997 and gains of $2.7 million on the sales of five branches during 1996.
During 1996, TCF recognized a $5.4 million gain on the sale of $46.8
million of credit card and other loans. The Company now provides credit card
products on behalf of a third party through a marketing agreement.
NON-INTEREST EXPENSE -- Non-interest expense increased $67.3 million, or 18.6%,
in 1998, and $8 million, or 2.3%, in 1997, compared with the respective prior
years. The following table presents the components of non-interest expense:
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
- -----------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1998/97 1997/96
- -----------------------------------------------------------------------------------------------------
Compensation and employee
benefits .................... $217,401 $180,482 $157,554 20.5% 14.6%
Occupancy and equipment .......... 71,323 58,352 51,958 22.2 12.3
Advertising and promotions ....... 19,544 19,157 17,014 2.0 12.6
Federal deposit insurance
premiums and assessments .... 5,439 4,689 12,019 16.0 (61.0)
Amortization of goodwill and
other intangibles ........... 11,399 15,757 3,540 (27.7) 345.1
FDIC special assessment .......... -- -- 34,803 -- (100.0)
Other ............................ 103,594 82,925 76,438 24.9 8.5
-------- -------- --------
Total non-interest
expense ........... $428,700 $361,362 $353,326 18.6 2.3
- -----------------------------------------------------------------------------------------------------
Compensation and employee benefits, representing 50.7% and 49.9% of total
non-interest expense in 1998 and 1997, respectively, increased $36.9 million, or
20.5%, in 1998, and $22.9 million, or 14.6%, in 1997. The increases were
primarily due to costs associated with expanded retail banking activities,
including the acquisition of Standard and the opening of 106 new branches in
1998.
Occupancy and equipment expenses increased $13 million in 1998 and $6.4
million in 1997. The 1998 increase reflects the costs associated with expanded
retail banking activities. The increase in 1997 reflected the addition of 25
bank branch offices.
Advertising and promotion expenses increased $387,000 in 1998 and $2.1
million in 1997. The increases reflect the increase in direct mail and other
marketing expenses relating to the promotion of TCF's consumer lending and
deposit products.
Federal deposit insurance premiums and assessments increased $750,000 in
1998 following a decrease of $7.3 million in 1997. The increase in 1998 reflects
higher deposit levels as a result of expanded retail banking activities. The
decrease in 1997 reflected a reduction in the rate charged to TCF by the FDIC
for federal deposit insurance premiums from 23 basis points to approximately
6.50 basis points as a result of federal legislation enacted on September 30,
1996 to recapitalize the SAIF, partially offset by higher deposit levels.
Amortization of goodwill and other intangibles decreased $4.4 million in
1998 and increased $12.2 million in 1997. The decrease in 1998 was primarily due
to the previously mentioned 1997 accelerated amortization of $8.7 million of
deposit base intangibles, partially offset by an increase in the amortization of
goodwill and deposit base intangibles resulting from the acquisition of
Standard. Reductions of goodwill associated with branch sales, which are
reported as a component of gains on sales of branches, totaled $3.3 million in
1998 and $514,000 in 1996.
TCF's 1996 results included a one-time special assessment of $34.8 million
from the FDIC to recapitalize the SAIF under federal legislation enacted on
September 30, 1996. See "Financial Condition -- Legislative and Regulatory
Developments."
Other non-interest expense increased $20.7 million, or 24.9%, in 1998 and
$6.5 million, or 8.5%, in 1997. The increase for 1998 primarily reflects costs
associated with expanded retail banking activities and increases in deposit
account losses. A summary of other expense is presented in Note 21 of Notes to
Consolidated Financial Statements. The increase for 1998 also reflects the
recognition of $1.8 million of non-recurring costs in connection with TCF's
reorganization of its consumer finance company operations. The increase for 1997
reflected the write-off of $1.5 million of teller equipment in connection with
the previously mentioned Great Lakes Michigan branch reorganization and the
recognition of $1.5 million of non-recurring merger-related costs in connection
with TCF's acquisition of Winthrop Resources Corporation. The increase in 1997
also reflected costs associated with expanded retail banking activities.
YEAR 2000 -- During 1998, TCF continued to address the "Year 2000" computer
issue. The Year 2000 issue relates to the use of two digits rather than four
by computer systems to define the applicable year and whether such systems
will properly process information when the year changes to 2000. Failure of
computer systems to properly recognize the Year 2000 could potentially result
in the production of erroneous data, miscalculations of financial information
such as interest, system failures, business disruption and other operational
problems.
TCF has established a Year 2000 Task Force and has evaluated its data
processing and other systems with imbedded technologies, such as ATMs, vaults
and security systems, to determine whether they are Year 2000 compliant.
Remediation of software is substantially complete, leaving 1999 for testing.
Such testing includes testing of individual applica-
TCF 19
tion systems and "integration testing," which tests the way multiple systems
work together. Many of TCF's data processing applications are supplied by
third-party vendors. TCF has also evaluated whether such vendor- supplied
applications are or will be Year 2000 compliant. Additionally, federal
banking regulators are conducting special examinations of FDIC-insured banks
and savings associations to determine whether they are taking necessary steps
to prepare for the Year 2000, and are closely monitoring the progress made by
these institutions in completing key steps required by their individual Year
2000 plans.
TCF has incurred $4.4 million of internal and external costs for
replacement, renovation and testing of its critical internal computer hardware
and software and imbedded technologies through December 31, 1998, and expects
such costs to total $10.1 million over the three-year period ending December 31,
1999. Of the $4.4 million of Year 2000 costs incurred through December 31, 1998,
$1.6 million have been capitalized. Approximately $1.9 million of future Year
2000 costs are expected to be capitalized.
TCF's Year 2000 Task Force is also developing contingency plans to mitigate
potential delays or other problems. TCF's contingency plans include back-up
solutions for mission-critical applications and business continuation plans for
significant vendors and other business partners. Alternative courses of action
for dealing with non-compliant systems are difficult to identify in general
terms because they depend on the nature of the system, whether internal or
external personnel are responsible for the system, and the cost and availability
of replacement systems, among other factors. Although TCF believes its plans
address significant contingencies over which it is able to exercise some
control, there may be contingencies which cannot be readily identified or
contingencies over which it has little or no control and for which few, if any,
alternatives are available (for example, system failures that affect government
agencies and instrumentalities such as the Federal Reserve System).
The effect of the Year 2000 issue on TCF will also depend on the way the
Year 2000 issue is addressed by TCF's customers, including significant
borrowers, vendors, service providers, counterparties, competitors, utilities,
government agencies and instrumentalities and other entities with which TCF does
business. TCF has surveyed and continues to monitor parties with which it does
business to determine how they are addressing the Year 2000 issue and whether
computer hardware and software and other services provided to TCF will be, or
are, Year 2000 compliant. Additionally, TCF's applicable lending and investment
units have implemented procedures for identifying, managing, and underwriting
Year 2000 credit risk. TCF is also monitoring the Year 2000 preparation of
entities such as the Federal Reserve System, which provides services for
processing and settling payments and securities transactions between banks.
The Year 2000 efforts of third parties are ultimately not within TCF's
control, and their failure to remediate Year 2000 issues successfully could
result in a disruption in the services TCF provides, including deposit and loan
services, and could increase TCF's operating costs and credit, investment or
other risks. At the present time, it is not possible to determine with certainty
whether any such events are likely to occur, or to quantify any potential
negative impact they may have on TCF's future results of operations and
financial condition.
The foregoing discussion regarding Year 2000, including the discussion of
the timing and effectiveness of implementation and costs of TCF's Year 2000
efforts, contains forward-looking statements which are based on management's
best estimates derived using assumptions considered reasonable. These
forward-looking statements involve inherent risks and uncertainties, and actual
results could differ materially from those contemplated by such statements.
Factors that might cause material differences include, but are not limited to,
availability and cost of programmers and other systems personnel, TCF's ability
to locate and correct all relevant Year 2000 computer code, including imbedded
technologies, and the ability of TCF's customers, including significant
borrowers, vendors, competitors, counterparties and government agencies and
instrumentalities to effectively address the Year 2000 issue. Such material
differences could result in, among other things, business disruption,
operational problems, financial loss, legal liability and similar risks. See
"Financial Condition -- Forward-Looking Information."
INCOME TAXES -- TCF recorded income tax expense of $109.1 million in 1998,
compared with $95.8 million in 1997 and $61 million in 1996. Income tax
expense represented 41.1% of income before income tax expense during 1998,
compared with 39.8% and 37.8% in 1997 and 1996, respectively. The higher tax
rates in 1998 and 1997 reflect the impact of relatively higher non-deductible
expenses, including an increase in goodwill amortization resulting from the
acquisition of Standard, and higher state tax rates due to business expansion.
Further detail on income taxes is provided in Note 12 of Notes to
Consolidated Financial Statements.
FINANCIAL CONDITION
INVESTMENTS -- Total investments increased $148.1 million in 1998 to $277.7
million at December 31, 1998. The increase primarily reflects increases of
$95.3 million in interest-bearing deposits with banks, $41 million in federal
funds sold and $11.5 million in FHLB stock. TCF had no non-investment grade
debt securities (junk bonds) and there were no open trading account or
investment option positions as of December 31, 1998.
SECURITIES AVAILABLE FOR SALE -- Securities available for sale are carried at
fair value with the unrealized gains or losses, net of deferred income taxes,
reported as accumulated other comprehensive income, which is a separate
component of stockholders' equity. Securities available for sale increased
$251.8 million during 1998 to $1.7 billion at December 31, 1998. The increase
reflects purchases of $957.6 million of securities available for sale,
partially offset by sales of $229.2 million and payment and prepayment
activity. At December 31, 1998, TCF's securities available-for-sale portfolio
included $1.4 billion and $289.1 million of fixed-rate and adjustable-rate
mortgage-backed securities, respectively. Securities available for sale
totaled $1.4 billion at December 31, 1997.
20 TCF
LOANS HELD FOR SALE -- Residential real estate and education loans held for
sale are carried at the lower of cost or market. Education loans held for
sale increased $3 million and residential real estate loans held for sale
decreased $34.5 million from year-end 1997, and totaled $138.3 million and
$74.8 million, respectively, at December 31, 1998.
LOANS AND LEASES -- The following table sets forth information about loans and
leases held in TCF's portfolio, excluding loans held for sale:
AT DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Residential real estate ................ $3,765,280 $3,623,845 $2,252,312 $2,607,202 $2,646,644
Consumer ............................... 1,876,554 1,976,699 1,728,368 1,534,213 1,286,143
Commercial real estate ................. 811,428 859,916 858,225 967,766 994,452
Commercial business .................... 289,104 240,207 157,057 167,920 191,142
Lease financing ........................ 398,812 368,521 296,958 239,247 194,379
---------- ---------- ---------- ---------- ----------
Total loans and leases ............ $7,141,178 $7,069,188 $5,292,920 $5,516,348 $5,312,760
- -------------------------------------------------------------------------------------------------------------------------------
Loans and leases increased $72 million from year-end 1997 to $7.1 billion
at December 31, 1998, reflecting increases of $141.4 million, $48.9 million and
$30.3 million in residential real estate and commercial business loans and lease
financings, respectively, offset by decreases of $100.1 million and $48.5
million in consumer and commercial real estate loans, respectively. At December
31, 1998, TCF's residential real estate loan portfolio was comprised of $1.7
billion of fixed-rate loans and $2.1 billion of adjustable-rate loans.
Consumer loans decreased $100.1 million from year-end 1997 to $1.9 billion
at December 31, 1998, reflecting decreases of $107 million in automobile loans
and $9.3 million in unsecured loans, partially offset by an increase of $6.5
million in home equity loans. TCF continues its emphasis on expanding its home
equity portfolio.
As previously mentioned, TCF restructured its consumer finance company
operations in December 1998, including the discontinuation of indirect
automobile lending, the consolidation of offices and a renewed focus on home
equity lending. In the states where the Company's banks operate (Minnesota,
Illinois, Wisconsin, Michigan and Colorado), the finance company home equity
operations were combined with the banks, and 25 of the 30 finance company
offices were closed. Of the 23 offices in other states, 17 remain open as real
estate loan production offices of TCF National Bank Minnesota ("TCF Minnesota")
and the remainder were closed. Additionally, TCF reorganized its loan collection
operations related to the remaining consumer finance automobile loan portfolio.
Previously such collection activities were handled centrally in Pensacola,
Florida for loans up to 30-days delinquent and by the branch from which the
loans were originated for loans over 30-days delinquent. Beginning in December
1998, all collection operations for these loans were centralized in facilities
in Minneapolis, Minnesota and Pensacola, Florida. At December 31, 1998, consumer
finance automobile loans totaled $233.9 million, compared with $292.6 million at
December 31, 1997.
Prior to the restructuring, TCF provided financing through the purchase of
automobile loans from dealers, an activity referred to as "indirect" automobile
lending. Included in consumer finance automobile loans at December 31, 1998 are
$211.4 million of sub-prime automobile loans which carry a higher level of
credit risk and higher interest rates. Loans classified as sub-prime are owed by
borrowers who historically have been unable to obtain credit from traditional
sources because of significant past credit problems or limited credit histories.
The term sub-prime refers to the Company's assessment of credit risk and bears
no relationship to the prime rate of interest or persons who are able to borrow
at that rate. There can be no assurances that the Company's sub-prime lending
criteria are the same as those utilized by other lenders.
The underwriting criteria for sub-prime loans originated by TCF generally
have been less stringent than those historically adhered to by TCF and, as a
result, these loans carry a higher level of credit risk and higher interest
rates. The indirect loan portfolio also carries an increased risk of loss in the
event of adverse economic developments such as a recession. The risks posed by
this portfolio could also be exacerbated by TCF's discontinuation of this
lending activity, which has involved the closing of its indirect lending offices
and the centralization of its loan collection operations, among other changes.
Sub-prime lending is inherently more risky than traditional lending and there
can be no assurance that all appropriate underwriting criteria have been
identified or weighted properly in the assessment of credit risk, or will afford
adequate protection against the higher risks inherent in lending to sub-prime
borrowers.
In recent years, TCF has also initiated the origination of home equity
loans with loan-to-value ratios in excess of 80%, and up to 100%, that carry no
private mortgage insurance. These loans may carry a higher level of credit risk
than loans with a lower loan-to-value ratio.
TCF 21
The following table summarizes TCF's commercial real estate loan portfolio
by property type:
AT DECEMBER 31,
- ------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------
NUMBER NUMBER
(DOLLARS IN THOUSANDS) BALANCE (1) OF LOANS BALANCE (1) OF LOANS
- ------------------------------------------------------------------------------------------------
Apartments ......................... $ 269,791 608 $ 304,866 675
Office buildings ................... 155,780 243 167,607 241
Retail services .................... 130,790 236 148,985 232
Warehouse/industrial buildings ..... 86,902 135 79,980 143
Hospitality facilities ............. 41,338 19 60,544 29
Health care facilities ............. 24,280 14 12,494 10
Other .............................. 105,530 317 87,688 393
Unearned discounts and
deferred loan fees ............ (2,983) N.A. (2,248) N.A.
--------- ------ --------- -----
$ 811,428 1,572 $ 859,916 1,723
--------- ------ --------- -----
Average balance .................... $516 $499
- ------------------------------------------------------------------------------------------------
(1) Includes construction and development loans
N.A. Not applicable.
Commercial real estate loans decreased $48.5 million from year-end 1997 to
$811.4 million at December 31, 1998. Commercial business loans increased $48.9
million in 1998 to $289.1 million at December 31, 1998. TCF is seeking to expand
its commercial business lending activity and, to a lesser extent, its commercial
real estate lending activity to borrowers located in its primary midwestern
markets in an attempt to maintain the size of these lending portfolios and,
where feasible under local economic conditions, achieve some growth in these
lending categories over time. At December 31, 1998, approximately 95% of TCF's
commercial real estate loans outstanding were secured by properties located in
its primary markets. The average individual balance of commercial real estate
loans was $516,000 at December 31, 1998. Apartment loans comprised $269.8
million, or 33.2%, of total commercial real estate loans outstanding at December
31, 1998. The average individual balance of commercial business loans was
$336,000 at December 31, 1998.
Lease financings increased $30.3 million from year-end 1997 to $398.8
million at December 31, 1998, reflecting a $32.3 million increase in direct
financing leases, partially offset by a $4.9 million decrease in sales-type
leases. At December 31, 1998, TCF internally funded 53.7% of its lease portfolio
and consequently retained the credit risk on such leases, compared with 37.6% at
December 31, 1997.
ALLOWANCE FOR LOAN AND LEASE LOSSES -- Credit risk is the risk of loss from a
customer default. TCF has in place a process to identify and manage its
credit risks. The process includes initial credit review and approval,
periodic monitoring to measure compliance with credit agreements and internal
credit policies, identification of problem loans and leases and special
procedures for collection of problem loans and leases. The risk of loss is
difficult to quantify and is subject to fluctuations in values and general
economic conditions and other factors. See Note 1 of Notes to Consolidated
Financial Statements for additional information concerning TCF's allowance
for loan and lease losses.
At December 31, 1998, the allowance for loan and lease losses totaled $80
million, compared with $82.6 million at December 31, 1997. The allocation of
TCF's allowance for loan and lease losses, including general and specific loss
allocations, is as follows:
ALLOCATIONS AS A PERCENTAGE OF TOTAL
LOANS AND LEASES OUTSTANDING BY TYPE
AT DECEMBER 31, AT DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Residential real estate ..... $ 3,471 $ 3,501 $ 2,379 $ 3,238 $ 2,493 .09% .10% .11% .12% .09%
Commercial real estate ...... 12,525 15,065 16,213 20,701 22,006 1.54 1.75 1.89 2.14 2.21
Commercial business ......... 5,756 4,520 3,072 7,261 5,603 1.99 1.88 1.96 4.32 2.93
Consumer .................... 32,011 28,129 26,700 16,667 10,757 1.71 1.42 1.54 1.09 .84
Lease financing ............. 2,955 2,004 1,116 595 -- .74 .54 .38 .25 --
Unallocated ................. 23,295 29,364 22,385 17,828 15,484 N.A. N.A. N.A. N.A. N.A.
------- ------- ------- ------- -------
Total allowance balance ..... $80,013 $82,583 $71,865 $66,290 $56,343 1.12 1.17 1.36 1.20 1.06
- -------------------------------------------------------------------------------------------------------------------------------
N.A. Not applicable.
22 TCF
During 1998, TCF did not experience any material changes in loan
concentrations or loan terms that affected the December 31, 1998 balance of the
allowance for loan and lease losses. The allocated allowance balances for TCF's
residential, commercial real estate and commercial business loan portfolios
reflect the Company's continued strengthening of its credit quality and related
level of net loan charge-offs for these portfolios. The increase in the
allocated allowance for lease losses reflects the previously mentioned increase
in the percentage of leases that are internally funded. The allocated allowances
for these portfolios do not reflect any material changes in estimation methods
or assumptions.
TCF has experienced an increase in the level of net loan charge-offs related
to its consumer finance automobile portfolio. As a result, net loan charge-offs
as a percentage of average loans outstanding for TCF's consumer portfolio
increased to 1.29% for the year ended December 31, 1998, compared with 1.00% for
1997. In addition, the net loan charge-offs as a percentage of average loans
outstanding for TCF's consumer finance automobile portfolio increased to 10.76%
and 7.16% for the three months and year ended December 31, 1998, respectively,
compared with 4.79% and 4.50% for the three months and year ended December 31,
1997. As a result, TCF adjusted its guideline reserve percentages on its
consumer finance automobile loans. This change contributed to the increase in
the December 31, 1998 balance of the allowance for loan and lease losses
allocated to the consumer loan portfolio. The unallocated portion of TCF's
allowance for loan and lease losses totaled $23.3 million at December 31, 1998,
compared with $29.4 million at December 31, 1997. The decrease in the
unallocated allowance for loan and lease losses reflects the reduction in
non-accrual loans and leases, and a decrease in the balance of consumer and
commercial real estate loans outstanding.
Net loan and lease charge-offs were $25.9 million in 1998, compared with
$17.9 million in 1997 and $15.9 million in 1996. The allowance for loan and
lease losses as a percentage of net loan and lease charge-offs was 310% at
December 31, 1998, compared with 462% at December 31, 1997 and 453% at December
31, 1996. The decrease in TCF's allowance for loan and lease losses as a
percentage of net loan and lease charge-offs at December 31, 1998 reflects the
impact of the significant consumer finance automobile loan charge-off activity
during 1998, and a decrease in consumer finance automobile loans outstanding.
A summary of the allowance for loan and lease losses and selected statistics
is presented in Note 8 of Notes to Consolidated Financial Statements.
NON-PERFORMING ASSETS--Non-performing assets (principally non-accrual loans
and leases and other real estate owned) totaled $48.7 million at December 31,
1998, down $10.1 million from the December 31, 1997 total of $58.7 million.
The decrease in total non-performing assets reflects decreases of $3.3
million in consumer non-accrual loans and $7 million in other real estate
owned and other assets. Approximately 75% of non-performing assets consist
of, or are secured by, real estate. The accrual of interest income is
generally discontinued when loans and leases become 90 days or more past due
with respect to either principal or interest unless such loans and leases are
adequately secured and in the process of collection.
Non-performing assets are summarized in the following table:
AT DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Non-accrual loans and leases:
Consumer ...................................... $17,745 $21,037 $13,472 $ 7,487 $ 2,127
Residential real estate ....................... 8,078 8,451 3,996 7,045 7,211
Commercial real estate ........................ 4,352 3,818 7,604 22,255 18,452
Commercial business ........................... 2,797 3,370 1,149 7,541 5,972
Lease financing ............................... 725 117 176 -- --
------- ------- -------- -------- --------
33,697 36,793 26,397 44,328 33,762
Other real estate owned and other assets .......... 14,972 21,953 19,937 26,402 23,849
------- ------- -------- -------- --------
Total non-performing assets ................... $48,669 $58,746 $46,334 $70,730 $57,611
------- ------- -------- -------- --------
Non-performing assets as a percentage of net loans
and leases .................................... .69% .84% .89% 1.30% 1.10%
Non-performing assets as a percentage of total
assets ........................................ .48 .60 .62 .94 .71
- -------------------------------------------------------------------------------------------------------------------------
TCF 23
The following table sets forth information regarding TCF's delinquent loan
and lease portfolio, excluding loans held for sale and non-accrual loans and
leases:
AT DECEMBER 31,
- -----------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF
PRINCIPAL LOANS AND PRINCIPAL LOANS AND
(DOLLARS IN THOUSANDS) BALANCES LEASES BALANCES LEASES
- -----------------------------------------------------------------------------------------
Loans and leases delinquent for:
30-59 days .................... $51,768 .72% $38,902 .54%
60-89 days .................... 15,373 .22 12,730 .18
90 days or more ............... -- -- -- --
------- ---- ------- ----
Total ..................... $67,141 .94% $51,632 .72%
- -----------------------------------------------------------------------------------------
The over 30-day delinquency rate on TCF's loans and leases (excluding loans
held for sale and non-accrual loans and leases) was .94% of loans and leases
outstanding at December 31, 1998, compared with .72% at year-end 1997. TCF's
delinquency rates are determined using the contractual method. The following
table sets forth information regarding TCF's over 30-day delinquent loan and
lease portfolio, excluding loans held for sale and non-accrual loans and leases:
AT DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL PERCENTAGE PRINCIPAL PERCENTAGE
(DOLLARS IN THOUSANDS) BALANCES OF PORTFOLIO BALANCES OF PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Consumer .................................... $52,588 2.83% $38,610 1.91%
Residential real estate ..................... 9,151 .24 10,567 .29
Commercial real estate ...................... 1,787 .22 1,173 .14
Commercial business ......................... 1,984 .69 396 .17
Lease financing ............................. 1,631 .41 886 .21
------- -------
Total ............................. $67,141 .94 $51,632 .72
- ------------------------------------------------------------------------------------------------------------------------
TCF's over 30-day delinquency rate on total consumer loans was 2.83% at
December 31, 1998, up from 1.91% at year-end 1997. Management continues to
monitor the consumer loan portfolio, which will generally have higher
delinquencies, especially indirect automobile loans. TCF's over 60-day
delinquency rate on consumer finance automobile loans was 3.23% at December 31,
1998, compared with 1.65% at December 31, 1997. Indirect automobile lending is
generally considered to involve a higher level of credit risk and the management
of delinquencies and liquidation of this portfolio will be a key challenge. See
"Loans and Leases."
In addition to non-accrual loans and leases, there were commercial real
estate and commercial business loans and lease financings with an aggregate
principal balance of $23.1 million outstanding at December 31, 1998 for which
management has concerns regarding the ability of the borrowers to meet existing
repayment terms. This amount consists of loans and leases that were classified
for regulatory purposes as substandard, doubtful or loss, or were to borrowers
that currently are experiencing financial difficulties or that management
believes may experience financial difficulties in the future. This compares with
$23.6 million of such loans and leases at December 31, 1997. Although these
loans and leases are secured by commercial real estate or other corporate
assets, they may be subject to future modifications of their terms or may become
non-performing. Management is monitoring the performance and classification of
such loans and leases and the financial condition of these borrowers.
LIQUIDITY MANAGEMENT -- TCF manages its liquidity position to ensure that the
funding needs of depositors and borrowers are met promptly and in a
cost-effective manner. Asset liquidity arises from the ability to convert
assets to cash as well as from the maturity of assets. Liability liquidity
results from the ability of TCF to attract a diversity of funding sources to
meet funding requirements promptly.
Deposits are the primary source of TCF's funds for use in lending and for
other general business purposes. In addition to deposits, TCF derives funds
primarily from loan and lease repayments, proceeds from the discounting of
leases, advances from the FHLB and proceeds from reverse repurchase borrowing
agreements. Deposit inflows and outflows are significantly influenced by general
interest rates, money market conditions, competition for funds and other
factors. TCF's deposit inflows and outflows have been and will continue to be
affected by these factors. See "Forward-Looking Information." Borrowings may be
used to compensate for reductions in normal sources of funds, such as deposit
inflows at less than projected levels, net deposit outflows or to support
expanded activities. Historically, TCF has borrowed primarily from the FHLB,
from institutional sources under reverse repurchase agreements and, to a lesser
extent, from other sources. See "Borrowings."
24 TCF
Potential sources of liquidity for TCF Financial Corporation (parent
company only) include cash dividends from TCF's wholly owned bank subsidiaries,
issuance of equity securities, borrowings under the Company's $135 million bank
line of credit, and interest income. TCF's subsidiary banks' ability to pay
dividends or make other capital distributions to TCF is restricted by regulation
and may require regulatory approval. Undistributed earnings and profits at
December 31, 1998 includes approximately $134.4 million for which no provision
for federal income tax has been made. This amount represents earnings
appropriated to bad debt reserves and deducted for federal income tax purposes
and is generally not available for payment of cash dividends or other
distributions to shareholders. Payments or distributions of these appropriated
earnings could invoke a tax liability for TCF based on the amount of earnings
removed and current tax rates.
DEPOSITS -- Deposits totaled $6.7 billion at December 31, 1998, down $192.2
million from December 31, 1997. The decrease reflects the previously
mentioned branch sales with deposits totaling $234 million. Lower
interest-cost checking, savings and money market deposits totaled $3.8
billion, up $454.9 million from year-end 1997, and comprised 55.9% of total
deposits at December 31, 1998. Checking, savings and money market deposits
are an important source of lower cost funds and fee income for TCF. Higher
interest-cost certificates of deposit decreased $647.1 million from December
31, 1997. The Company's weighted-average rate for deposits, including
non-interest bearing deposits, decreased to 2.73% at December 31, 1998, from
3.42% at December 31, 1997. This decrease reflects growth in lower
interest-cost checking, savings and money market deposits, decreases in rates
paid on such deposits and a lower proportion of higher-rate certificates at
December 31, 1998 than at December 31, 1997.
BORROWINGS -- Borrowings are used primarily to fund the purchases of
investments and securities available for sale. These borrowings totaled $2.5
billion at December 31, 1998, up $733.9 million from year-end 1997. The
increase was primarily due to increases of $464.6 million in FHLB advances,
$255 million in securities sold under repurchase agreements and $74 million
in TCF's bank line of credit, partially offset by a decrease of $44.9 million
in discounted lease rentals. The increase in FHLB advances and securities
sold under repurchase agreements reflects the previously mentioned purchases
of securities available for sale in 1998. The weighted-average rate on
borrowings decreased to 6.00% at December 31, 1998, from 6.43% at December
31, 1997.
STOCKHOLDERS' EQUITY -- Stockholders' equity at December 31, 1998 was $845.5
million, or 8.3% of total assets, down from $953.7 million, or 9.8% of total
assets, at December 31, 1997. The decrease in stockholders' equity is
primarily due to the repurchase of 7,549,300 shares of TCF's common stock at
a cost of $210.9 million and the payment of $55 million in common stock
dividends, partially offset by net income of $156.2 million for the year
ended December 31, 1998.
RECENT ACCOUNTING DEVELOPMENTS -- In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires recognition of all derivative instruments
as either assets or liabilities in the statement of financial condition and
measurement of those instruments at fair value. A derivative may be
designated as a hedge of an exposure to changes in the fair value of a
recognized asset or liability, an exposure to variable cash flows of a
forecasted transaction, or a foreign currency exposure. The accounting for
gains and losses associated with changes in the fair value of a derivative
and the impact on TCF's consolidated statements will depend on its hedge
designation and whether the hedge is highly effective in offsetting changes
in the fair value or cash flows of the underlying hedged item. The statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. It is too early to predict what effect, if any, the statement will have
on TCF.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise -- an amendment of SFAS No. 65."
The statement is effective for the first fiscal quarter beginning after December
15, 1998. The adoption of SFAS No. 134 will not affect TCF's results of
operations or financial condition.
FORWARD-LOOKING INFORMATION -- There are a number of important factors which
could cause TCF's future results to differ materially from historical
performance and which make any forward-looking statements about TCF's
financial results subject to a number of risks and uncertainties. These
include but are not limited to possible legislative changes; adverse economic
developments which may increase default and delinquency risks in TCF's loan
and lease portfolios or lead to other adverse developments; increases in
bankruptcy filings by TCF's loan and lease customers; adverse credit losses
or other unfavorable developments in the liquidation or other disposition of
TCF's consumer finance automobile loan portfolio; shifts in interest rates
which may result in shrinking interest margins, increased borrowing costs or
other adverse developments; deposit outflows; interest rates on competing
investments; demand for financial services and loan and lease products;
increases in competition in the banking and financial services industry;
changes in accounting policies or guidelines, or monetary and fiscal policies
of the federal government; inflation; changes in the quality or composition
of TCF's loan, lease and investment portfolios; adverse changes in securities
markets; results of litigation or other significant uncertainties. TCF's Year
2000 compliance initiatives or other required technological changes are
subject to certain uncertainties which may delay or increase the cost of
implementation. To some extent, TCF's operations will be dependent on the
Year 2000 compliance achieved by outside vendors, borrowers and government
agencies or instrumentalities such as the Federal Reserve System, and also on
the cooperation of such parties in testing the effectiveness of compliance
initiatives. TCF's 1997 and 1998 acquisitions (and its commitment to
construct additional Jewel-Osco branches in future periods)
TCF 25
are subject to additional uncertainties, including the possible failure to
fully realize anticipated benefits from the transactions. Significant
uncertainties in such transactions include lower than expected income or
revenue or higher than expected operating costs; greater than expected costs
or difficulties related to the integration and retention of employees of the
acquired business operations; and other unanticipated occurrences which may
increase the costs related to the transactions or decrease the expected
financial benefits of the transactions.
LEGISLATIVE AND REGULATORY DEVELOPMENTS -- Federal and state legislation
imposes numerous legal and regulatory requirements on financial institutions.
Future legislative or regulatory change, or changes in enforcement practices
or court rulings, may have a dramatic and potentially adverse impact on TCF
and its bank and other subsidiaries.
Federal legislation enacted on September 30, 1996 addressed inadequate
funding of the SAIF, which had resulted in a large deposit insurance premium
disparity between banks insured by the Bank Insurance Fund ("BIF") and
SAIF-insured thrifts. As a result of this legislation, a one-time special
assessment was imposed on thrift institutions, and TCF recognized a $34.8
million pretax charge for assessments imposed on its bank subsidiaries during
the third quarter of 1996. The legislation also provided for a reduction in
deposit insurance premiums in subsequent periods and other regulatory reforms.
Federal legislation was enacted in 1996 that repealed the reserve method of
accounting for thrift bad debt reserves. This legislation eliminated the
recapture of a thrift institution's bad debt reserve under certain
circumstances, including the institution's conversion to a bank or as a result
of similar charter changes.
After passage of both the BIF/SAIF legislation and the repeal of the
reserve method of accounting for bad debts, TCF completed the conversion of its
savings bank subsidiaries to national banks and TCF became a national bank
holding company on April 7, 1997. In connection with the national bank
conversions, TCF chartered two new national bank subsidiaries, Great Lakes Ohio
and TCF National Bank Colorado ("TCF Colorado"). As previously mentioned, TCF
sold all eight branches and related deposits of Great Lakes Ohio in 1997. TCF
now operates five national bank subsidiaries: TCF Minnesota, TCF National Bank
Illinois, TCF National Bank Wisconsin, TCF Colorado and Great Lakes Michigan.
MARKET RISK -- INTEREST-RATE RISK -- TCF's results of operations are dependent
to a large degree on its net interest income, which is the difference between
interest income and interest expense, and the Company's ability to manage its
interest-rate risk. Although TCF manages other risks, such as credit and
liquidity risk, in the normal course of its business, the Company considers
interest-rate risk to be its most significant market risk. TCF, like most
financial institutions, has a material interest-rate risk exposure to changes
in both short-term and long-term interest rates as well as variable index
interest rates (e.g., prime). Since TCF does not hold a trading portfolio,
the Company is not exposed to significant market risk from trading activities.
Like most financial institutions, TCF's interest income and cost of funds
are significantly affected by general economic conditions and by policies of
regulatory authorities. The mismatch between maturities and interest-rate
sensitivities of assets and liabilities results in interest-rate risk. Although
the measure is subject to a number of assumptions and is only one of a number of
measurements, management believes the interest-rate gap (difference between
interest-earning assets and interest-bearing liabilities repricing within a
given period) is an important indication of TCF's exposure to interest-rate risk
and the related volatility of net interest income in a changing interest rate
environment. In addition to the interest-rate gap analysis, management also
utilizes a simulation model to measure and manage TCF's interest-rate risk.
For an institution with a negative interest-rate gap for a given period,
the amount of its interest-bearing liabilities maturing or otherwise repricing
within such period exceeds the amount of interest-earning assets repricing
within the same period. In a rising interest-rate environment, institutions with
negative interest-rate gaps will generally experience more immediate increases
in the cost of their liabilities than in the yield on their assets. Conversely,
the yield on assets for institutions with negative interest-rate gaps will
generally decrease more slowly than the cost of their funds in a falling
interest-rate environment.
TCF's Asset/Liability Management Committee manages TCF's interest-rate risk
based on interest rate expectations and other factors. The principal objective
of TCF's asset/liability management activities is to provide maximum levels of
net interest income while maintaining acceptable levels of interest-rate risk
and liquidity risk and facilitating the funding needs of the Company. The
amounts in the maturity/rate sensitivity table below represent management's
estimates and assumptions. Also, the amounts could be significantly affected by
external factors such as prepayment rates other than those assumed, early
withdrawals of deposits, changes in the correlation of various interest-bearing
instruments, competition and a general rise or decline in interest rates.
Decisions by management to purchase or sell assets, or retire debt could change
the maturity/repricing and spread relationships. In addition, TCF's
interest-rate risk will increase during periods of rising interest rates due to
resulting slower prepayments on loans and mortgage-backed securities, and the
increased likelihood that the FHLB will exercise its option to call certain of
TCF's longer-term FHLB advances. See Note 11 of Notes to Consolidated Financial
Statements for additional information on FHLB advances. TCF's one-year
interest-rate gap was a negative $263.9 million, or (3)% of total assets, at
December 31, 1998, compared with a negative $184.7 million, or (2)% of total
assets, at December 31, 1997.
26 TCF
The following table summarizes TCF's interest-rate gap position at December
31, 1998:
MATURITY/RATE SENSITIVITY
-----------------------------------------------------------------------------------
WITHIN 30 DAYS TO 6 MONTHS
(DOLLARS IN THOUSANDS) 30 DAYS 6 MONTHS TO 1 YEAR 1 TO 3 YEARS 3+ YEARS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans held for sale ........................ $ 29,515 $ 89,481 $ 94,077 $ -- $ -- $ 213,073
Securities available for sale .............. 67,266 273,157 258,274 395,766 683,456 1,677,919
Real estate loans(1) ....................... 301,915 694,853 749,200 1,517,542 1,313,198 4,576,708
Lease financings ........................... 15,792 75,467 71,704 201,893 33,956 398,812
Other loans(1) ............................. 1,244,145 141,277 139,590 337,515 303,131 2,165,658
Investments ................................ 254,603 -- -- -- 23,112 277,715
---------- ----------- ---------- ---------- ---------- ----------
1,913,236 1,274,235 1,312,845 2,452,716 2,356,853 9,309,885
---------- ----------- ---------- ---------- ---------- ----------
Interest-bearing liabilities:
Checking deposits(2) ....................... 180,912 -- -- -- 1,698,711 1,879,623
Passbook and statement deposits(2) ......... 66,933 124,060 131,258 355,972 498,708 1,176,931
Money market deposits ...................... 700,004 -- -- -- -- 700,004
Certificate deposits ....................... 336,455 1,328,160 793,167 459,342 41,464 2,958,588
Federal Home Loan Bank advances ............ 200,000 35,000 335,207 1,184,001 50,000 1,804,208
Discounted lease rentals ................... 8,586 39,862 41,702 86,141 7,393 183,684
Other borrowings ........................... 442,585 161 174 530 29,704 473,154
---------- ----------- ---------- ---------- ---------- ----------
1,935,475 1,527,243 1,301,508 2,085,986 2,325,980 9,176,192
---------- ----------- ---------- ---------- ---------- ----------
Interest-earning assets over (under)
interest-bearing liabilities ............... $ (22,239) $ (253,008) $ 11,337 $ 366,730 $ 30,873 $ 133,693
---------- ----------- ---------- ---------- ---------- ----------
Cumulative gap ................................ $ (22,239) $ (275,247) $ (263,910) $ 102,820 $ 133,693 $ 133,693
---------- ----------- ---------- ---------- ---------- ----------
Cumulative gap as a percentage of total assets:
At December 31, 1998 ....................... --% (3)% (3)% 1% 1% 1%
---------- ----------- ---------- ---------- ---------- ----------
At December 31, 1997 ....................... 7% --% (2)% 4% 4% 4%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Based upon contractual maturity, repricing date, if applicable, scheduled
repayments of principal and projected prepayments of principal based upon
experience.
(2) Includes non-interest bearing deposits.
The following tables provide information about TCF's financial instruments
and derivative financial instruments, all of which are held for purposes other
than trading and are sensitive to changes in interest rates. For loans held for
sale, securities available for sale, loans, and liabilities with contractual
maturities, the table presents principal cash flows and related weighted-average
interest rates by contractual maturities as modified by the Company's historical
experience of the impact of interest rate fluctuations on the prepayment of the
assets. For deposits that have no contractual maturity, the table presents
principal cash flows and, as applicable, related weighted-average interest rates
based on the Company's historical experience, management's judgment, and
statistical analysis, with respect to customer account retention. For forward
mortgage loan sales commitments, the table presents notional amounts and, as
applicable, weighted-average interest rates by contractual maturity date.
Notional amounts are used to calculate the contractual payments to be exchanged
under the commitments. For commitments to extend credit, the balance represents
the notional amount of the off-balance-sheet item and the average interest rate
represents the weighted-average interest rate of the underlying loans. This
table does not include the effect of repricings, which is an important
consideration in management's interest-rate risk analysis. The expected
principal/notional maturity amounts at December 31, 1998 and December 31, 1997
are as follows:
TCF 27
AT DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002
- ---------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale .................... $ 54,659 $ -- $ -- $ --
Average interest rate .......................... 6.56% --% --% --%
Variable-rate loans held for sale ................. 158,414 -- -- --
Average interest rate .......................... 6.50% --% --% --%
Fixed-rate securities available for sale .......... 318,645 239,782 155,753 123,331
Average interest rate .......................... 6.75% 6.79% 6.82% 6.78%
Variable-rate securities available for sale ....... 107,343 68,652 38,765 24,491
Average interest rate .......................... 6.14% 6.20% 6.22% 6.23%
Fixed-rate loans .................................. 778,886 541,290 392,492 281,057
Average interest rate ........................... 10.25% 9.25% 8.55% 8.09%
Variable-rate loans ............................... 1,136,629 683,244 437,978 315,395
Average interest rate ........................... 7.76% 7.86% 7.95% 8.08%
Fixed-rate investments ............................ 161,121 -- -- --
Average interest rate ........................... 4.85% --% --% --%
Variable-rate investments ......................... -- -- -- --
Average interest rate ........................... --% --% --% --%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity .................. 416,463 204,418 151,814 113,860
Average interest rate ........................... .88% 1.07% 1.07% 1.07%
Certificate deposits .............................. 2,459,050 345,232 112,920 22,366
Average interest rate ........................... 4.94% 5.32% 5.55% 5.29%
Fixed-rate borrowings ............................. 941,487 297,399 936,602 --
Average interest rate .......................... 6.21% 6.16% 5.22% --%
Variable-rate borrowings .......................... 21,271 -- -- --
Average interest rate .......................... 5.23% --% --% --%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments ........... 106,676 -- -- --
Average interest rate .......................... 6.17% --% --% --%
Commitments to extend credit(1) ................... 208,699 -- -- --
Average interest rate .......................... 6.63% --% --% --%
- ---------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 2003 THEREAFTER TOTAL FAIR VALUE
- --------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale .................... $ -- $ -- $ 54,659 $ 54,994
Average interest rate .......................... --% --% 6.56%
Variable-rate loans held for sale ................. -- -- 158,414 160,915
Average interest rate .......................... --% --% 6.50%
Fixed-rate securities available for sale .......... 99,145 436,763 1,373,419 1,388,841
Average interest rate .......................... 6.75% 6.61% 6.72%
Variable-rate securities available for sale ....... 15,793 37,108 292,152 289,078
Average interest rate .......................... 6.24% 5.99% 6.16%
Fixed-rate loans .................................. 218,066 633,391 2,845,182 2,859,691
Average interest rate ........................... 7.89% 8.05% 8.94%
Variable-rate loans ............................... 245,998 1,122,003 3,941,247 4,060,036
Average interest rate ........................... 8.24% 9.24% 8.27%
Fixed-rate investments ............................ -- 23,112 184,233 184,233
Average interest rate ........................... --% 6.00% 4.99%
Variable-rate investments ......................... -- 93,482 93,482 93,482
Average interest rate ........................... --% 7.06% 7.06%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity .................. 85,395 2,784,608 3,756,558 3,756,558
Average interest rate ........................... 1.07% .92% .94%
Certificate deposits .............................. 14,020 5,000 2,958,588 2,994,231
Average interest rate ........................... 4.10% 4.80% 5.01%
Fixed-rate borrowings ............................. 78,750 1,853 2,256,091 2,270,043
Average interest rate .......................... 7.14% 5.95% 5.81%
Variable-rate borrowings .......................... -- -- 21,271 21,271
Average interest rate .......................... --% --% 5.23%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments ........... -- -- 106,676 113(1)
Average interest rate .......................... --% --% 6.17%
Commitments to extend credit(1) ................... -- -- 208,699 (264)(2)
Average interest rate .......................... --% --% 6.63%
- --------------------------------------------------------------------------------------------------------------------------------
(1) Excludes commitments to extend credit with floating interest rates and
repricing terms of one year or less.
(2) Positive amounts represent assets, negative amounts represent liabilities.
28 TCF
AT DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1999 2000 2001
- --------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale ................... $ 47,131 $ -- $ -- $ --
Average interest rate ......................... 7.31% --% --% --%
Variable-rate loans held for sale ................ 197,481 -- -- --
Average interest rate ......................... 7.17% --% --% --%
Fixed-rate securities available for sale ......... 185,051 190,019 126,549 73,863
Average interest rate ......................... 7.20% 7.20% 7.20% 7.20%
Variable-rate securities available for sale ...... 128,274 94,775 70,064 51,839
Average interest rate ......................... 7.46% 7.46% 7.46% 7.46%
Fixed-rate loans ................................. 678,823 478,268 348,516 306,888
Average interest rate ......................... 11.33% 10.50% 9.59% 8.71%
Variable-rate loans .............................. 997,028 684,049 527,458 367,889
Average interest rate ......................... 8.38% 8.41% 8.59% 8.57%
Fixed-rate investments ........................... 24,633 -- -- --
Average interest rate ......................... 6.09% --% --% --%
Variable-rate investments ........................ -- -- -- --
Average interest rate ......................... --% --% --% --%
Due from brokers ................................. 126,662 -- -- --
Average interest rate ......................... 6.86% --% --% --%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity ................. 333,654 202,542 151,905 113,930
Average interest rate ......................... 1.87% 2.04% 2.04% 2.04%
Certificate deposits ............................. 2,931,999 400,893 177,899 68,895
Average interest rate ......................... 5.04% 5.46% 5.54% 5.78%
Fixed-rate borrowings ............................ 421,548 375,510 297,758 25,132
Average interest rate ......................... 6.14% 6.04% 6.16% 6.09%
Variable-rate borrowings ......................... 228,441 93,735 -- --
Average interest rate ......................... 5.88% 5.69% --% --%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments .......... 81,575 -- -- --
Average interest rate ......................... 6.77% --% --% --%
Commitments to extend credit(1) .................. 158,452 -- -- --
Average interest rate ......................... 7.12% --% --% --%
- --------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 2002 THEREAFTER TOTAL FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS:
Fixed-rate loans held for sale ................... $ -- $ -- $ 47,131 $ 48,786
Average interest rate ......................... --% --% 7.31%
Variable-rate loans held for sale ................ -- -- 197,481 199,555
Average interest rate ......................... --% --% 7.17%
Fixed-rate securities available for sale ......... 60,620 280,299 916,401 930,070
Average interest rate ......................... 7.20% 7.20% 7.20%
Variable-rate securities available for sale ...... 38,398 112,228 495,578 496,061
Average interest rate ......................... 7.46% 7.46% 7.46%
Fixed-rate loans ................................. 158,156 387,880 2,358,531 2,357,476
Average interest rate ......................... 8.51% 8.19% 9.86%
Variable-rate loans .............................. 316,027 1,509,658 4,402,109 4,594,839
Average interest rate ......................... 8.74% 9.79% 8.93%
Fixed-rate investments ........................... -- 22,977 47,610 47,610
Average interest rate ......................... --% 6.00% 6.05%
Variable-rate investments ........................ -- 82,002 82,002 82,002
Average interest rate ......................... --% 7.34% 7.34%
Due from brokers ................................. -- -- 126,662 126,662
Average interest rate ......................... --% --% 6.86%
RATE SENSITIVE LIABILITIES:
Deposits with no stated maturity ................. 85,447 2,414,169 3,301,647 3,301,647
Average interest rate ......................... 2.04% 2.04% 1.39% 1.55%
Certificate deposits ............................. 18,778 7,199 3,605,663 3,637,981
Average interest rate ......................... 5.19% 5.40% 5.13%
Fixed-rate borrowings ............................ -- 56,432 1,176,380 1,175,251
Average interest rate ......................... --% 7.70% 6.19%
Variable-rate borrowings ......................... -- -- 322,176 322,176
Average interest rate ......................... --% --% 5.82%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Forward mortgage loan sales commitments .......... -- -- 81,575 (326)(2)
Average interest rate ......................... --% --% 6.77%
Commitments to extend credit(1) .................. -- -- 158,452 (209)(2)
Average interest rate ......................... --% --% 7.12%
- -------------------------------------------------------------------------------------------------------------------------
(1) Excludes commitments to extend credit with floating interest rates and
repricing terms of one year or less.
(2) Negative amounts represent liabilities.
TCF 29
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997
- ---------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks .............................................. $ 420,477 $ 297,010
Investments .......................................................... 277,715 129,612
Securities available for sale ........................................ 1,677,919 1,426,131
Loans held for sale .................................................. 213,073 244,612
Loans and leases:
Residential real estate ...................................... 3,765,280 3,623,845
Commercial real estate ....................................... 811,428 859,916
Commercial business .......................................... 289,104 240,207
Consumer ..................................................... 1,876,554 1,976,699
Lease financing .............................................. 398,812 368,521
------------ ------------
Total loans and leases ................................. 7,141,178 7,069,188
Allowance for loan and lease losses .................... (80,013) (82,583)
------------ ------------
Net loans and leases ............................ 7,061,165 6,986,605
Goodwill ............................................................. 166,645 177,700
Deposit base intangibles ............................................. 16,238 19,821
Other assets ......................................................... 331,362 463,169
------------ ------------
$ 10,164,594 $ 9,744,660
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking ..................................................... $ 1,879,623 $ 1,468,657
Passbook and statement ....................................... 1,176,931 1,134,678
Money market ................................................. 700,004 698,312
Certificates ................................................. 2,958,588 3,605,663
------------ ------------
Total deposits ......................................... 6,715,146 6,907,310
------------ ------------
Securities sold under repurchase agreements and federal
funds purchased .............................................. 367,280 112,444
Federal Home Loan Bank advances ...................................... 1,804,208 1,339,578
Discounted lease rentals ............................................. 183,684 228,596
Other borrowings ..................................................... 105,874 46,534
------------ ------------
Total borrowings ....................................... 2,461,046 1,727,152
Accrued interest payable ............................................. 27,601 23,510
Accrued expenses and other liabilities ............................... 115,299 133,008
------------ ------------
Total liabilities ...................................... 9,319,092 8,790,980
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01 per share, 30,000,000
shares authorized; none issued and outstanding ......... -- --
Common stock, par value $.01 per share, 280,000,000 shares
authorized; 92,912,246 and 92,821,529 shares issued .... 929 928
Additional paid-in capital ................................... 507,534 460,684
Retained earnings, subject to certain restrictions ........... 610,177 508,969
Unamortized deferred compensation ............................ (24,217) (25,457)
Loan to Executive Deferred Compensation Plan ................. (6,111) --
Shares held in trust for deferred compensation
plans, at cost ......................................... (45,740) --
Accumulated other comprehensive income ....................... 7,591 8,556
Treasury stock, at cost, 7,343,117 shares in 1998 ............ (204,661) --
------------ ------------
Total stockholders' equity ............................. 845,502 953,680
------------ ------------
$ 10,164,594 $ 9,744,660
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
30 TCF
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans and leases ............................................... $631,342 $563,966 $516,054
Securities available for sale .................................. 93,124 95,701 75,303
Loans held for sale ............................................ 14,072 15,755 17,080
Investments .................................................... 10,356 7,192 4,447
-------- --------- --------
Total interest income .................................... 748,894 682,614 612,884
-------- --------- --------
INTEREST EXPENSE:
Deposits ....................................................... 212,492 195,182 171,375
Borrowings ..................................................... 110,668 93,836 86,941
-------- --------- --------
Total interest expense ................................... 323,160 289,018 258,316
-------- --------- --------
Net interest income .............................. 425,734 393,596 354,568
Provision for credit losses .................................... 23,280 17,995 21,446
-------- --------- --------
Net interest income after provision
for credit losses ..................................... 402,454 375,601 333,122
-------- --------- --------
NON-INTEREST INCOME:
Fee and service charge revenues ................................ 127,952 101,329 90,424
Electronic funds transfer revenues ............................. 50,556 30,808 21,478
Leasing revenues ............................................... 31,344 32,025 23,814
Title insurance revenues ....................................... 20,161 13,730 13,492
Commissions on sales of annuities .............................. 8,413 7,894 9,134
Commissions on sales of mutual funds ........................... 5,513 3,998 3,372
Gain on sale of loans held for sale ............................ 7,575 4,777 5,038
Other .......................................................... 11,156 7,789 6,584
-------- --------- --------
262,670 202,350 173,336
-------- --------- --------
Gain on sale of securities available for sale .................. 2,246 8,509 86
Gain on sale of loan servicing ................................. 2,414 1,622 --
Gain on sale of branches ....................................... 18,585 14,187 2,747
Gain on sale of joint venture interest ......................... 5,580 -- --
Gain on sale of loans .......................................... -- -- 5,443
-------- --------- --------
28,825 24,318 8,276
-------- --------- --------
Total non-interest income ................................ 291,495 226,668 181,612
-------- --------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits ............................. 217,401 180,482 157,554
Occupancy and equipment ........................................ 71,323 58,352 51,958
Advertising and promotions ..................................... 19,544 19,157 17,014
Federal deposit insurance premiums and assessments ............. 5,439 4,689 12,019
Amortization of goodwill and other intangibles ................. 11,399 15,757 3,540
FDIC special assessment ........................................ -- -- 34,803
Other .......................................................... 103,594 82,925 76,438
-------- --------- --------
Total non-interest expense ............................... 428,700 361,362 353,326
-------- --------- --------
Income before income tax expense ................. 265,249 240,907 161,408
Income tax expense ............................................. 109,070 95,846 61,031
-------- --------- --------
Net income ....................................... $156,179 $145,061 $100,377
-------- --------- --------
NET INCOME PER COMMON SHARE:
Basic .................................................... $ 1.77 $ 1.72 $ 1.23
-------- --------- --------
Diluted .................................................. $ 1.76 $ 1.69 $ 1.20
-------- --------- --------
DIVIDENDS DECLARED PER COMMON SHARE ............................ $ .6125 $ .46875 $.359375
- -------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
TCF 31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NUMBER OF
COMMON ADDITIONAL RETAINED
(DOLLARS IN THOUSANDS) SHARES ISSUED COMMON STOCK PAID-IN CAPITAL EARNINGS
- -----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 .......... 83,452,782 $ 835 $ 252,187 $ 329,001
Comprehensive income:
Net income ....................... -- -- -- 100,377
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- --
---------- ----------- ----------- -----------
Comprehensive income ............. -- -- -- 100,377
Dividends on common stock ........... -- -- -- (26,595)
Purchase of 2,380,136 shares
to be held in treasury ........... -- -- -- --
Issuance of 1,256,232 shares,
of which 10,100 shares were
from treasury .................... 1,246,132 13 18,651 --
Repurchase and cancellation
of shares ........................ (113,342) (2) (686) (674)
Amortization of deferred
compensation ..................... -- -- -- --
Exercise of stock options ........... 656,660 6 4,168 --
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- -- -- --
---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 .......... 85,242,232 852 274,320 402,109
Comprehensive income:
Net income ....................... -- -- -- 145,061
Unrealized gain on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- --
---------- ----------- ----------- -----------
Comprehensive income ............. -- -- -- 145,061
Dividends on common stock ........... -- -- -- (38,201)
Issuance of 7,700,000 shares
to effect purchase
acquisition, of which
1,194,268 were from
treasury ......................... 6,505,732 65 162,937 --
Purchase of 1,295,800 shares
to be held in treasury ........... -- -- -- --
Issuance of 3,326,034 shares,
of which 2,426,968 shares
were from treasury ............... 899,066 9 20,570 --
Repurchase and cancellation
of shares ........................ (2,086) -- (60) --
Amortization of deferred
compensation ..................... -- -- -- --
Exercise of stock options,
of which 44,600 were from
treasury ......................... 176,585 2 2,917 --
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- -- -- --
---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 .......... 92,821,529 928 460,684 508,969
Comprehensive income:
Net income ....................... -- -- -- 156,179
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- --
---------- ----------- ----------- -----------
Comprehensive income ............. -- -- -- 156,179
Dividends on common stock ........... -- -- -- (54,971)
Purchase of 7,549,300
shares to be held in
treasury ......................... -- -- -- --
Issuance of 108,200
shares, of which
61,000 shares were
from treasury .................... 47,200 1 2,518 --
Cancellation of shares .............. (18,170) -- (375) --
Amortization of deferred
compensation ..................... -- -- -- --
Exercise of stock options,
of which 145,183 shares
were from treasury ............... 61,687 -- (1,033) --
Shares held in trust for
deferred compensation
plans ............................ -- -- 45,740 --
Loan to Executive Deferred
Compensation Plan, net ........... -- -- -- --
---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 .......... 92,912,246 $ 929 $ 507,534 $ 610,177
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
32 TCF
LOAN TO SHARES HELD
EXECUTIVE IN TRUST FOR ACCUMULATED
UNAMORTIZED DEFERRED DEFERRED OTHER
DEFERRED COMPENSATION COMPREHENSIVE COMPENSATION TREASURY
(DOLLARS IN THOUSANDS COMPENSATION PLAN PLANS INCOME STOCK TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 .......... $ (11,195) $ (131) $-- $ 11,702 $-- $ 582,399
Comprehensive income:
Net income ....................... -- -- -- -- -- 100,377
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- (9,326) -- (9,326)
----------- ----------- -------- ------------ ------- -----------
Comprehensive income ............. -- -- -- (9,326) -- 91,051
Dividends on common stock ........... -- -- -- -- -- (26,595)
Purchase of 2,380,136 shares
to be held in treasury ........... -- -- -- -- (41,382) (41,382)
Issuance of 1,256,232 shares,
of which 10,100 shares were
from treasury .................... (4,975) -- -- -- 173 13,862
Repurchase and cancellation
of shares ........................ 574 -- -- -- -- (788)
Amortization of deferred
compensation ..................... 7,903 -- -- -- -- 7,903
Exercise of stock options ........... -- -- -- -- -- 4,174
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- 63 -- -- -- 63
----------- ----------- -------- ------------ ------- -----------
BALANCE, DECEMBER 31, 1996 .......... (7,693) (68) -- 2,376 (41,209) 630,687
Comprehensive income:
Net income ....................... -- -- -- -- -- 145,061
Unrealized gain on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- 6,180 -- 6,180
----------- ----------- -------- ------------ ------- -----------
Comprehensive income ............. -- -- -- 6,180 -- 151,241
Dividends on common stock ........... -- -- -- -- -- (38,201)
Issuance of 7,700,000 shares
to effect purchase
acquisition, of which
1,194,268 were from
treasury ......................... -- -- -- -- 22,805 185,807
Purchase of 1,295,800 shares
to be held in treasury ........... -- -- -- -- (27,316) (27,316)
Issuance of 3,326,034 shares,
of which 2,426,968 shares
were from treasury ............... (26,110) -- -- -- 44,876 39,345
Repurchase and cancellation
of shares ........................ 15 -- -- -- -- (45)
Amortization of deferred
compensation ..................... 8,331 -- -- -- -- 8,331
Exercise of stock options,
of which 44,600 were from
treasury ......................... -- -- -- -- 844 3,763
Payments on Loan to Executive
Deferred Compensation Plan . ..... -- 68 -- -- -- 68
----------- ----------- -------- ------------ ------- -----------
BALANCE, DECEMBER 31, 1997 .......... (25,457) -- -- 8,556 -- 953,680
Comprehensive income:
Net income ....................... -- -- -- -- -- 156,179
Unrealized loss on
securities available
for sale, net of tax
and reclassification
adjustment .................... -- -- -- (965) -- (965)
----------- ----------- -------- ------------ ------- -----------
Comprehensive income ............. -- -- -- (965) -- 155,214
Dividends on common stock ........... -- -- -- -- -- (54,971)
Purchase of 7,549,300
shares to be held in
treasury ......................... -- -- -- -- (210,939) (210,939)
Issuance of 108,200
shares, of which
61,000 shares were
from treasury .................... (4,815) -- -- -- 1,933 (363)
Cancellation of shares .............. 192 -- -- -- -- (183)
Amortization of deferred
compensation ..................... 5,863 -- -- -- -- 5,863
Exercise of stock options,
of which 145,183 shares
were from treasury ............... -- -- -- -- 4,345 3,312
Shares held in trust for
deferred compensation
plans ............................ -- -- (45,740) -- -- --
Loan to Executive Deferred
Compensation Plan, net ........... -- (6,111) -- -- -- (6,111)
----------- ----------- -------- ------------ ------- -----------
BALANCE, DECEMBER 31, 1998 .......... $ (24,217) $ (6,111) $ (45,740) $ 7,591 $ (204,661) $ 845,502
- ----------------------------------------------------------------------------------------------------------------------------------
TCF 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 156,179 $ 145,061 $ 100,377
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ........................... 27,914 23,185 19,724
Amortization of goodwill and other intangibles .......... 11,399 15,757 3,540
Provision for credit losses ............................. 23,280 17,995 21,446
Proceeds from sales of loans held for sale .............. 577,808 624,192 857,050
Principal collected on loans held for sale .............. 9,083 9,174 10,225
Originations and purchases of loans held for
sale ................................................. (603,567) (799,319) (802,777)
Net (increase) decrease in other assets and
liabilities, and accrued interest .................... 14,339 (15,067) 29,231
Gains on sales of assets ................................ (28,825) (24,318) (8,276)
Other, net .............................................. 8,395 (4,707) (488)
---------- ----------- -----------
Total adjustments ...................................... 39,826 (153,108) 129,675
---------- ----------- -----------
Net cash provided (used) by operating activities .... 196,005 (8,047) 230,052
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on loans and leases .................... 3,111,218 1,952,057 1,868,774
Originations and purchases of loans ........................ (3,119,924) (1,952,261) (1,687,214)
Purchases of equipment for lease financing ................. (186,009) (179,165) (175,608)
Proceeds from sales of loans ............................... 20,330 15,910 61,302
Net (increase) decrease in interest-bearing
deposits with banks ..................................... (95,322) 453,895 (374,630)
Proceeds from sales of securities available
for sale .......................................... 231,438 476,218 16,636
Proceeds from maturities of and principal
collected on securities available for sale .............. 606,603 445,145 201,914
Purchases of securities available for sale ................. (967,585) (506,970) (32,993)
Net (increase) decrease in short-term
federal funds sold ...................................... (41,000) 45,000 --
Acquisitions, net of cash acquired ......................... -- (218,896) --
Sales of deposits, net of cash paid ........................ (235,742) (184,917) (60,550)
Other, net ................................................. (19,956) (12,971) (2,361)
---------- ----------- -----------
Net cash provided (used) by investing
activities .......................................... (695,949) 333,045 (184,730)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ........................ 64,399 79,819 (150,667)
Net increase (decrease) in securities sold
under repurchase agreements and federal
funds purchased ......................................... 254,836 (181,288) (159,194)
Proceeds from borrowings ................................... 3,502,311 1,835,104 2,235,289
Payments on borrowings ..................................... (2,911,853) (1,960,675) (1,902,246)
Proceeds from issuance of common stock ..................... -- 29,266 13,726
Purchases of common stock to be held in
treasury ................................................ (210,939) (27,316) (41,382)
Payments for dividends on common stock ..................... (54,971) (38,201) (26,487)
Other, net ................................................. (20,372) (1,143) (10,707)
---------- ----------- -----------
Net cash provided (used) by financing
activities .......................................... 623,411 (264,434) (41,668)
---------- ----------- -----------
Net increase in cash and due from banks .................... 123,467 60,564 3,654
Cash and due from banks at beginning of year ............... 297,010 236,446 232,792
---------- ----------- -----------
Cash and due from banks at end of year ..................... $ 420,477 $ 297,010 $ 236,446
---------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest on deposits and borrowings ..................... $ 306,299 $ 285,722 $ 239,653
---------- ----------- -----------
Income taxes ............................................ $ 105,207 $ 97,319 $ 73,309
---------- ----------- -----------
Transfer of loans to other real estate owned
and other assets ..................................... $ 36,750 $ 40,837 $ 37,417
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
34 TCF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of TCF Financial Corporation and its wholly owned subsidiaries. TCF
Financial Corporation ("TCF" or the "Company") is a national bank holding
company engaged primarily in community banking and lease financing through its
wholly owned subsidiaries, TCF National Bank Minnesota ("TCF Minnesota"), TCF
National Bank Illinois ("TCF Illinois"), TCF National Bank Wisconsin ("TCF
Wisconsin"), TCF National Bank Colorado ("TCF Colorado"), and Great Lakes
National Bank Michigan ("Great Lakes Michigan"). The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation. For
Consolidated Statements of Cash Flows purposes, cash and cash equivalents
include cash and due from banks.
COMPREHENSIVE INCOME -- Effective January 1, 1998, TCF adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is the total of net income and other
comprehensive income, which for TCF is comprised entirely of unrealized gains
and losses on securities available for sale. As permitted by SFAS No. 130, TCF
has elected to disclose the components of comprehensive income in the
Consolidated Statements of Stockholders' Equity.
In accordance with SFAS No. 130, reclassification adjustments have been
determined for all components of other comprehensive income reported in the
Consolidated Statements of Stockholders' Equity.
The following table summarizes the components of other comprehensive
income:
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Unrealized holding gains (losses)
on securities available for sale
(net of tax expense (benefit) of
$206, $6,994 and $(5,689),
respectively) ......................................................... $ 236 $11,465 $(9,273)
Reclassification adjustment for gains
included in net income (net of tax
expense of $1,045, $3,224 and $33,
respectively) ......................................................... (1,201) (5,285) (53)
------- ------- -------
Total other comprehensive income,
net of tax .......................................................... $ (965) $ 6,180 $(9,326)
- ------------------------------------------------------------------------------------------------------------------
SEGMENT INFORMATION -- Effective January 1, 1998, TCF adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for public business enterprises
to report information about operating segments in annual financial statements,
and requires that those enterprises report selected information about operating
segments in interim financial reports. The adoption of SFAS No. 131 did not
impact TCF's results of operations or financial condition, but did affect the
disclosure of segment information. In accordance with SFAS No. 131, prior period
financial information has been restated. See Note 20 for TCF's disclosures in
accordance with SFAS No. 131.
EMPLOYEE BENEFIT PLANS -- Effective January 1, 1998, TCF adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS
No. 132 revises employers' disclosures about pension and other postretirement
benefit plans. The adoption of SFAS No. 132 did not impact TCF's results of
operations or financial condition. In accordance with SFAS No. 132, prior period
financial information has been restated. See Note 18 for TCF's disclosures in
accordance with SFAS No. 132.
INVESTMENTS -- Investments are carried at cost, adjusted for amortization of
premiums or accretion of discounts using methods which approximate a level
yield.
SECURITIES AVAILABLE FOR SALE -- Securities available for sale are carried at
fair value with the unrealized holding gains or losses, net of deferred income
taxes, reported as accumulated other comprehensive income, which is a separate
component of stockholders' equity. Cost of securities sold is determined on a
specific identification basis and gains or losses on sales of securities
available for sale are recognized at trade dates.
LOANS HELD FOR SALE -- Loans held for sale are carried at the lower of cost or
market determined on an aggregate basis, including related forward mortgage loan
sales commitments. Cost of loans sold is determined on a specific identification
basis and gains or losses on sales of loans held for sale are recognized at
settlement dates. Net fees and costs associated with originating and acquiring
loans held for sale are deferred and are included in the basis for determining
the gain or loss on sales of loans held for sale.
TCF 35
LOANS AND LEASES -- Net fees and costs associated with originating and acquiring
loans and leases are deferred and amortized over the lives of the assets. Net
fees and costs associated with loan commitments are deferred in other assets or
other liabilities until the loan is advanced. Discounts and premiums on loans
purchased, net deferred fees and costs, unearned discounts and finance charges,
and unearned lease income are amortized using methods which approximate a level
yield over the estimated remaining lives of the loans and leases.
Leases that transfer substantially all of the benefits and risks of
equipment ownership to the lessee are classified as direct financing or
sales-type leases and are included in loans and leases. Direct financing and
sales-type leases are carried at the combined present value of the future
minimum lease payments and the lease residual value, which represents the
estimated fair value of the leased equipment at the termination of the lease
based on management's experience and judgment. Lease residual values are
reviewed on an ongoing basis and any downward revisions are recorded in the
periods in which they become known. Interest income on direct financing and
sales-type leases is recognized using methods which approximate a level yield
over the term of the leases. Sales-type leases generate dealer profit which is
recognized at lease inception by recording lease revenue net of the lease cost.
Revenue consists of the present value of the future minimum lease payments
discounted at the rate implicit in the lease. Cost consists of the leased
equipment's book value, less the present value of its residual.
Impaired loans include all non-accrual and restructured commercial real
estate and commercial business loans. Consumer and residential real estate loans
and lease financings are excluded from the definition of an impaired loan. Loan
impairment is measured as the present value of expected future cash flows
discounted at the loan's initial effective interest rate, the fair value of the
collateral of an impaired collateral-dependent loan or an observable market
price.
The allowance for loan and lease losses is maintained at a level believed
to be adequate by management to provide for estimated loan and lease losses.
Management's judgment as to the adequacy of the allowance, including the
allocated and unallocated elements, is a result of ongoing review of larger
individual loans and leases, the overall risk characteristics of the portfolios,
changes in the character or size of the portfolios, the level of non-performing
assets, historical net charge-off amounts, geographic location and prevailing
economic conditions. Residential loans, consumer loans, and smaller-balance
commercial loans and lease financings are segregated by lease type and sub-type,
and are evaluated on a group basis. The allowance for loan and lease losses is
established for known or anticipated problem loans and leases, as well as for
loans and leases which are not currently known to require specific allowances.
Loans and leases are charged off to the extent they are deemed to be
uncollectible. The adequacy of the allowance for loan and lease losses is highly
dependent upon management's estimates of variables affecting valuation,
appraisals of collateral, evaluations of performance and status, and the amounts
and timing of future cash flows expected to be received on impaired loans. Such
estimates, appraisals, evaluations and cash flows may be subject to frequent
adjustments due to changing economic prospects of borrowers, lessees or
properties. These estimates are reviewed periodically and adjustments, if
necessary, are recorded in the provision for credit losses in the periods in
which they become known.
Interest income is accrued on loan and lease balances outstanding. Loans
and leases, including loans that are considered to be impaired, are reviewed
regularly by management and are placed on non-accrual status when the collection
of interest or principal is 90 days or more past due, unless the loan or lease
is adequately secured and in the process of collection. When a loan or lease is
placed on non-accrual status, unless collection of all principal and interest is
considered to be assured, uncollected interest accrued in prior years is charged
off against the allowance for loan and lease losses. Interest accrued in the
current year is reversed. Interest payments received on non-accrual loans and
leases are generally applied to principal unless the remaining principal balance
has been determined to be fully collectible.
Cost of loans sold is determined on a specific identification basis and
gains or losses on sales of loans are recognized at trade dates.
PREMISES AND EQUIPMENT -- Premises and equipment are carried at cost and are
depreciated or amortized on a straight-line basis over their estimated useful
lives.
OTHER REAL ESTATE OWNED -- Other real estate owned is recorded at the lower of
cost or fair value minus estimated costs to sell at the date of transfer to
other real estate owned. If the fair value of an asset minus the estimated costs
to sell should decline to less than the carrying amount of the asset, the
deficiency is recognized in the period in which it becomes known and is included
in other non-interest expense.
MORTGAGE SERVICING RIGHTS -- Mortgage servicing rights are capitalized and
amortized in proportion to, and over the period of, estimated net servicing
income. TCF periodically evaluates its capitalized mortgage servicing rights for
impairment. Loan type and note rate are the predominant risk characteristics of
the underlying loans used to stratify capitalized mortgage servicing rights for
purposes of measuring impairment. Any impairment is recognized through a
valuation allowance.
INTANGIBLE ASSETS -- Goodwill resulting from acquisitions is amortized over 25
years on a straight-line basis. Deposit base intangibles are amortized over 10
years on an accelerated basis. The Company periodically reviews the
recoverability of the carrying values of these assets.
DERIVATIVE FINANCIAL INSTRUMENTS -- TCF utilizes derivative financial
instruments in order to meet the ongoing credit needs of its customers and in
order to manage the market exposure of its residential loans held for sale
portfolio and its commitments to extend credit for residential loans.
Derivative financial instruments include commitments to extend credit and
forward mortgage loan sales commitments. See Note 15 for additional
information concerning these derivative financial instruments.
36 TCF
ADVERTISING AND PROMOTIONS -- Expenditures for advertising costs are expensed as
incurred.
INCOME TAXES -- Income taxes are accounted for using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS PER COMMON SHARE -- The following table reconciles the weighted average
shares outstanding and the income applicable to common shareholders used for
basic and diluted earnings per share:
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding
used in basic earnings per common share calculation ............... 88,092,895 84,477,536 81,903,690
Net dilutive effect of:
Stock option plans ................................................ 346,434 468,275 537,900
Restricted stock plans ............................................ 476,486 838,189 654,918
Assumed conversion of 7 1/4% convertible subordinated debentures .. -- 349,936 842,850
----------- ---------- -----------
Weighted average number of shares outstanding adjusted
for effect of dilutive securities ................................. 88,915,815 86,133,936 83,939,358
----------- ---------- -----------
Net income .......................................................... $ 156,179 $ 145,061 $ 100,377
Add: Interest expense on 7 1/4% convertible subordinated
debentures, net of tax ............................................ -- 132 328
----------- ---------- -----------
Income applicable to common shareholders including effect
of dilutive securities ............................................ $ 156,179 $ 145,193 $ 100,705
----------- ---------- -----------
Basic earnings per common share ..................................... $ 1.77 $ 1.72 $ 1.23
----------- ---------- -----------
Diluted earnings per common share ................................... $ 1.76 $ 1.69 $ 1.20
- -----------------------------------------------------------------------------------------------------------------------
2. BUSINESS COMBINATIONS AND ACQUISITIONS
JEWEL-OSCO BRANCHES -- On January 30, 1998, TCF Illinois completed its
acquisition of 76 branches in Jewel-Osco stores in the Chicago area previously
operated by Bank of America. TCF Illinois converted existing deposits by
offering TCF Illinois products to Bank of America customers and acquired the
related fixed assets and 178 automated teller machines ("ATM") located in
Jewel-Osco stores. TCF accounted for the acquisition using the purchase method
of accounting.
STANDARD FINANCIAL, INC. -- On September 4, 1997, TCF acquired all of the
outstanding common stock of Standard Financial, Inc. ("Standard"), a
community-oriented thrift institution with $2.6 billion in assets, $1.9 billion
in deposits, and 14 full-service offices in Chicago, Illinois, for a purchase
price of $423.7 million, which consisted of $237.9 million in cash and 7,700,000
shares of TCF common stock. The acquisition has been accounted for by the
purchase method of accounting and, accordingly, the results of operations of
Standard have been included in TCF's consolidated financial statements since
September 4, 1997.
WINTHROP RESOURCES CORPORATION -- On June 24, 1997, TCF completed its
acquisition of Winthrop Resources Corporation ("Winthrop"), a leasing company
with $363 million in assets. Winthrop leases computers, telecommunications
equipment, point-of-sale systems and other business-essential equipment to
companies nationwide. In connection with the acquisition, TCF issued
approximately 13.4 million shares of its common stock for all of the
outstanding common shares of Winthrop.
The consolidated financial statements of TCF give effect to the
acquisition, which has been accounted for as a pooling-of-interests combination.
Accordingly, TCF's consolidated financial statements for periods prior to the
combination have been restated to include the accounts and the results of
operations of Winthrop for all periods presented, except for dividends declared
per share. There were no material intercompany transactions prior to the
acquisition and no material differences in the accounting and reporting policies
of TCF and Winthrop.
BOC FINANCIAL CORPORATION -- On January 16, 1997, TCF completed its purchase of
BOC Financial Corporation, an Illinois-based bank holding company with $183.1
million in assets and $168 million in deposits. TCF accounted for the
acquisition using the purchase method of accounting.
3. CASH AND DUE FROM BANKS
At December 31, 1998, TCF was required by Federal Reserve Board regulations to
maintain reserve balances of $159 million in cash on hand or at various Federal
Reserve Banks.
TCF 37
4. INVESTMENTS
Investments consist of the following:
AT DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR CARRYING UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits with banks ..... $115,894 $-- $-- $115,894 $ 20,572 $-- $-- $ 20,572
Federal funds sold ....................... 41,000 -- -- 41,000 -- -- -- --
Federal Home Loan Bank stock, at cost .... 93,482 -- -- 93,482 82,002 -- -- 82,002
Federal Reserve Bank stock, at cost ...... 23,112 -- -- 23,112 22,977 -- -- 22,977
Other .................................... 4,227 -- -- 4,227 4,061 -- -- 4,061
-------- ---- ---- -------- -------- ---- ---- --------
$277,715 $-- $-- $277,715 $129,612 $-- $-- $129,612
- -----------------------------------------------------------------------------------------------------------------------------------
The carrying value, fair value and yield of investments at December 31,
1998, by contractual maturity, are shown below:
CARRYING FAIR
(DOLLARS IN THOUSANDS) VALUE VALUE YIELD
- -------------------------------------------------------------------------------
Due in one year or less ........... $161,121 $161,121 4.85%
No stated maturity(1) ............ 116,594 116,594 6.85
-------- --------
$277,715 $277,715 5.69
- -------------------------------------------------------------------------------
(1) Balance represents FRB and FHLB stock, required regulatory investments.
5. SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
AT DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
FHLMC ..................... $ 989,681 $ 9,966 $ (960) $ 998,687 $ 701,195 $10,280 $ (676) $ 710,799
FNMA ...................... 537,197 5,567 (1,336) 541,428 466,820 4,083 (1,003) 469,900
GNMA ...................... 33,721 510 (113) 34,118 43,079 932 (18) 43,993
Private issuer ............ 104,099 311 (1,597) 102,813 199,738 1,381 (794) 200,325
Collateralized
mortgage obligations .... 873 -- -- 873 1,147 -- (33) 1,114
----------- ------- ------ ---------- ---------- ------- ------- ----------
$ 1,665,571 $16,354 $(4,006) $1,677,919 $1,411,979 $16,676 $(2,524) $1,426,131
----------- ------- ------ ---------- ---------- ------- ------- ----------
Weighted-average yield ........ 6.63% 7.04%
- --------------------------------------------------------------------------------------------------------------------------------
Gross gains of $2.3 million, $9.1 million and $102,000 and gross losses of
$57,000, $602,000 and $16,000 were recognized on sales of securities available
for sale during 1998, 1997 and 1996, respectively.
Mortgage-backed securities aggregating $3.6 million were pledged as
collateral to secure certain deposits at December 31, 1998.
6. LOANS HELD FOR SALE
Loans held for sale consist of the following:
AT DECEMBER 31,
---------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
---------------------------------------------------------------------------
Residential real estate ...................... $ 74,814 $109,315
Education .................................... 138,259 135,297
---------------------------------------------------------------------------
$213,073 $244,612
---------------------------------------------------------------------------
38 TCF
7. LOANS AND LEASES
Loans and leases consist of the following:
AT DECEMBER 31,
- -------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------
Residential real estate ............................ $ 3,757,416 $ 3,619,527
Unearned premiums and deferred loan fees ........... 7,864 4,318
------------------------------
3,765,280 3,623,845
------------------------------
Commercial real estate:
Apartments...................................... 257,195 294,231
Other permanent ................................ 464,817 481,759
Construction and development ................... 92,399 86,174
Unearned discounts and deferred loan fees ...... (2,983) (2,248)
------------------------------
811,428 859,916
------------------------------
Total real estate ............................ 4,576,708 4,483,761
------------------------------
Commercial business ................................ 288,676 239,728
Deferred loan costs ................................ 428 479
------------------------------
289,104 240,207
------------------------------
Consumer:
Home equity..................................... 1,526,129 1,519,644
Automobile...................................... 337,893 444,903
Loans secured by deposits ...................... 7,581 10,112
Other secured .................................. 19,033 19,955
Unsecured ...................................... 35,290 44,607
Unearned discounts and deferred loan fees ...... (49,372) (62,522)
------------------------------
1,876,554 1,976,699
------------------------------
Lease financing:
Direct financing leases ........................ 377,157 344,889
Sales-type leases............................... 35,695 40,592
Lease residuals ................................ 29,340 28,789
Unearned income and deferred lease costs ....... (43,380) (45,749)
------------------------------
398,812 368,521
------------------------------
$ 7,141,178 $ 7,069,188
- -------------------------------------------------------------------------------------
At December 31, 1998, the recorded investment in loans that were
considered to be impaired was $7.1 million for which the related allowance
for loan losses was $1.7 million. All of the impaired loans were on
non-accrual status. The average recorded investment in impaired loans during
the year ended December 31, 1998 was $8.7 million. For the year ended
December 31, 1998, TCF recognized interest income on impaired loans of
$90,000, none of which was recognized using the cash basis method of income
recognition.
At December 31, 1997, the recorded investment in loans that were
considered to be impaired was $7.2 million for which the related allowance
for loan losses was $1.7 million. All of the impaired loans were on
non-accrual status. The average recorded investment in impaired loans during
the year ended December 31, 1997 was $13.5 million. For the year ended
December 31, 1997, TCF recognized interest income on impaired loans of
$417,000, of which $208,000 was recognized using the cash basis method of
income recognition.
At December 31, 1998, 1997 and 1996, loans and leases on non-accrual
status totaled $33.7 million, $36.8 million and $26.4 million, respectively.
Had the loans and leases performed in accordance with their original terms
throughout 1998, TCF would have recorded gross interest income of $3.7
million for these loans and leases. Interest income of $1.6 million has been
recorded on these loans and leases for the year ended December 31, 1998.
At December 31, 1998, TCF had no loans or leases outstanding with terms
that had been modified in troubled debt restructurings, compared with $1.3
million of such commercial real estate loans at December 31, 1997. There were
no material commitments to lend additional funds to customers whose loans or
leases were classified as restructured or non-accrual at December 31, 1998.
TCF 39
Future minimum lease payments for direct financing and sales-type leases
as of December 31, 1998 are as follows:
PAYMENTS TO
PAYMENTS TO BE RECEIVED BY
BE RECEIVED OTHER FINANCIAL
(IN THOUSANDS) BY TCF INSTITUTIONS TOTAL
- -----------------------------------------------------------------------------------------------------
1999 .............................. $ 76,791 $ 98,330 $175,121
2000 .............................. 53,133 64,139 117,272
2001 .............................. 26,760 30,694 57,454
2002 .............................. 9,010 7,084 16,094
2003 .............................. 3,495 1,234 4,729
Thereafter ........................ 89 -- 89
------------------------------------------------------------
$169,278 $201,481 $370,759
- -----------------------------------------------------------------------------------------------------
At December 31, 1998, 1997 and 1996, TCF was servicing real estate loans
for others with aggregate unpaid principal balances of approximately $3.7
billion, $4.4 billion and $4.5 billion, respectively. During 1998 and 1997,
TCF sold servicing rights on $200.4 million and $144.7 million of loans
serviced for others at net gains of $2.4 million and $1.6 million,
respectively. There were no sales of servicing rights on loans serviced for
others in 1996.
8. ALLOWANCE FOR LOAN AND LEASE LOSSES
Following is a summary of the allowance for loan and lease losses and
selected statistics:
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
Balance at beginning of year ...................... $ 82,583 $ 71,865 $ 66,290
Acquired balance ............................... -- 10,592 --
Provision for credit losses .................... 23,280 17,995 21,446
Charge-offs .................................... (32,714) (26,813) (24,294)
Recoveries ..................................... 6,864 8,944 8,423
---------------------------------------------------
Net charge-offs ............................. (25,850) (17,869) (15,871)
---------------------------------------------------
Balance at end of year ............................ $ 80,013 $ 82,583 $ 71,865
---------------------------------------------------
Ratio of net loan and lease charge-offs to
average loans and leases outstanding ........... .36% .30% .29%
Allowance for loan and lease losses as a
percentage of total loan and lease balances at
year-end ....................................... 1.12 1.17 1.36
- -------------------------------------------------------------------------------------------------------
9. OTHER ASSETS
Other assets consist of the following:
AT DECEMBER 31,
- ------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------
Premises and equipment .............................. $173,688 $165,790
Accrued interest receivable ......................... 52,197 54,336
Mortgage servicing rights ........................... 21,566 19,512
Other real estate owned ............................. 13,602 18,353
Due from brokers .................................... -- 126,662
Other ............................................... 70,309 78,516
-----------------------------------
$331,362 $463,169
- ------------------------------------------------------------------------------------------
40 TCF
Premises and equipment are summarized as follows:
AT DECEMBER 31,
- --------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------------------
Land.................................................. $ 33,619 $ 32,664
Office buildings...................................... 130,932 131,720
Leasehold improvements................................ 27,084 23,266
Furniture and equipment............................... 145,835 128,845
-----------------------------------
337,470 316,495
Less accumulated depreciation and amortization........ 163,782 150,705
-----------------------------------
$173,688 $165,790
- --------------------------------------------------------------------------------------------
TCF leases certain premises and equipment under operating leases. Net lease
expense was $19.6 million, $15 million and $14.7 million in 1998, 1997 and 1996,
respectively.
At December 31, 1998, the total annual minimum lease commitments for
operating leases were as follows:
(IN THOUSANDS)
- -----------------------------------------------------------
1999 ............................................ $ 16,647
2000 ............................................ 14,392
2001 ............................................ 11,483
2002 ............................................ 10,176
2003 ............................................ 10,149
Thereafter ...................................... 58,408
--------
$121,255
- -----------------------------------------------------------
Mortgage servicing rights, net of valuation allowance, are summarized as
follows:
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------
Balance at beginning of year, net ......... $19,512 $17,360 $16,286
Acquired balance ....................... -- 2,177 --
Mortgage servicing rights capitalized .. 8,966 5,229 5,822
Amortization ........................... (5,268) (4,753) (4,648)
Sale of servicing ...................... (97) (401) --
Valuation adjustments .................. (1,547) (100) (100)
-----------------------------------
Balance at end of year, net ............... $21,566 $19,512 $17,360
- -------------------------------------------------------------------------------
The valuation allowance for mortgage servicing rights is summarized as
follows:
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -----------------------------------------------------------------------------------
Balance at beginning of year ................. $1,594 $1,494 $1,394
Provisions ................................ 1,547 100 100
Charge-offs ............................... (403) -- --
-----------------------------------
Balance at end of year ....................... $2,738 $1,594 $1,494
- -----------------------------------------------------------------------------------
TCF 41
10. DEPOSITS
Deposits are summarized as follows:
AT DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) RATE AMOUNT TOTAL RATE AMOUNT TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
Checking:
Non-interest bearing ................ 0.00% $1,158,685 17.3% 0.00% $840,714 12.2%
Interest bearing .................... .57 720,938 10.7 1.05 627,943 9.1
---------------------- -------------------
.22 1,879,623 28.0 .45 1,468,657 21.3
---------------------- -------------------
Passbook and statement:
Non-interest bearing ................ 0.00 63,024 .9 0.00 33,387 .5
Interest bearing .................... 1.13 1,113,907 16.6 2.10 1,101,291 15.9
---------------------- -------------------
1.07 1,176,931 17.5 2.04 1,134,678 16.4
---------------------- -------------------
Money market ............................ 2.64 700,004 10.4 3.07 698,312 10.1
---------------------- -------------------
.94 3,756,558 55.9 1.55 3,301,647 47.8
Certificates ............................ 5.01 2,958,588 44.1 5.13 3,605,663 52.2
----------------------
2.73 $6,715,146 100.0% 3.42 $6,907,310 100.0%
- ----------------------------------------------------------------------------------------------------------------------------
Certificates had the following remaining maturities at December 31, 1998:
(IN MILLIONS) $100,000
MATURITY MINIMUM OTHER TOTAL
- --------------------------------------------------------------------------------------
0-3 months ............................. $268.6 $ 724.5 $ 993.1
4-6 months ............................. 63.1 626.3 689.4
7-12 months ............................ 69.1 707.5 776.6
13-24 months ........................... 32.4 312.8 345.2
25-36 months ........................... 12.7 100.2 112.9
37-48 months ........................... 2.1 20.3 22.4
49-60 months ........................... 2.0 12.0 14.0
Over 60 months ......................... .1 4.9 5.0
---------------------------------------------
$450.1 $2,508.5 $2,958.6
- --------------------------------------------------------------------------------------
42 TCF
11. BORROWINGS
Borrowings consist of the following:
AT DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
YEAR OF AVERAGE AVERAGE
MATURITY AMOUNT RATE AMOUNT RATE
- -------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase
agreements and federal funds purchased:
Securities sold under
repurchase agreements............ 1998 $ -- --% $ 112,244 5.99%
1999 317,280 6.81 -- --
2001 50,000 5.71 -- --
---------- ----------
367,280 6.66 112,244 5.99
Federal funds purchased............. 1998 -- -- 200 6.84
---------- ----------
367,280 6.66 112,444 5.99
---------- ----------
Federal Home Loan Bank advances........... 1998 -- -- 522,300 5.93
1999 570,207 5.85 469,245 5.97
2000 297,399 6.16 297,758 6.16
2001 886,602 5.19 25,132 6.09
2003 50,000 5.78 25,000 5.78
2008 -- -- 143 6.15
---------- ----------
1,804,208 5.58 1,339,578 6.00
---------- ----------
Discounted lease rentals.................. 1998 -- -- 95,142 8.57
1999 87,791 8.28 70,438 8.56
2000 58,917 8.18 38,922 8.55
2001 29,009 8.21 20,151 8.59
2002 6,772 7.99 3,943 8.43
2003 1,195 7.65 -- --
---------- ----------
183,684 8.22 228,596 8.56
---------- ----------
Other borrowings:
Senior subordinated debentures......... 1998 -- -- 6,248 18.00
2003 28,750 9.50 28,750 9.50
---------- ----------
28,750 9.50 34,998 11.02
---------- ----------
Collateralized mortgage obligations.... 2008 44 6.50 868 6.69
2010 1,809 5.95 1,671 6.07
---------- ----------
1,853 5.95 2,539 6.26
---------- ----------
Bank line of credit................... 1999 74,000 6.19 -- --
Treasury, tax and loan note............ 1998 -- -- 8,997 5.26
1999 1,271 4.11 -- --
---------- ----------
105,874 7.06 46,534 9.65
---------- ----------
$2,461,046 6.00 $1,727,152 6.43
- -------------------------------------------------------------------------------------------------------------------
At December 31, 1998, borrowings with a remaining contractual maturity of one
year or less consisted of the following:
- ----------------------------------------------------------------------------------------
WEIGHTED-
AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT RATE
- ----------------------------------------------------------------------------------------
Securities sold under repurchase agreements and
federal funds purchased ............................... $ 317,280 6.81%
Federal Home Loan Bank advances .......................... 570,207 5.85
Discounted lease rentals ................................. 87,791 8.28
Bank line of credit ...................................... 74,000 6.19
Treasury, tax and loan note .............................. 1,271 4.11
----------
$1,050,549 6.36
- ----------------------------------------------------------------------------------------
TCF 43
The securities underlying the repurchase agreements are book entry
securities. During the period, book entry securities were delivered by
appropriate entry into the counterparties' accounts through the Federal
Reserve System. The dealers may sell, loan or otherwise dispose of such
securities to other parties in the normal course of their operations, but
have agreed to resell to TCF identical or substantially the same securities
upon the maturities of the agreements. At December 31, 1998, all of the
securities sold under repurchase agreements provided for the repurchase of
identical securities.
At December 31, 1998, securities sold under repurchase agreements were
collateralized by mortgage-backed securities and had the following maturities:
REPURCHASE BORROWING COLLATERAL SECURITIES
-----------------------------------------------------
INTEREST CARRYING MARKET
(DOLLARS IN THOUSANDS) AMOUNT RATE AMOUNT VALUE
- ------------------------------------------------------------------------------------
Maturity:
January 1999 ......... $317,280 6.81% $327,479 $327,479
November 2001 ........ 50,000 5.71 53,174 53,174
-------- --------------------
$367,280 6.66 $380,653 $380,653
- ------------------------------------------------------------------------------------
Included in Federal Home Loan Bank ("FHLB") advances are $705 million of
callable advances maturing in 2001 which are callable at par beginning in
1999 on their first anniversary date and quarterly thereafter until maturity.
If called, the FHLB will provide replacement funding at the then-prevailing
market rate of interest for the remaining term-to-maturity of the advances,
subject to standard terms and conditions.
TCF has a $135 million bank line of credit which is unsecured and
contains certain covenants common to such agreements with which TCF is in
compliance. The interest rate on the line of credit is based on either the
prime rate or LIBOR. TCF has the option to select the interest rate index and
term for advances on the line of credit. The line of credit expires in
October 1999.
During 1998, TCF redeemed the $6.2 million of senior subordinated
debentures at par plus accrued and unpaid interest to the date of redemption.
The $28.8 million of senior subordinated debentures mature in July 2003.
These debentures will be redeemable at par plus accrued interest to the date
of redemption beginning July 1, 2001.
During 1997, TCF redeemed $7.1 million of convertible subordinated
debentures (the "Debentures") at par plus accrued and unpaid interest to the
date of redemption. The Debentures were convertible into TCF common stock at
a conversion price of $8.52 per common share. TCF issued approximately
839,000 shares of common stock in connection with the conversion of the
Debentures.
At December 31, 1998, mortgage-backed securities collateralizing TCF's
collateralized mortgage obligations had a market value of $1.7 million.
FHLB advances are collateralized by residential real estate loans, FHLB
stock and mortgage-backed securities with an aggregate carrying value of $2.8
billion at December 31, 1998.
The following table sets forth TCF's maximum and average borrowing levels
for each of the years in the three-year period ended December 31, 1998:
SECURITIES SOLD
UNDER REPURCHASE DISCOUNTED
AGREEMENTS AND FHLB LEASE OTHER
(DOLLARS IN THOUSANDS) FEDERAL FUNDS PURCHASED ADVANCES RENTALS BORROWINGS
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998:
Average balance .......................... $140,414 $1,367,104 $205,393 $ 92,467
Maximum month-end balance ................ 367,280 1,804,208 222,018 214,087
Average rate for period .................. 5.60% 5.80% 8.15% 7.38%
Year ended December 31, 1997:
Average balance .......................... $346,339 $ 817,464 $222,558 $ 97,547
Maximum month-end balance ................ 482,231 1,339,578 241,895 136,259
Average rate for period .................. 5.74% 5.89% 8.28% 7.56%
Year ended December 31, 1996:
Average balance .......................... $506,298 $ 674,703 $180,586 $ 85,571
Maximum month-end balance ................ 647,707 1,141,040 189,105 139,658
Average rate for period .................. 5.65% 5.52% 8.25% 7.20%
- ---------------------------------------------------------------------------------------------------------------------------
44 TCF
12. INCOME TAXES
Income tax expense (benefit) consists of:
(IN THOUSANDS) CURRENT DEFERRED TOTAL
- --------------------------------------------------------------------------------------------------------
Year ended December 31, 1998:
Federal................................................. $ 91,102 $ (994) $ 90,108
State................................................... 19,325 (363) 18,962
-------------------------------------------
$110,427 $(1,357) $109,070
-------------------------------------------
Year ended December 31, 1997:
Federal................................................. $ 77,465 $ 1,395 $ 78,860
State................................................... 16,464 522 16,986
-------------------------------------------
$ 93,929 $ 1,917 $ 95,846
-------------------------------------------
Year ended December 31, 1996:
Federal................................................. $ 49,446 $ 934 $ 50,380
State................................................... 11,300 (649) 10,651
-------------------------------------------
$ 60,746 $ 285 $ 61,031
- --------------------------------------------------------------------------------------------------------
Total income tax expense of $109.1 million, $95.8 million and $61 million
for the years ended December 31, 1998, 1997 and 1996, respectively, did not
include tax benefits specifically allocated to stockholders' equity. The tax
benefit allocated to additional paid-in capital for compensation expense for
tax purposes in excess of amounts recognized for financial reporting purposes
totaled $2.4 million, $2.3 million and $2.5 million for the years ended
December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, TCF has net operating loss ("NOL") carryforwards
for federal income tax purposes of $3.7 million, which are available to
offset future federal taxable income through 2008. The realization of the
NOLs is subject to certain Internal Revenue Code ("IRC") limitations. In
addition, TCF has certain alternative minimum tax ("AMT") credit
carryforwards of approximately $1 million, which are available to reduce
future federal income taxes over an indefinite period. The realization of the
AMT credits is subject to certain IRC limitations. TCF has, in its judgment,
made certain reasonable assumptions relating to the realizability of the
deferred tax assets. Based upon these assumptions, the Company has determined
that no valuation allowance is required with respect to the deferred tax
assets.
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% to income before income tax expense as a
result of the following:
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Computed income tax expense.................................. $ 92,837 $84,317 $56,493
Increase (reduction) in income tax expense resulting from:
ESOP dividend deduction............................. (1,104) (792) (649)
Amortization of goodwill............................ 3,741 1,287 562
State income tax, net of federal income tax
benefit........................................... 12,325 11,041 6,980
Other, net.......................................... 1,271 (7) (2,355)
--------------------------------------------
$109,070 $95,846 $61,031
- -------------------------------------------------------------------------------------------------------------
TCF 45
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) 1998 1997
- ------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan and lease losses ................................... $22,011 $24,434
Pension and other compensation plans .................................. 11,058 9,117
Insurance premiums .................................................... 4,253 3,750
Net operating loss carryforward ....................................... 1,301 1,326
Alternative minimum tax credit carryforward ........................... 1,028 992
Other ................................................................. 817 1,044
-------------------------------
Total deferred tax assets .......................................... 40,468 40,663
-------------------------------
Deferred tax liabilities:
Securities available for sale ......................................... 4,757 5,596
FHLB stock ............................................................ 4,648 4,711
Loan basis differences ................................................ 469 1,536
Premises and equipment ................................................ 1,279 2,632
Loan fees and discounts ............................................... 8,697 6,715
Mortgage servicing rights ............................................. 4,105 3,926
Lease financing ....................................................... 28,883 29,305
Intangible assets ..................................................... 1,507 2,316
-------------------------------
Total deferred tax liabilities ..................................... 54,345 56,737
-------------------------------
Net deferred tax liabilities .................................... $13,877 $16,074
- ------------------------------------------------------------------------------------------------------------
13. STOCKHOLDERS' EQUITY
RESTRICTED RETAINED EARNINGS -- In general, TCF's subsidiary banks may not
declare or pay a dividend to TCF in excess of 100% of their net profits for
that year combined with their retained net profits for the preceding two
calendar years without prior approval of the Office of the Comptroller of the
Currency ("OCC"). Additional limitations on dividends declared or paid on, or
repurchases of, TCF's subsidiary banks' capital stock are tied to the
national banks' regulatory capital levels.
Undistributed earnings and profits at December 31, 1998 includes
approximately $134.4 million for which no provision for federal income tax
has been made. This amount represents earnings appropriated to bad debt
reserves and deducted for federal income tax purposes and is generally not
available for payment of cash dividends or other distributions to
shareholders. Payments or distributions of these appropriated earnings could
invoke a tax liability for TCF based on the amount of earnings removed and
current tax rates.
SHAREHOLDER RIGHTS PLAN -- TCF's preferred share purchase rights will become
exercisable only if a person or group acquires or announces an offer to
acquire 15% or more of TCF's common stock. This triggering percentage may be
reduced to no less than 10% by TCF's Board of Directors (the "Board") under
certain circumstances. When exercisable, each right will entitle the holder
to buy one one-hundredth of a share of a new series of junior participating
preferred stock at a price of $90 per share. In addition, upon the occurrence
of certain events, holders of the rights will be entitled to purchase either
TCF's common stock or shares in an "acquiring entity" at half of the market
value. The Board is generally entitled to redeem the rights at 1 cent per
right at any time before they become exercisable. The rights will expire on
June 9, 1999, if not previously redeemed or exercised.
SHARES HELD IN TRUST FOR DEFERRED COMPENSATION PLANS -- During the third
quarter of 1998, TCF applied the consensus reached in the Emerging Issues
Task Force ("EITF") Issue No. 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Are Held in a Rabbi Trust and Invested." As a
result, the assets of TCF's deferred compensation plans were consolidated
with those of TCF. The cost of TCF common stock held by the deferred
compensation plans is reported separately in a manner similar to treasury
stock (that is, changes in fair value are not recognized) with a
corresponding deferred compensation obligation reflected in additional
paid-in capital. The application of EITF 97-14 did not impact TCF's total
stockholders' equity or results of operations for 1998 or any prior period.
LOAN TO EXECUTIVE DEFERRED COMPENSATION PLAN -- During 1998, loans totaling
$6.4 million were made by TCF to the Executive Deferred Compensation Plan
trustee on a nonrecourse basis to purchase shares of TCF common stock for the
accounts of participants. The loans are repayable over five years, bear
interest of 7.41% and are secured by the shares of TCF common stock purchased
with the loan proceeds. These loans, totaling $6.1 million at December 31,
1998, are reflected as a reduction of stockholders' equity as required by
generally accepted accounting principles.
46 TCF
STOCK OFFERING -- On June 3, 1997, TCF completed a public offering of
1,400,000 shares of its common stock at a price of $21.6875 per share. The
purpose of the offering was to meet one of the criteria for TCF's merger with
Winthrop to be accounted for as a pooling of interests. The net proceeds of
$29.3 million were used as a portion of the cash consideration paid in
connection with the acquisition of Standard.
TREASURY STOCK -- On January 20, 1997, the Board authorized the repurchase of
up to 5% of TCF common stock, or 3.5 million shares. On February 25, 1997,
the Board formally rescinded TCF's common stock repurchase program in
connection with the Company's merger with Winthrop. On January 19, 1998, the
Board authorized the repurchase of up to 5% of TCF common stock, or 4.6
million shares. On June 22, 1998, the Board authorized the repurchase of up
to an additional 5% of TCF common stock, or 4.5 million shares. On December
15, 1998, the Board authorized the repurchase of up to an additional 5% of
TCF common stock, or 4.3 million shares. TCF purchased 7,549,300, 1,295,800
and 2,380,136 shares of common stock during the years ended December 31,
1998, 1997 and 1996, respectively. At December 31, 1998, TCF has remaining
authorization of 1.6 million shares under its June 22, 1998 5% stock
repurchase program, which the Company expects to repurchase before initiating
the December 15, 1998 program.
14. REGULATORY CAPITAL REQUIREMENTS
TCF is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
the federal banking agencies, that, if undertaken, could have a direct
material effect on TCF's financial statements. Under capital adequacy
guidelines and the regulatory framework for "prompt corrective action," TCF
must meet specific capital guidelines that involve quantitative measures of
the Company's assets, stockholders' equity, and certain off-balance-sheet
items as calculated under regulatory accounting practices.
The following table sets forth TCF's tier 1 leverage, tier 1 risk-based
and total risk-based capital levels, and applicable percentages of adjusted
assets, together with the excess over the minimum capital requirements:
AT DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- ---------------------------------------------------------------------------------------------------
Tier 1 leverage capital ......................... $659,661 6.75% $752,091 7.80%
Tier 1 leverage capital requirement ............. 293,024 3.00 289,132 3.00
------------------------------------------------
Excess ................................... $366,637 3.75% $462,959 4.80%
------------------------------------------------
Tier 1 risk-based capital ....................... $659,661 10.45% $752,091 11.97%
Tier 1 risk-based capital requirement ........... 252,458 4.00 251,273 4.00
------------------------------------------------
Excess ................................... $407,203 6.45% $500,818 7.97%
------------------------------------------------
Total risk-based capital ........................ $738,239 11.70% $830,639 13.22%
Total risk-based capital requirement ............ 504,916 8.00 502,547 8.00
------------------------------------------------
Excess ................................... $233,323 3.70% $328,092 5.22%
- ---------------------------------------------------------------------------------------------------
At December 31, 1998, TCF and its bank subsidiaries exceeded their
regulatory capital requirements and are considered "well-capitalized" under
guidelines established by the Federal Reserve Board and the Federal Deposit
Insurance Corporation Improvement Act of 1991.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
TCF is a party to financial instruments with off-balance-sheet risk,
primarily to meet the financing needs of its customers. These financial
instruments, which are issued or held by TCF for purposes other than trading,
involve elements of credit and interest-rate risk in excess of the amount
recognized in the Consolidated Statements of Financial Condition.
TCF's exposure to credit loss in the event of non-performance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of the
commitments. TCF uses the same credit policies in making these commitments as
it does for on-balance-sheet instruments. TCF evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained
is based on management's credit evaluation of the customer. For Veterans
Administration ("VA") loans serviced with partial recourse and forward
mortgage loan sales commitments, the contract or notional amount exceeds
TCF's exposure to credit loss. TCF controls the credit risk of forward
mortgage loan sales commitments through credit approvals, credit limits and
monitoring procedures.
TCF 47
COMMITMENTS TO EXTEND CREDIT -- Commitments to extend credit are agreements to
lend to a customer provided there is no violation of any condition in the
contract. These commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. These commitments
totaled $1.1 billion and $1.2 billion at December 31, 1998 and 1997,
respectively. Since certain of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Collateral predominantly consists of residential
and commercial real estate and personal property. Included in the total
commitments to extend credit at December 31, 1998 were fixed-rate mortgage
loan commitments and loans in process aggregating $153.3 million.
STANDBY LETTERS OF CREDIT -- Standby letters of credit are conditional
commitments issued by TCF guaranteeing the performance of a customer to a
third party. The standby letters of credit expire in various years through
the year 2005 and totaled $45.3 million and $30.7 million at December 31,
1998 and 1997, respectively. Collateral held primarily consists of commercial
real estate mortgages. Since the conditions under which TCF is required to
fund standby letters of credit may not materialize, the cash requirements are
expected to be less than the total outstanding commitments. TCF's commitments
to the beneficiaries under its outstanding standby letters of credit at
December 31, 1998 were collateralized by $30.3 million of TCF's
mortgage-backed securities.
VA LOANS SERVICED WITH PARTIAL RECOURSE -- TCF services VA loans on which it
must cover any principal loss in excess of the VA's guarantee if the VA
elects its "no-bid" option upon the foreclosure of a loan. The serviced loans
are collateralized by residential real estate and totaled $273.2 million and
$335.9 million at December 31, 1998 and 1997, respectively.
FORWARD MORTGAGE LOAN SALES COMMITMENTS -- TCF enters into forward mortgage
loan sales commitments in order to manage the market exposure on its
residential loans held for sale and its commitments to extend credit for
residential loans. Forward mortgage loan sales commitments are contracts for
the delivery of mortgage loans or pools of loans in which TCF agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of the counterparties
to meet the terms of their contracts and from movements in mortgage loan
values and interest rates. Forward mortgage loan sales commitments totaled
$106.7 million and $81.6 million at December 31, 1998 and 1997, respectively.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
TCF is required to disclose the estimated fair value of financial
instruments, both assets and liabilities on and off the balance sheet, for
which it is practicable to estimate fair value. Fair value estimates are made
at a specific point in time, based on relevant market information and
information about the financial instruments. Fair value estimates are
subjective in nature, involving uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The carrying amounts of cash and due from banks, investments, accrued
interest payable and receivable, and due from brokers approximate their fair
values due to the short period of time until their expected realization.
Securities available for sale are carried at fair value, which is based on
quoted market prices. Certain financial instruments, including lease
financings and discounted lease rentals, and all non-financial instruments
are excluded from fair value of financial instrument disclosure requirements.
The following methods and assumptions are used by the Company in
estimating its fair value disclosures for its remaining financial
instruments, all of which are issued or held for purposes other than trading.
LOANS HELD FOR SALE -- The fair value of loans held for sale is estimated
based on quoted market prices.
The estimated fair value of capitalized mortgage servicing rights totaled
$27.8 million at December 31, 1998, compared with a carrying amount of $21.6
million. The estimated fair value of capitalized mortgage servicing rights is
based on estimated cash flows discounted using rates commensurate with the
risks involved. Assumptions regarding prepayments, defaults and interest
rates are determined using available market information.
LOANS -- The fair values of residential and consumer loans are estimated using
quoted market prices. For certain variable-rate loans that reprice frequently
and that have experienced no significant change in credit risk, fair values
are based on carrying values. The fair values of other loans are estimated by
discounting contractual cash flows adjusted for prepayment estimates, using
interest rates currently being offered for loans with similar terms to
borrowers with similar credit risk characteristics.
DEPOSITS -- The fair value of checking, passbook and statement and money
market deposits is deemed equal to the amount payable on demand. The fair
value of certificates is estimated based on discounted cash flow analyses
using interest rates offered by TCF for certificates of similar remaining
maturities.
BORROWINGS -- The carrying amounts of short-term borrowings approximate their
fair values. The fair values of TCF's long-term borrowings are estimated
based on quoted market prices or discounted cash flow analyses using interest
rates for borrowings of similar remaining maturities.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- The fair values of
residential commitments to extend credit and forward mortgage loan sales
commitments associated with residential loans held for sale are based upon
quoted market prices. The fair values of TCF's remaining commitments to
extend credit and standby letters of credit are estimated using fees
currently charged to enter into similar agreements. For fixed-rate loan
commitments and standby letters of credit issued in conjunction with
fixed-rate loan agreements, fair value also considers the difference between
current levels of interest rates and the committed rates.
48 TCF
TCF has not incurred, and does not anticipate, significant losses as a
result of the recourse provisions associated with its balance of VA loans
serviced with partial recourse. As a result, the carrying amounts and related
estimated fair values of these financial instruments were not material at
December 31, 1998 and 1997.
As discussed above, the carrying amounts of certain of the Company's
financial instruments approximate their fair value. The carrying amounts
disclosed below are included in the Consolidated Financial Statements of
Financial Condition under the indicated captions, except where noted
otherwise. The carrying amounts and fair values of the Company's remaining
financial instruments are set forth in the following table:
AT DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
Financial instrument assets:
Loans held for sale ................................. $ 213,073 $ 215,909 $ 244,612 $ 248,341
Loans:
Residential real estate ........................... $3,765,280 $3,813,684 $3,623,845 $3,686,635
Commercial real estate ............................ 811,428 824,358 859,916 866,851
Commercial business ............................... 289,104 288,443 240,207 239,611
Consumer .......................................... 1,876,554 1,993,242 1,976,699 2,159,218
Allowance for loan losses(1) ...................... (76,024) -- (79,166) --
-----------------------------------------------------------
$6,666,342 $6,919,727 $6,621,501 $6,952,315
-----------------------------------------------------------
Financial instrument liabilities:
Certificates of deposit ............................. $2,958,588 $2,994,231 $3,605,663 $3,637,981
Federal Home Loan Bank advances ..................... 1,804,208 1,817,563 1,339,578 1,337,014
Other borrowings .................................... 105,874 106,471 46,534 47,878
Financial instruments with off-balance-sheet risk:(2)
Commitments to extend credit(3) .................... $ 3,085 $ (264) $ 3,463 $ (209)
Standby letters of credit(4) ....................... -- (21) (17) (58)
Forward mortgage loan sales commitments(3) ......... 87 113 56 (326)
-----------------------------------------------------------
Total off-balance-sheet financial instruments .... $ 3,172 $ (172) $ 3,502 $ (593)
- ---------------------------------------------------------------------------------------------------------------------
(1) Excludes the allowance for lease losses.
(2) Positive amounts represent assets, negative amounts represent liabilities.
(3) Carrying amounts are included in other assets.
(4) Carrying amounts are included in accrued expenses and other liabilities.
17. STOCK OPTION AND INCENTIVE PLAN
The TCF Financial 1995 Incentive Stock Program (the "Program") was adopted to
enable TCF to attract and retain key personnel. Under the program, no more
than 5% of the shares of TCF common stock outstanding on the date of initial
shareholder approval may be awarded. Options generally become exercisable
over a period of one to 10 years from the date of the grant and expire after
10 years. All outstanding options have a fixed exercise price equal to the
market price of TCF common stock on the date of grant. Restricted stock
granted in 1998 generally vests within five years, but may be subject to a
delayed vesting schedule if certain return on equity goals are not met. Other
restricted stock grants generally vest over periods from three to eight years.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- TCF has elected to retain the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," for its stock-based employee
compensation plans. Accordingly, no compensation expense has been recognized
for TCF's stock option grants. Compensation expense for restricted stock
under APB Opinion No. 25 is recorded over the vesting periods, and totaled
$5.9 million, $8.3 million and $7.9 million in 1998, 1997 and 1996,
respectively.
TCF 49
Had compensation expense been determined based on the fair value at the
grant dates for awards under the Program consistent with the method of SFAS
No. 123, "Accounting for Stock-Based Compensation," TCF's pro forma net
income and earnings per common share would have been as follows:
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
Net income:
As reported........................................... $156,179 $145,061 $100,377
----------------------------------------------
Pro forma............................................. $156,271 $146,155 $100,553
----------------------------------------------
Basic earnings per common share:
As reported........................................... $ 1.77 $ 1.72 $ 1.23
----------------------------------------------
Pro forma............................................. $ 1.77 $ 1.73 $ 1.23
----------------------------------------------
Diluted earnings per common share:
As reported........................................... $ 1.76 $ 1.69 $ 1.20
----------------------------------------------
Pro forma............................................. $ 1.76 $ 1.70 $ 1.20
- ------------------------------------------------------------------------------------------------------------
Since the pro forma disclosures of results under SFAS No. 123 are only
required to consider grants awarded since 1995, the pro forma effects of
applying SFAS No. 123 during this period may not be representative of the
effects on reported results for future years.
The fair value of each option grant is estimated on the grant date using
the Black-Scholes option pricing model, with the following weighted-average
assumptions used for 1998, 1997 and 1996, respectively: risk-free interest
rates of 4.78%, 5.95% and 6.50%; dividend yield of 2.6%, 1.7% and 2.1%;
expected lives of 5.25, 10 and 5 years; and volatility of 27.2%, 26.4% and
19.6%.
The weighted-average grant-date fair value of options granted was $6.49,
$11.98 and $3.32 in 1998, 1997 and 1996, respectively. The weighted-average
grant-date fair value of restricted stock was $31.19, $22.23 and $16.75 in
1998, 1997 and 1996, respectively.
STOCK OPTIONS RESTRICTED STOCK
---------------------------------------------------------------------------------------
EXERCISE PRICE
-------------------------------
WEIGHTED-
SHARES RANGE AVERAGE SHARES PRICE RANGE
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31,
1995........................... 1,532,619 $ 1.94-11.43 $ 4.33 1,328,864 $ 7.66-14.83
Granted...................... 108,722 11.19-17.54 13.59 72,800 16.56-18.91
Exercised.................... (691,941) 1.94- 9.28 3.32 -- --
Expired...................... (832) 3.00 3.00 -- --
Forfeited.................... (5,600) 5.33- 9.28 8.15 (42,400) 8.10- 9.89
Vested....................... -- -- -- (167,398) 7.66-16.56
--------- ---------
Outstanding at December 31,
1996........................... 942,968 2.22-17.54 6.12 1,191,866 7.66-18.91
Granted...................... 123,032 20.40-33.28 31.66 929,200 20.88-27.34
Exercised.................... (224,955) 2.22-17.54 7.06 -- --
Forfeited.................... (4,000) 7.74 7.74 -- --
Vested....................... -- -- -- (172,138) 8.10- 9.89
--------- ---------
Outstanding at December 31,
1997.......................... 837,045 2.22-33.28 9.61 1,948,928 7.66-27.34
Granted...................... 551,500 23.69-32.19 25.04 108,200 28.97-34.00
Exercised.................... (208,388) 2.44-17.54 4.69 -- --
Forfeited.................... (1,500) 32.19 32.19 (5,400) 16.56-34.00
Vested....................... -- -- -- (607,994) 7.66-21.91
--------- ---------
OUTSTANDING AT DECEMBER 31,
1998........................... 1,178,657 2.22-33.28 17.67 1,443,734 7.66-34.00
--------- ---------
EXERCISABLE AT DECEMBER 31,
1998........................... 517,157 2.22-20.40 6.68
- ------------------------------------------------------------------------------------------------------------------------
50 TCF
The following table summarizes information about stock options outstanding
at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
EXERCISE PRICE RANGE SHARES PRICE LIFE IN YEARS SHARES PRICE
- ------------------------------------------------------------------------------------------------------------------
$2.22 to $5.00.................. 224,637 $ 3.38 3.1 224,637 $ 3.38
$5.01 to $10.00................. 188,796 6.77 4.6 184,796 6.72
$10.01 to $15.00................ 77,660 11.33 6.9 77,660 11.33
$15.01 to $33.28................ 687,564 26.05 9.6 30,064 19.02
---------- --------
Total Options................. 1,178,657 17.67 7.4 517,157 6.68
- ------------------------------------------------------------------------------------------------------------------
At December 31, 1998, there were 2,179,073 shares reserved for issuance
under the Program, including 1,178,657 shares for which options had been granted
but had not yet been exercised.
18. EMPLOYEE BENEFIT PLANS
The TCF Cash Balance Pension Plan (the "Pension Plan") is a defined benefit
qualified plan covering all "regular stated salary" employees and certain
part-time employees who are at least 21 years old and have completed a year of
eligibility service with TCF. TCF makes a monthly allocation to the
participant's account based on a percentage of the participant's compensation.
The percentage is based on the sum of the participant's age and years of
employment with TCF. Participants are fully vested after five years of vesting
service.
In addition to providing retirement income benefits, TCF provides health
care benefits for eligible retired employees, and in some cases life insurance
benefits (the "Postretirement Plan"). Substantially all full-time employees may
become eligible for health care benefits if they reach retirement age and have
completed 10 years of service with the Company, with certain exceptions. These
and similar benefits for active employees are provided through insurance
companies or through self-funded programs. The Postretirement Plan is an
unfunded plan.
The following tables set forth the status of the Pension Plan and the
Postretirement Plan at the dates indicated:
PENSION PLAN POSTRETIREMENT PLAN
----------------------- ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------
(IN THOUSANDS) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year ................................ $ 17,027 $ 13,551 $ 8,603 $ 7,871
Service cost -- benefits earned during the year ......................... 2,967 2,091 299 236
Interest cost on benefit obligation .................................... 1,454 1,207 641 604
Acquisition/merger ..................................................... 5,006 -- -- --
Actuarial loss ......................................................... 3,647 1,151 358 573
Benefits paid .......................................................... (1,134) (973) (687) (681)
-------- -------- -------- --------
Benefit obligation at end of year .................................... 28,967 17,027 9,214 8,603
-------- -------- -------- --------
Change in fair value of plan assets:
Fair value of plan assets at beginning of year ......................... 53,374 38,657 -- --
Actual return on plan assets ........................................... 916 13,365 -- --
Benefits paid .......................................................... (1,134) (973) (687) (681)
Acquisition/merger ..................................................... 4,182 2,325 -- --
Employer contributions ................................................. -- -- 687 681
-------- -------- -------- --------
Fair value of plan assets at end of year .............................. 57,338 53,374 -- --
-------- -------- -------- --------
Funded status of plans:
Funded status at end of year ........................................... 28,371 36,347 (9,214) (8,603)
Unrecognized transition obligation ..................................... -- -- 4,775 5,117
Unrecognized prior service cost ........................................ (5,040) (4,782) 879 988
Unrecognized net gain .................................................. (7,901) (17,063) (1,079) (1,495)
-------- -------- -------- --------
Prepaid (accrued) benefit cost at end of year ........................ $ 15,430 $ 14,502 $ (4,639) $ (3,993)
- ----------------------------------------------------------------------------------------------------------------------------
TCF 51
Net periodic benefit cost (credit) included the following components:
PENSION PLAN POSTRETIREMENT PLAN
---------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------------
(IN THOUSANDS) 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Service cost .......................... $ 2,967 $ 2,091 $ 2,107 $ 299 $ 236 $ 177
Interest cost ......................... 1,454 1,207 945 641 604 778
Expected return on plan assets ........ (3,745) (2,841) (2,536) -- -- --
Amortization of transition obligation.. -- -- -- 342 342 342
Amortization of prior service cost .... (876) (742) (742) 109 109 109
Recognized actuarial gain ............. (728) -- -- (58) (116) --
------- ------- ------- ------- ------- -------
Net periodic benefit cost (credit)... $ (928) $ (285) $ (226) $ 1,333 $ 1,175 $ 1,406
- ---------------------------------------------------------------------------------------------------------
The discount rate and rate of increase in future compensation used to
measure the benefit obligation and the expected long-term rate of return on plan
assets were as follows:
PENSION PLAN POSTRETIREMENT PLAN
-------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Discount rate......................................... 6.75% 7.75% 8.00% 6.75% 7.75% 8.00%
Rate of increase in future compensation............... 5.00 5.00 5.00 -- -- --
Expected long-term rate of return on plan assets...... 9.50 9.50 9.50 -- -- --
- ---------------------------------------------------------------------------------------------------------------
The Pension Plan's assets consist primarily of listed stocks and government
bonds. At December 31, 1998 and 1997, the Plan's assets included TCF common
stock with a market value of $7.3 million and $12.2 million, respectively.
For active participants of the Postretirement Plan, an 8% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
1999. This rate is assumed to decrease gradually to 6% for the year 2004 and
remain at that level thereafter. For most retired participants, the annual rate
of increase is assumed to be 4% for all future years, which represents the
Plan's annual limit on increases in TCF's contributions for retirees.
Assumed health care cost trend rates have an effect on the amounts reported
for the Postretirement Plan. A one-percentage point change in assumed health
care cost trend rates would have the following effects:
1-PERCENTAGE- 1-PERCENTAGE-
(IN THOUSANDS) POINT INCREASE POINT DECREASE
- ----------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components $ 65 $ (55)
Effect on postretirement benefit obligation 416 (358)
- ----------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN -- The TCF Employees Stock Purchase Plan
generally allows participants to make contributions by salary deduction of up to
12% of their salary on a tax-deferred basis pursuant to section 401(k) of the
IRC. TCF matches the contributions of all employees at the rate of 50 cents per
dollar, with a maximum employer contribution of 3% of the employee's salary.
Employee contributions vest immediately while the Company's matching
contributions are subject to a graduated vesting schedule based on an employee's
years of vesting service. The Company's matching contributions are expensed when
made. TCF's contribution to the plan was $2.7 million, $2.2 million and $1.8
million in 1998, 1997 and 1996, respectively.
52 TCF
19. PARENT COMPANY FINANCIAL INFORMATION
TCF Financial Corporation's (parent company only) condensed statements of
financial condition as of December 31, 1998 and 1997, and the condensed
statements of operations and cash flows for the years ended December 31, 1998,
1997 and 1996 are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31,
------------------------
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------------------------------------------------------
Assets:
Cash........................................................................ $ 178 $ 16
Interest-bearing deposits with banks........................................ 2,401 19,821
Investment in subsidiaries:
Bank subsidiaries......................................................... 879,887 895,527
Other subsidiaries........................................................ 586 586
Premises and equipment...................................................... 8,009 6,330
Other assets................................................................ 41,656 42,884
-------- ----------
$932,717 $965,164
-------- ----------
Liabilities and Stockholders' Equity:
Bank line of credit......................................................... $ 74,000 $ --
Other liabilities........................................................... 13,215 11,484
-------- ----------
Total liabilities........................................................ 87,215 11,484
Stockholders' equity......................................................... 845,502 953,680
-------- ----------
$932,717 $965,164
- ----------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------
(IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------
Interest income .................................. $ 581 $ 1,099 $ 352
Interest expense ................................. 2,219 758 923
--------- --------- ---------
Net interest income (expense) ................ (1,638) 341 (571)
Provision for credit losses ...................... (49) 679 --
--------- --------- ---------
Net interest expense after provision
for credit losses .......................... (1,589) (338) (571)
--------- --------- ---------
Cash dividends received from consolidated
subsidiaries:
Bank subsidiaries ............................ 184,569 109,791 103,500
Other subsidiaries ........................... -- 1,549 4,102
--------- --------- ---------
Total cash dividends received from
consolidated subsidiaries ............... 184,569 111,340 107,602
--------- --------- ---------
Other non-interest income:
Affiliate service fee revenues ............... 72,483 53,671 44,022
Other ........................................ 35 (4) 7
--------- --------- ---------
Total other non-interest income ............ 72,518 53,667 44,029
--------- --------- ---------
Non-interest expense:
Compensation and employee benefits ........... 41,379 42,828 34,174
Occupancy and equipment ...................... 14,672 12,217 10,958
Other ........................................ 19,294 17,813 16,067
--------- --------- ---------
Total non-interest expense ................. 75,345 72,858 61,199
--------- --------- ---------
Income before income tax benefit and equity
in undistributed earnings of subsidiaries .. 180,153 91,811 89,861
Income tax benefit ............................... 1,588 7,518 6,879
--------- --------- ---------
Income before equity in undistributed earnings
of subsidiaries ............................ 181,741 99,329 96,740
Equity in undistributed earnings of subsidiaries . (25,562) 45,732 3,637
--------- --------- ---------
Net income ....................................... $ 156,179 $ 145,061 $ 100,377
--------- --------- ----------
TCF 53
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income............................................................................ $ 156,179 $145,061 $100,377
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries.................................... 25,562 (45,732) (3,637)
Other, net.......................................................................... 1,802 8,625 5,799
--------------------------------------
Total adjustments................................................................ 27,364 (37,107) 2,162
--------------------------------------
Net cash provided by operating activities.......................................... 183,543 107,954 102,539
--------------------------------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits with banks....................... 17,420 (14,383) 6,273
Investments in and advances to subsidiaries, net...................................... -- (66,265) (117)
Loan to Executive Deferred Compensation Plan, net..................................... (6,111) 68 63
Purchases of premises and equipment, net.............................................. (4,174) (3,913) (2,678)
Other, net............................................................................ 765 1,201 (1,049)
--------------------------------------
Net cash provided (used) by investing activities................................... 7,900 (83,292) 2,492
--------------------------------------
Cash flows from financing activities:
Dividends paid on common stock........................................................ (54,971) (37,341) (25,279)
Proceeds from issuance of common stock, net........................................... -- 29,266 --
Proceeds from conversion of convertible debentures.................................... -- 7,149 123
Purchases of common stock to be held in treasury...................................... (210,939) (27,318) (41,382)
Net increase (decrease) in bank line of credit........................................ 74,000 -- (40,000)
Other, net............................................................................ 629 3,481 1,554
--------------------------------------
Net cash used by financing activities.............................................. (191,281) (24,763) (104,984)
--------------------------------------
Net increase (decrease) in cash......................................................... 162 (101) 47
Cash at beginning of year............................................................... 16 117 70
--------------------------------------
Cash at end of year..................................................................... $ 178 $ 16 $ 117
- ----------------------------------------------------------------------------------------------------------------------------------
20. BUSINESS SEGMENTS
TCF's wholly owned bank subsidiaries, TCF Minnesota, TCF Illinois, TCF
Wisconsin, and Great Lakes Michigan (collectively "the banks"), have been
identified as reportable operating segments in accordance with the provisions of
SFAS No. 131. The banks have the following operating units that provide
financial services to customers: deposits and investment products, commercial
lending, consumer lending, lease financing, mortgage banking and residential
lending, and investments and mortgage-backed securities. In addition, TCF
operates a bank holding company ("parent company") that provides data
processing, bank operations and other professional services to the banks. The
results of the parent company and TCF Colorado, a wholly owned bank subsidiary
of TCF, comprise the "other" category in the tables below.
TCF evaluates performance and allocates resources based on the banks' net
income, net interest margin, return on average assets and return on average
realized common equity. The banks follow generally accepted accounting
principles as described in the Summary of Significant Accounting Policies. TCF
generally accounts for intersegment sales and transfers at cost. Certain asset
sales between the banks were accounted for at current market prices, resulting
in intercompany profit.
Each bank is managed separately with its own president, who reports directly
to TCF's chief operating decision maker, and board of directors.
TCF 54
The following table sets forth certain information about the reported profit
or loss and assets for each of TCF's reportable segments, including
reconciliations to TCF's consolidated totals:
GREAT
TCF TCF TCF LAKES
(DOLLARS IN THOUSANDS) MINNESOTA ILLINOIS WISCONSIN MICHIGAN
- -----------------------------------------------------------------------------------------------------------------
At or For the Year Ended December 31, 1998:
Interest income -- external customers........ $ 323,056 $ 206,139 $ 45,094 $ 173,045
Non-interest income -- external customers.... 169,431 69,589 17,794 31,954
Intersegment interest income................. 615 1,207 274 (22)
Intersegment non-interest income............. 6,365 96 51 170
Interest expense............................. 114,736 103,795 18,525 87,532
Amortization of goodwill and other
intangibles.............................. 1,165 10,204 30 --
Income tax expense (benefit)................. 63,988 22,418 4,934 20,245
Net income (loss)............................ 89,977 25,512 8,289 37,681
Total assets................................. 3,798,433 3,400,172 619,201 2,350,532
Net interest margin.......................... 6.37% 3.61% 4.92% 4.01%
Return on average assets..................... 2.50 .79 1.39 1.70
Return on average realized common equity..... 32.72 6.54 17.52 21.13
At or For the Year Ended December 31, 1997:
Interest income -- external customers........ $ 341,337 $ 121,332 $ 46,536 $ 173,058
Non-interest income -- external customers... 151,410 26,834 13,124 34,690
Intersegment interest income................. 47 980 (266) (1,094)
Intersegment non-interest income............. 6,831 74 27 66
Interest expense............................. 127,576 55,523 20,751 87,344
Amortization of goodwill and other
intangibles.............................. 1,435 4,484 30 9,808
Income tax expense (benefit)................. 64,476 16,360 4,667 17,449
Net income (loss)............................ 93,475 22,630 7,216 32,967
Total assets................................. 3,687,023 3,334,399 613,485 2,214,651
Net interest margin.......................... 6.32% 4.29% 4.51% 4.03%
Return on average assets..................... 2.54 1.30 1.18 1.51
Return on average realized common equity..... 32.50 12.08 15.22 17.65
At or For the Year Ended December 31, 1996:
Interest income -- external customers........ $ 331,955 $ 56,641 $ 44,215 $ 179,937
Non-interest income -- external customers.... 126,679 18,269 16,238 20,419
Intersegment interest income................. 168 (721) (270) (717)
Intersegment non-interest income............. 6,101 59 936 175
Interest expense............................. 121,957 20,860 21,057 94,317
FDIC special assessment...................... 16,111 4,030 3,347 11,315
Amortization of goodwill and other
intangibles.............................. 1,465 567 30 1,478
Income tax expense (benefit)................. 45,146 5,470 3,650 10,719
Net income (loss)............................ 71,086 8,876 6,315 20,349
Total assets................................. 3,982,712 683,764 620,233 2,167,447
Net interest margin.......................... 6.33 5.51% 4.07% 3.82%
Return on average assets..................... 1.97 1.29 1.04 .88
Return on average realized common equity..... 22.99 15.60 14.07 11.06
TOTAL
REPORTABLE CONSOLIDATED
(DOLLARS IN THOUSANDS) SEGMENTS OTHER ELIMINATIONS TOTAL
- ------------------------------------------------ ----------------------------------------------------------------
At or For the Year Ended December 31, 1998:
Interest income -- external customers........ $ 747,334 $ 1,560 $ -- $ 748,894
Non-interest income -- external customer..... 288,768 2,727 -- 291,495
Intersegment interest income................. 2,074 405 (2,479) --
Intersegment non-interest income............. 6,682 72,483 (79,165) --
Interest expense............................. 324,588 2,870 (4,298) 323,160
Amortization of goodwill and other
intangibles.............................. 11,399 -- -- 11,399
Income tax expense (benefit)................. 111,585 (2,515) -- 109,070
Net income (loss)............................ 161,459 (4,173) (1,107) 156,179
Total assets................................. 10,168,338 86,769 (90,513) 10,164,594
Net interest margin.......................... N.M. N.M. N.M. 4.84%
Return on average assets..................... N.M. N.M. N.M. 1.62
Return on average realized common equity..... N.M. N.M. N.M. 17.51
At or For the Year Ended December 31, 1997:
Interest income -- external customers........ $ 682,263 $ 351 $ -- $ 682,614
Non-interest income -- external customers... 226,058 610 -- 226,668
Intersegment interest income................. (333) 997 (664) --
Intersegment non-interest income............. 6,998 55,983 (62,981) --
Interest expense............................. 291,194 834 (3,010) 289,018
Amortization of goodwill and other
intangibles.............................. 15,757 -- -- 15,757
Income tax expense (benefit)................. 102,952 (7,106) -- 95,846
Net income (loss)............................ 156,288 (11,633) 406 145,061
Total assets................................. 9,849,558 84,079 (188,977) 9,744,660
Net interest margin.......................... N.M. N.M. N.M. 5.20%
Return on average assets..................... N.M. N.M. N.M. 1.77
Return on average realized common equity..... N.M. N.M. N.M. 19.57
At or For the Year Ended December 31, 1996:
Interest income -- external customers........ $ 612,748 $ 136 $ -- $ 612,884
Non-interest income -- external customers.... 181,605 7 -- 181,612
Intersegment interest income................. (1,540) 216 1,324 --
Intersegment non-interest income............. 7,271 51,442 (58,713) --
Interest expense............................. 258,191 923 (798) 258,316
FDIC special assessment...................... 34,803 -- -- 34,803
Amortization of goodwill and other
intangibles.............................. 3,540 -- -- 3,540
Income tax expense (benefit)................. 64,985 (3,954) -- 61,031
Net income (loss)............................ 106,626 (6,714) 465 100,377
Total assets................................. 7,454,156 28,919 (52,588) 7,430,487
Net interest margin.......................... N.M. N.M. N.M. 5.27%
Return on average assets..................... N.M. N.M. N.M. 1.39
Return on average realized common equity..... N.M. N.M. N.M. 16.77
- ---------------------------------------------------------------------------------------------------------------------
N.M. Not meaningful.
TCF 55
Revenues from external customers, comprised of total interest income and
non-interest income, for TCF's operating units are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Deposits and investment products................................ $ 194,948 $143,714 $106,091
Commercial lending.............................................. 99,383 98,090 100,646
Consumer lending................................................ 236,538 241,390 226,125
Lease financing................................................. 80,201 72,610 53,838
Mortgage banking and residential lending........................ 322,014 244,078 228,405
Investments and mortgage-backed securities...................... 107,305 109,400 79,391
---------- -------- --------
$1,040,389 $909,282 $794,496
- -------------------------------------------------------------------------------------------------------------
21. OTHER EXPENSE
Other expense consists of the following:
YEAR ENDED DECEMBER 31,
----------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
Deposit account losses............................................ $ 14,335 $ 4,738 $ 3,455
Telecommunication................................................. 13,049 9,398 8,384
Office supplies................................................... 10,006 8,349 7,173
Postage and courier............................................... 9,926 9,012 7,857
ATM interchange................................................... 9,107 7,005 6,670
Loan and lease.................................................... 6,917 5,751 7,403
Mortgage servicing amortization and valuation adjustments......... 6,815 4,853 4,748
Other............................................................. 33,439 33,819 30,748
-------- ------- -------
$103,594 $82,925 $76,438
- ------------------------------------------------------------------------------------------------------------
22. FEDERAL DEPOSIT INSURANCE CORPORATION SPECIAL ASSESSMENT
Federal legislation enacted on September 30, 1996 addressed inadequate
funding of the Savings Association Insurance Fund ("SAIF"), which had resulted
in a large deposit insurance premium disparity between banks insured by the Bank
Insurance Fund ("BIF") and SAIF-insured thrifts. As a result of this
legislation, a one-time special assessment was imposed on thrift institutions,
and TCF recognized a $34.8 million pretax charge for assessments imposed on its
bank subsidiaries. The legislation also provided for a reduction in deposit
insurance premiums in subsequent periods and other regulatory reforms.
23. LITIGATION AND CONTINGENT LIABILITIES
From time to time, TCF is a party to legal proceedings arising out of its
general lending and operating activities. TCF is and expects to become engaged
in a number of foreclosure proceedings and other collection actions as part of
its loan collection activities. From time to time, borrowers have also brought
actions against TCF, in some cases claiming substantial amounts of damages. Some
financial services companies have recently been subjected to significant
exposure in connection with class actions and/or suits seeking punitive damages.
While the Company is not aware of any actions or allegations which should
reasonably give rise to any material adverse effect, it is possible that the
Company could be subjected to such a claim in an amount which could be material.
Management, after review with its legal counsel, believes that the ultimate
disposition of its litigation will not have a material effect on TCF's financial
condition.
56 TCF
INDEPENDENT AUDITOR'S REPORT
[LOGO]
To the Board of Directors and Stockholders
of TCF Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of TCF Financial Corporation and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TCF
Financial Corporation and Subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 19, 1999
TCF 57
OTHER FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA) AT DECEMBER 31, 1998 AT SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA:
Total assets.......................................... $10,164,594 $9,900,439
Investments........................................... 277,715 135,491
Securities available for sale......................... 1,677,919 1,673,722
Loans and leases...................................... 7,141,178 7,092,639
Deposits.............................................. 6,715,146 6,733,368
Borrowings............................................ 2,461,046 2,159,948
Stockholders' equity.................................. 845,502 869,426
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income................................................... $185,286 $185,229
Interest expense.................................................. 80,625 80,605
-----------------------------------
Net interest income............................................ 104,661 104,624
Provision for credit losses....................................... 9,761 4,544
-----------------------------------
Net interest income after
provision for credit losses................................ 94,900 100,080
-----------------------------------
Non-interest income:
Gain (loss) on sale of securities available for sale........... -- (43)
Gain on sale of loan servicing................................. -- 2,414
Gain on sale of branches....................................... 12,051 226
Gain on sale of joint venture interest......................... -- --
Other non-interest income...................................... 70,066 71,263
-----------------------------------
Total non-interest income.................................. 82,117 73,860
-----------------------------------
Non-interest expense:
Amortization of goodwill and other
intangibles.................................................. 2,829 2,828
Other non-interest expense..................................... 107,096 109,054
-----------------------------------
Total non-interest expense................................. 109,925 111,882
-----------------------------------
Income before income tax expense............................... 67,092 62,058
Income tax expense................................................ 27,588 25,477
-----------------------------------
Net income..................................................... $ 39,504 $ 36,581
-----------------------------------
Per common share:
Basic earnings................................................. $ .47 $ .42
-----------------------------------
Diluted earnings............................................... $ .46 $ .42
-----------------------------------
Diluted cash earnings (1)...................................... $ .49 $ .44
-----------------------------------
Dividends declared............................................. $ .1625 $ .1625
-----------------------------------
FINANCIAL RATIOS (2):
Return on average assets.......................................... 1.60% 1.54%
Cash return on average assets (1)................................. 1.70 1.64
Return on average realized common equity.......................... 18.77 16.75
Return on average common equity................................... 18.56 16.58
Cash return on average tangible equity (1)........................ 25.18 22.48
Average total equity to average assets............................ 8.63 9.28
Net interest margin (3)........................................... 4.65 4.82
- --------------------------------------------------------------------------------------------------------
(1) Excludes amortization and reduction of goodwill and deposit base
intangibles.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
58 TCF
- ----------------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1998 AT MARCH 31, 1998 AT DECEMBER 31, 1997 AT SEPTEMBER 30, 1997 AT JUNE 30, 1997 AT MARCH 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
$9,393,060 $9,664,849 $9,744,660 $9,796,154 $7,403,760 $7,317,584
122,888 246,364 129,612 130,261 82,098 60,458
1,122,490 1,306,853 1,426,131 1,628,126 1,181,126 1,242,457
7,103,686 7,036,646 7,069,188 7,052,032 5,382,356 5,354,941
6,741,288 6,925,024 6,907,310 6,976,687 5,243,574 5,291,894
1,617,240 1,631,021 1,727,152 1,754,445 1,349,369 1,273,411
906,485 948,070 953,680 919,952 701,063 626,716
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1998 MARCH 31, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 1997 JUNE 30, 1997 MARCH 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
$186,903 $191,476 $198,739 $173,253 $157,242 $153,380
79,606 82,324 87,725 73,399 64,605 63,289
- ----------------------------------------------------------------------------------------------------------------------------------
107,297 109,152 111,014 99,854 92,637 90,091
2,991 5,984 5,909 6,391 4,147 1,548
- ----------------------------------------------------------------------------------------------------------------------------------
104,306 103,168 105,105 93,463 88,490 88,543
- ----------------------------------------------------------------------------------------------------------------------------------
1,787 502 3,179 2,852 1,093 1,385
-- -- -- -- -- 1,622
4,260 2,048 742 10,635 2,810 --
-- 5,580 -- -- -- --
63,531 57,810 55,634 53,917 49,051 43,748
- ----------------------------------------------------------------------------------------------------------------------------------
69,578 65,940 59,555 67,404 52,954 46,755
- ----------------------------------------------------------------------------------------------------------------------------------
2,826 2,916 2,844 10,559 1,161 1,193
102,748 98,403 95,032 87,744 82,932 79,897
- ----------------------------------------------------------------------------------------------------------------------------------
105,574 101,319 97,876 98,303 84,093 81,090
- ----------------------------------------------------------------------------------------------------------------------------------
68,310 67,789 66,784 62,564 57,351 54,208
28,110 27,895 26,895 25,354 22,416 21,181
- ----------------------------------------------------------------------------------------------------------------------------------
$ 40,200 $ 39,894 $ 39,889 $ 37,210 $ 34,935 $ 33,027
- ----------------------------------------------------------------------------------------------------------------------------------
$ .45 $ .44 $ .44 $ .44 $ .43 $ .41
- ----------------------------------------------------------------------------------------------------------------------------------
$ .45 $ .43 $ .43 $ .43 $ .42 $ .40
- ----------------------------------------------------------------------------------------------------------------------------------
$ .48 $ .49 $ .46 $ .51 $ .43 $ .41
- ----------------------------------------------------------------------------------------------------------------------------------
$ .1625 $ .125 $ .125 $ .125 $ .125 $ .09375
- ----------------------------------------------------------------------------------------------------------------------------------
1.69% 1.66% 1.63% 1.80% 1.90% 1.82%
1.84 1.86 1.73 2.13 1.95 1.87
17.52 16.99 17.28 19.37 21.35 21.26
17.37 16.83 17.10 19.20 21.37 21.26
23.73 23.78 23.09 25.94 23.48 23.35
9.75 9.83 9.53 9.38 8.91 8.56
4.94 4.94 4.93 5.24 5.41 5.31
- ----------------------------------------------------------------------------------------------------------------------------------
TCF 59
OTHER FINANCIAL DATA
FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF OPERATIONS
Interest income............................................ $748,894 $682,614 $612,884 $631,198 $568,864
Interest expense........................................... 323,160 289,018 258,316 302,106 283,421
----------------------------------------------------------------------
Net interest income..................................... 425,734 393,596 354,568 329,092 285,443
Provision for credit losses................................ 23,280 17,995 21,446 16,973(1) 10,911
----------------------------------------------------------------------
Net interest income after provision for credit losses... 402,454 375,601 333,122 312,119 274,532
Loss on sale of mortgage-backed securities................. -- -- -- (21,037) --
Gain (loss) on sale of securities available for sale....... 2,246 8,509 86 (152) 981
Gain on sale of loan servicing............................. 2,414 1,622 -- 1,535 2,353
Gain on sale of branches................................... 18,585 14,187 2,747 1,103 --
Gain on sale of joint venture interest..................... 5,580 -- -- -- --
Gain on sale of loans...................................... -- -- 5,443 -- --
Other non-interest income.................................. 262,670 202,350 173,336 151,104 139,981
Amortization of goodwill and other intangibles............. 11,399 15,757 3,540 3,163 3,282
FDIC special assessment.................................... -- -- 34,803 -- --
Merger-related expenses.................................... -- -- -- 21,733 --
Cancellation cost on early termination
of interest-rate exchange contracts.................... -- -- -- 4,423 --
Other non-interest expense................................. 417,301 345,605 314,983 296,664 282,378
----------------------------------------------------------------------
Income before income tax expense and extraordinary item. 265,249 240,907 161,408 118,689 132,187
Income tax expense......................................... 109,070 95,846 61,031 45,482 52,643
----------------------------------------------------------------------
Income before extraordinary item........................ 156,179 145,061 100,377 73,207 79,544
Extraordinary item, net.................................... -- -- -- (963) --
----------------------------------------------------------------------
Net income.............................................. 156,179 145,061 100,377 72,244 79,544
Dividends on preferred stock............................... -- -- -- 678 2,710
----------------------------------------------------------------------
Net income available to common shareholders....... $156,179 $145,061 $100,377 $ 71,566 $ 76,834
----------------------------------------------------------------------
Basic earnings per common share:
Income before extraordinary item........................ $ 1.77 $ 1.72 $ 1.23 $ .89 $ .98
Extraordinary item...................................... -- -- -- (.01) -
----------------------------------------------------------------------
Net income.............................................. $ 1.77 $ 1.72 $ 1.23 $ .88 $ .98
----------------------------------------------------------------------
Diluted earnings per common share:
Income before extraordinary item........................ $ 1.76 $ 1.69 $ 1.20 $ .87 $ .94
Extraordinary item...................................... -- -- -- (.01) -
----------------------------------------------------------------------
Net income.............................................. $ 1.76 $ 1.69 $ 1.20 $ .86 $ .94
----------------------------------------------------------------------
Dividends declared per common share........................ $ .6125 $ .46875 $.359375 $.296875 $ .25
----------------------------------------------------------------------
Average common and common equivalent shares outstanding:
Basic................................................... 88,093 84,478 81,904 81,115 78,419
-----------------------------------------------------------------------
Diluted................................................. 88,916 86,134 83,939 83,560 81,803
----------------------------------------------------------------------
(1) Includes $5,000 in merger-related provisions.
AT DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF FINANCIAL CONDITION
Total assets......................................... $10,164,594 $9,744,660 $7,430,487 $7,507,856 $8,072,299
Interest-bearing deposits with banks................. 115,894 20,572 386,224 11,594 202,084
Federal funds sold................................... 41,000 -- -- -- 6,900
Other investments.................................... 4,227 4,061 3,910 3,716 3,528
Federal Reserve Bank stock, at cost.................. 23,112 22,977 -- -- --
Federal Home Loan Bank stock, at cost................ 93,482 82,002 66,061 60,096 78,925
Securities available for sale........................ 1,677,919 1,426,131 999,586 1,201,525 138,742
Loans held for sale.................................. 213,073 244,612 203,869 242,413 201,511
Mortgage-backed securities held to maturity.......... -- -- -- -- 1,601,200
Loans and leases..................................... 7,141,178 7,069,188 5,292,920 5,516,348 5,312,760
Goodwill............................................. 166,645 177,700 15,431 11,569 13,355
Deposit base intangibles............................. 16,238 19,821 10,843 12,918 14,662
Deposits............................................. 6,715,146 6,907,310 4,977,630 5,191,552 5,399,718
Federal Home Loan Bank advances...................... 1,804,208 1,339,578 1,141,040 893,587 1,354,663
Other borrowings..................................... 656,838 387,574 567,132 726,314 684,125
Stockholders' equity................................. 845,502 953,680 630,687 582,399 520,786
Tangible net worth................................... 662,619 756,159 604,413 557,912 492,769
Book value per common share.......................... 9.88 10.27 7.61 6.98 6.24
Tangible book value per common share................. 7.74 8.15 7.29 6.69 5.89
- ----------------------------------------------------------------------------------------------------------------------------------
60 TCF
FIVE-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED) AT OR FOR THE YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS AND OTHER DATA:
Net interest margin.................................. 4.84% 5.20% 5.27% 4.61% 3.95%
Return on average assets............................. 1.62 1.77 1.39 .95 1.03
Return on average realized common equity............. 17.51 19.57 16.77 13.69 16.55
Average total equity to average assets............... 9.35 9.12 8.31 7.04 6.33
Average interest-earning assets to
average interest-bearing liabilities.............. 116.55 117.15 115.29 111.30 108.35
Common dividend payout ratio......................... 34.80% 27.74% 29.95% 34.52% 26.60%
Number of full service bank offices.................. 311 221 196 185 177
- ----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN AND LEASE LOSS INFORMATION YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year........................ $ 82,583 $ 71,865 $ 66,290 $ 56,343 $ 54,444
Acquired balance.................................... -- 10,592 -- -- --
Charge-offs:
Residential real estate.......................... (291) (444) (333) (472) (1,070)
Commercial real estate........................... (1,294) (927) (1,944) (4,189) (8,039)
Commercial business.............................. (42) (1,485) (2,786) (1,695) (2,804)
Consumer......................................... (30,108) (21,660) (18,317) (8,414) (4,081)
Lease financing.................................. (979) (2,297) (914) (247) (109)
---------------------------------------------------------------------
(32,714) (26,813) (24,294) (15,017) (16,103)
---------------------------------------------------------------------
Recoveries:
Residential real estate.......................... 103 167 131 157 222
Commercial real estate........................... 559 2,530 3,690 1,080 2,475
Commercial business.............................. 635 2,488 2,675 4,862 3,132
Consumer......................................... 5,222 3,141 1,918 1,892 1,262
Lease financing.................................. 345 618 9 -- --
---------------------------------------------------------------------
6,864 8,944 8,423 7,991 7,091
---------------------------------------------------------------------
Net charge-offs (25,850) (17,869) (15,871) (7,026) (9,012)
Provision charged to operations..................... 23,280 17,995 21,446 16,973 10,911
---------------------------------------------------------------------
Balance at end of year.............................. $ 80,013 $ 82,583 $ 71,865 $ 66,290 $ 56,343
---------------------------------------------------------------------
Ratio of net loan and lease charge-offs to average
loans and leases outstanding..................... .36% .30% .29% .13% .18%
Year-end allowance as a percentage of year-end
total loan and lease balances.................... 1.12 1.17 1.36 1.20 1.06
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACTUAL AMORTIZATION OF
LOAN AND LEASE PORTFOLIOS AT DECEMBER 31, 1998 (1)
- --------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL COMMERCIAL COMMERCIAL LEASE TOTAL LOANS
(IN THOUSANDS) REAL ESTATE REAL ESTATE BUSINESS CONSUMER FINANCING AND LEASES
- --------------------------------------------------------------------------------------------------------------------------
Amounts due:
Within 1 year.................... $ 137,690 $ 120,808 $ 171,513 $ 194,399 $ 206,647 $ 831,057
After 1 year:
1 to 2 years.................. 148,766 82,218 51,029 183,158 140,521 605,692
2 to 3 years.................. 140,473 74,137 23,188 156,871 69,620 464,289
3 to 5 years.................. 279,751 147,447 31,318 258,404 25,314 742,234
5 to 10 years................. 703,022 286,711 11,433 472,417 90 1,473,673
10 to 15 years................ 607,763 86,296 195 544,248 -- 1,238,502
Over 15 years................. 1,739,951 16,794 -- 116,429 -- 1,873,174
------------------------------------------------------------------------------------
Total after 1 year......... 3,619,726 693,603 117,163 1,731,527 235,545 6,397,564
------------------------------------------------------------------------------------
Total................. $ 3,757,416 $ 814,411 $ 288,676 $ 1,925,926 $ 442,192 $ 7,228,621
------------------------------------------------------------------------------------
Amounts due after 1 year on:
Fixed-rate loans and leases...... $ 1,574,211 $ 125,031 $ 46,823 $ 824,167 $ 235,545 $ 2,805,777
Adjustable-rate loans............ 2,045,515 568,572 70,340 907,360 -- 3,591,787
------------------------------------------------------------------------------------
Total after 1 year......... $ 3,619,726 $ 693,603 $ 117,163 $ 1,731,527 $ 235,545 $ 6,397,564
- --------------------------------------------------------------------------------------------------------------------------
(1) Gross of unearned discounts and deferred fees. This table does not include
the effect of prepayments, which is an important consideration in
management's interest-rate risk analysis. Industry experience indicates
that the loans remain outstanding for significantly shorter periods than
their contractual terms.
TCF 61