-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U63oXeKXIpwN9O3DYu+pH9j9JshNesxQGlxidLyGyUBGppyjxWTv535qYDFXrCj1 p+YU66nuz/K7tnRt+fliaA== 0001047469-98-012520.txt : 19980331 0001047469-98-012520.hdr.sgml : 19980331 ACCESSION NUMBER: 0001047469-98-012520 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCF FINANCIAL CORP CENTRAL INDEX KEY: 0000814184 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 411591444 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10253 FILM NUMBER: 98579104 BUSINESS ADDRESS: STREET 1: 801 MARQUETTE AVE STE 302 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6126616500 MAIL ADDRESS: STREET 1: 801 MARQUETTE AVENUE STREET 2: SUITE 302 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------- COMMISSION FILE NO. 0-16431 ----------------------- TCF FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 41-1591444 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 801 MARQUETTE AVENUE, MAIL CODE 100-01-A, MINNEAPOLIS, MINNESOTA 55402 (Address and Zip Code of principal executive offices) Registrant's telephone number, including area code: 612-661-6500 ----------------------- Securities registered pursuant to Section 12(b) of the Act (all registered on the New York Stock Exchange): COMMON STOCK (PAR VALUE $.01 PER SHARE) PREFERRED SHARE PURCHASE RIGHTS (Title of class) Securities registered pursuant to Section 12(g) of the Act: 9.50% WINTHROP RESOURCES CORPORATION SENIOR NOTES DUE 2003 (Title of class) ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of March 13, 1998, the aggregate market value of the voting stock held by nonaffiliates of the registrant, computed by reference to the average of the high and low prices on such date as reported by the New York Stock Exchange, was $2,632,740,541. As of March 13, 1998, there were outstanding 91,983,016 shares of the registrant's common stock, par value $.01 per share, its only outstanding class of common stock. DOCUMENTS INCORPORATED BY REFERENCE Specific portions of the registrant's annual report to shareholders for the year ended December 31, 1997 are incorporated by reference into Parts I, II and IV hereof. Specific portions of the registrant's definitive proxy statement dated March 20, 1998 are incorporated by reference into Part III hereof. TABLE OF CONTENTS PART I PAGE ---- Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Forward-Looking Information . . . . . . . . . . . . . . . . . 1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Lending Activities. . . . . . . . . . . . . . . . . . . . . . 3 Investment Activities . . . . . . . . . . . . . . . . . . . . 8 Sources of Funds. . . . . . . . . . . . . . . . . . . . . . . 10 Other Information . . . . . . . . . . . . . . . . . . . . . . 11 Activities of Subsidiaries of TCF Financial . . . . . . . . 11 Recent Accounting Developments. . . . . . . . . . . . . . . 12 Competition . . . . . . . . . . . . . . . . . . . . . . . . 13 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 13 Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 20 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 20 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . 23 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . 24 PART III Item 10. Directors and Executive Officers of the Registrant. . . . . . . 24 Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . 24 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . . 24 Item 13. Certain Relationships and Related Transactions. . . . . . . . . 24 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 24 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Index to Consolidated Financial Statements. . . . . . . . . . . . . . . . 28 Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 PART I ITEM 1. BUSINESS FORWARD-LOOKING INFORMATION There are a number of important factors which could cause TCF Financial Corporation's ("TCF" or the "Company") future results to differ materially from historical performance. These include but are not limited to possible legislative changes; the possibility of adverse economic developments which may increase default and delinquency risks in TCF's loan and lease portfolios; shifts in interest rates which may result in shrinking interest margins; deposit outflows; interest rates on competing investments; demand for financial services and loan and lease products; increases generally in competitive pressure in the banking and financial services industry; changes in accounting policies or guidelines, or monetary and fiscal policies of the federal government; changes in the quality or composition of TCF's loan, lease and investment portfolios; results of litigation or other significant uncertainties. TCF's recently completed acquisitions of Winthrop Resources Corporation ("Winthrop"), Standard Financial, Inc. ("Standard") and the Jewel-Osco branches (and its commitment to construct additional Jewel-Osco branches in future periods) are subject to additional uncertainties, including the possible failure to fully realize or realize within the expected time frame expected cost savings from the transactions; lower than expected income or revenue following the transactions; or higher than expected operating costs; business disruption relating to the transactions; greater than expected costs or difficulties related to the integration, retention and attraction of employees or management of the acquired business operations with those of TCF; litigation costs and delays caused by litigation; and other unanticipated occurrences which may increase the costs related to the transactions or decrease the expected financial benefits of the transactions. GENERAL TCF, a Delaware corporation based in Minneapolis, Minnesota, with $9.7 billion in assets, is the holding company of four federally chartered national banks, TCF National Bank Minnesota ("TCF Minnesota"), TCF National Bank Illinois ("TCF Illinois"), TCF National Bank Wisconsin ("TCF Wisconsin") and Great Lakes National Bank Michigan ("Great Lakes Michigan"), and one bank holding company, TCF Colorado Corporation, which owns TCF National Bank Colorado ("TCF Colorado"). Unless otherwise indicated, references herein to TCF include its direct and indirect subsidiaries. TCF Minnesota, TCF Illinois, TCF Wisconsin, Great Lakes Michigan, and TCF Colorado are collectively referred to herein as the "TCF Banks." References herein to the "Holding Company" or "TCF Financial" refer to TCF Financial Corporation on an unconsolidated basis. Where information is incorporated in this report by reference to TCF's 1997 Annual Report, only those portions specifically identified are so incorporated. TCF Financial was organized in 1987 as a thrift holding company, and its common stock has been listed on the New York Stock Exchange since 1989. On April 7, 1997, TCF completed the conversion of its savings bank subsidiaries to to national banks and TCF became a national bank holding company. In connection with the national bank conversions, TCF chartered two new national bank subsidiaries, Great Lakes National Bank Ohio ("Great Lakes Ohio") and TCF Colorado. During the third quarter of 1997, TCF sold all eight branches and related deposits of Great Lakes Ohio. See "REGULATION -- Recent Developments." TCF has positioned the TCF Banks as "community banks" focusing on lending, deposit products and other services offered in their local markets. TCF's strategic emphasis on retail banking has allowed it to fund its assets primarily with retail core deposits, significantly reduce wholesale borrowings and lower its interest-rate risk. In its local market and elsewhere, TCF Minnesota is also engaged in consumer finance lending through its consumer finance subsidiaries and lease financing through its leasing subsidiary, Winthrop. TCF's marketing strategy emphasizes attracting deposits held in checking, passbook and statement savings, and money market accounts, which also provide TCF with a significant source of fee income. TCF engages in commercial, residential and consumer lending activities, lease financing and in the insurance services business, including the sale of single premium tax-deferred annuities. It also has a broker dealer selling non-proprietary mutual funds. Non-interest income is a significant source of revenues for TCF and an important factor in TCF's results of operations. Providing a wide range of retail banking services is an integral component of TCF's business philosophy and a major strategy for generating additional non-interest income. TCF's non-interest income in future periods may be 1 negatively impacted by pending state and federal legislative proposals, which, if enacted, could limit loan, deposit or other fees and service charges. See "FORWARD-LOOKING INFORMATION," and "Financial Review -- Financial Condition - Legislative and Regulatory Developments" on page 31 of TCF's 1997 Annual Report, incorporated herein by reference, for additional information. On September 4, 1997, TCF acquired all of the outstanding common stock of Standard, a community-oriented thrift institution with $2.6 billion in assets, $1.9 billion in deposits, and 14 full-service offices on the southwest side of Chicago and in the nearby southwestern and western suburbs. 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 from September 4, 1997. On June 24, 1997, TCF completed its acquisition of 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. 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. On January 16, 1997, TCF completed its purchase of BOC Financial Corporation ("BOC"), 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. 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. Additional information concerning all of the aforementioned acquisitions is set forth in Note 2 of Notes to Consolidated Financial Statements on pages 43 through 45 of TCF's 1997 Annual Report, incorporated herein by reference. TCF operated 78 bank branches in Minnesota at December 31, 1997. The Company also operated 47 bank branches in Illinois, 28 in Wisconsin, 61 in Michigan and seven in Colorado at December 31, 1997. TCF strives to develop innovative banking products and services. Of TCF's 224 bank branches, 61 were "in-store" bank branches at December 31, 1997. These in-store bank branches provide TCF with the opportunity to sell its consumer products and services, including deposits and loans, at a relatively low entry cost and feature extended hours, including Saturdays and Sundays. TCF's "Totally Free"-SM- checking accounts and other deposit products provide it with a significant source of low-cost funds and fee income. TCF has expanded its ATM network to 1,156 machines at December 31, 1997, and offers its customers an automated telephone banking system. In recent years, significant new federal legislation has imposed numerous new legal and regulatory requirements on financial institutions. Among the most significant of these requirements are new minimum regulatory capital levels and enforcement actions that can be taken by regulators when an institution's regulatory capital is deemed to be inadequate. TCF and each of the TCF Banks currently exceeds all of the current and fully phased-in regulatory capital requirements. See "REGULATION." As federally chartered national banks, the TCF Banks are subject to regulation and examination by the Office of the Comptroller of the Currency ("OCC") and, in certain cases, by the Federal Deposit Insurance Corporation ("FDIC"). The TCF Banks' deposits are insured to $100,000 by the FDIC, and as such these institutions are subject to regulations promulgated by the FDIC. The TCF Banks are members of the Federal Home Loan Bank ("FHLB") of Des Moines, Chicago and/or Indianapolis, and are also member banks within their respective Federal Reserve districts. TCF Financial is a bank holding company and is subject to regulation and examination by the Federal Reserve Board ("FRB"). See "REGULATION -- Regulation of TCF Financial and Affiliate and Insider Transactions." 2 The executive offices of TCF Financial are located at 319 Barry Avenue South, Wayzata, Minnesota 55391. The following description includes detailed information regarding the business of TCF and its subsidiaries. LENDING ACTIVITIES GENERAL TCF's lending activities reflect its community banking philosophy, emphasizing loans to individuals and small to medium-sized businesses in its primary market areas in Minnesota, Illinois, Wisconsin and Michigan. TCF is also engaged in lease financing and has expanded its consumer lending and consumer finance operations in recent years. The following table sets forth the contractual amortization of TCF's loan and lease portfolios at December 31, 1997, excluding loans held for sale. Commercial business demand loans are reported due within one year. 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 loans remain outstanding for significantly shorter periods than their contractual terms.
AT DECEMBER 31, 1997 (1) ------------------------------------------------------------------------------------ REAL ESTATE ---------------------------------- TOTAL REAL COMMERCIAL LEASE TOTAL LOANS RESIDENTIAL COMMERCIAL ESTATE BUSINESS CONSUMER FINANCING AND LEASES ----------- ---------- ---------- ---------- ----------- --------- ----------- (IN THOUSANDS) Amounts due: Within 1 year $ 144,250 $159,691 $ 303,941 $119,007 $ 208,607 $192,999 $ 824,554 ---------- -------- ---------- -------- ---------- -------- ---------- After 1 year: 1 to 2 years 145,709 81,983 227,692 59,036 214,367 122,769 623,864 2 to 3 years 159,976 78,132 238,108 32,932 209,014 64,867 544,921 3 to 5 years 272,606 158,028 430,634 22,370 289,794 33,635 776,433 5 to 10 years 663,297 278,845 942,142 5,813 520,313 - 1,468,268 10 to 15 years 525,604 76,082 601,686 570 578,282 - 1,180,538 Over 15 years 1,708,085 29,403 1,737,488 - 18,844 - 1,756,332 ---------- -------- ---------- -------- ---------- -------- ---------- Total after 1 year 3,475,277 702,473 4,177,750 120,721 1,830,614 221,271 6,350,356 ---------- -------- ---------- -------- ---------- -------- ---------- Total $3,619,527 $862,164 $4,481,691 $239,728 $2,039,221 $414,270 $7,174,910 ---------- -------- ---------- -------- ---------- -------- ---------- ---------- -------- ---------- -------- ---------- -------- ---------- Amounts due after 1 year on: Fixed-rate loans and leases $1,268,897 $111,284 $1,380,181 $ 23,701 $ 668,386 $221,271 $2,293,539 Adjustable-rate loans 2,206,380 591,189 2,797,569 97,020 1,162,228 - 4,056,817 ---------- -------- ---------- -------- ---------- -------- ---------- Total after 1 year $3,475,277 $702,473 $4,177,750 $120,721 $1,830,614 $221,271 $6,350,356 ---------- -------- ---------- -------- ---------- -------- ---------- ---------- -------- ---------- -------- ---------- -------- ----------
- --------------------------- (1) Amounts presented are the gross balances before adjustment for net discounts, premiums, deferred fees, and unearned discounts and finance charges. See "Financial Review -- Financial Condition - Loans and Leases" on pages 25 through 27 and Note 6 of Notes to Consolidated Financial Statements on pages 47 and 48 of TCF's 1997 Annual Report, incorporated herein by reference, for additional information regarding TCF's loan and lease financing portfolios. RESIDENTIAL REAL ESTATE LENDING TCF's residential real estate lending activities (first mortgage loans for the financing of one- to four-family homes) are conducted through certain of the TCF Banks, through TCF Mortgage Corporation ("TCF Mortgage"), a wholly owned subsidiary of TCF Minnesota, and Standard Financial Mortgage, Inc., a wholly owned subsidiary of TCF Illinois. Residential mortgage loan originations are predominantly secured by properties in Minnesota, Illinois, Wisconsin and Michigan. TCF engages in both adjustable-rate and fixed-rate residential real estate lending. Adjustable-rate residential real estate loans held in TCF's portfolio totaled $2.2 billion at December 31, 1997, compared with $987.6 million at December 31, 1996. The increase is principally due to the acquisition of Standard. Loan originations by TCF Mortgage include loans purchased from loan correspondents and also loans purchased from Burnet Home Loans, a mortgage origination joint venture between a subsidiary of TCF Mortgage and Burnet Mortgage 3 Corporation, an affiliate of Burnet Realty Inc. Burnet Home Loan's loan officers originate loans from certain offices of Burnet Realty Inc. On February 13, 1998, TCF sold its partnership interest in Burnet Home Loans. TCF sells certain residential real estate loans in the secondary market, primarily on a nonrecourse basis. TCF retains servicing rights for the majority of the loans it sells into the secondary market. These sales provide additional funds for loan originations and also generate fee income. TCF may also from time to time purchase or sell servicing rights on residential real estate loans. At December 31, 1997 and 1996, TCF serviced for others $4.4 billion and $4.5 billion, respectively, in residential real estate loans. During 1997 and 1995, TCF sold servicing rights on $144.7 million and $146.3 million of loans serviced for others at net gains of $1.6 million and $1.5 million, respectively. There were no sales of servicing rights on loans serviced for others during 1996. Adjustable-rate residential real estate loans originated by TCF have various adjustment periods and generally provide for limitations on the amount the rate may adjust on each adjustment date, as well as the total amount of adjustments over the lives of the loans. Accordingly, while this portfolio of loans is rate sensitive, it may not be as rate sensitive as TCF's cost of funds. In addition to such interest-rate risk, TCF faces credit risks resulting from potential increased costs to borrowers as a result of rate adjustments on adjustable-rate loans in its portfolio, which will depend upon the magnitude and frequency of shifts in market interest rates. Some adjustable-rate residential real estate loans originated by TCF in prior periods did not provide for limitations on rate adjustments. Credit risk may also result from declines in the values of underlying real estate collateral. See "-- Classified Assets, Loan and Lease Delinquencies and Defaults." TCF Mortgage and the TCF Banks generally adhere to Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Veterans Administration ("VA") or Federal Housing Administration ("FHA") guidelines in originating residential real estate loans. TCF generally requires that all conventional real estate loans with loan-to-value ratios in excess of 80% carry private mortgage insurance. CONSUMER LENDING GENERAL TCF makes consumer loans for personal, family or household purposes, such as debt consolidation or the financing of home improvements, automobiles, vacations and education. All of TCF's consumer loans are originated in markets in which the TCF Banks or TCF's consumer finance subsidiaries have their offices. Total consumer loans for the TCF Banks and the consumer finance subsidiaries totaled $2 billion at December 31, 1997, with $797 million, or 39%, having fixed interest rates and $1.2 billion, or 61%, having adjustable interest rates. The following discussion provides additional information on TCF's consumer lending operations. BANK CONSUMER DIVISION LENDING The consumer lending activities of the TCF Banks include a full range of consumer-oriented products including real estate secured loans, loans secured by personal property and unsecured personal loans. Each of these loan types can be made on an open- or closed-end basis. Consumer loans having adjustable interest rates present a credit risk similar to that posed by residential real estate loans as a result of increased costs to borrowers in the event of a rise in rates (see discussion above under "-- Residential Real Estate Lending"). Consumer loans secured by real estate may present additional credit risk in the event of a decline in the value of real estate collateral. TCF originates student loans for resale. TCF had $135.3 million of education loans held for sale at December 31, 1997, compared with $146.3 million at December 31, 1996. TCF generally retains the student loans it originates until they are fully disbursed. Under a forward commitment agreement with the Student Loan Marketing Association ("SLMA"), TCF can sell the student loans to SLMA once they are fully disbursed, but must sell the student loans to SLMA before they go into repayment status. These loans are originated in accordance with designated guarantor and U.S. Department of Education guidelines and do not involve any independent credit underwriting by TCF. During the years ended December 31, 1997, 1996 and 1995, TCF sold $98.8 million, $102.8 million and $91 million of its student loans, respectively. TCF subcontracts for the servicing of student loans in its portfolio. TCF's future student loan origination activity will be dependent on continued support of guaranteed student loan programs by the U.S. Government and TCF's ability to continue to sell such loans to SLMA or other parties. Recent federal legislation has limited the role 4 of private lenders in originating student loans, and this may reduce the volume of TCF's student loan originations in future periods. CONSUMER FINANCE LENDING TCF engages in consumer finance lending through the consumer finance subsidiaries. TCF had 60 consumer finance offices in 16 states as of December 31, 1997. Additional information concerning the geographic locations of TCF's consumer finance loan portfolio is set forth in Note 6 of Notes to Consolidated Financial Statements on pages 47 and 48 of TCF's 1997 Annual Report, incorporated herein by reference. TCF's consumer finance loan portfolio totaled $521.5 million at December 31, 1997, compared with $496.3 million at December 31, 1996. The Company is seeking to increase the outstanding loan balances and improve the profitability of its consumer finance subsidiaries. Consumer finance lending is generally considered to involve a higher level of credit risk. See "Financial Review -- Financial Condition - Loans and Leases" on pages 25 through 27 of TCF's 1997 Annual Report, incorporated herein by reference, for additional information regarding the operations of the consumer finance subsidiaries. COMMERCIAL REAL ESTATE LENDING TCF currently originates longer-term loans on commercial real estate and, to a lesser extent, shorter-term construction loans. Although TCF's commercial real estate lending activity has declined in recent years, primarily as a result of more stringent underwriting standards and competition from other lenders, TCF is endeavoring to increase its originations of commercial real estate loans to creditworthy borrowers based in its primary markets. TCF may also engage in commercial real estate loan brokerage activity. TCF's commercial real estate loans are generally originated with adjustable interest rates, but TCF also offers shorter-term loans at fixed rates. At December 31, 1997, adjustable-rate loans represented 84% of commercial real estate loans outstanding. At December 31, 1997, TCF had a total of 1,637 outstanding commercial real estate loans secured by properties located in its primary markets. Of this total, 212 loans totaling $461.7 million had balances exceeding $1 million. See "Financial Review -- Financial Condition - Loans and Leases" on pages 25 through 27 of TCF's 1997 Annual Report, incorporated herein by reference, for information regarding the types of properties securing TCF's commercial real estate loans. At December 31, 1997, TCF's commercial construction and development loan portfolio totaled $86.2 million. Construction and permanent commercial real estate lending is generally considered to involve a higher level of risk than single-family residential lending due to the concentration of principal in a limited number of loans and borrowers. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. COMMERCIAL BUSINESS LENDING TCF engages in general commercial business lending. Commercial business loans may be secured by various types of business assets, including commercial real estate, and in some cases may be made on an unsecured basis. TCF is seeking to expand its commercial business lending activity by lending to small and medium-sized businesses. TCF's commercial business lending activities encompass loans with a broad variety of purposes, including corporate working capital loans and loans to finance the purchase of equipment or other acquisitions. TCF also makes loans to individuals who use the funds for business or personal purposes. As part of its commercial business and commercial real estate lending activities, TCF also issues standby letters of credit. At December 31, 1997, TCF had 82 such standby letters of credit outstanding in the aggregate amount of $30.7 million. Recognizing the generally increased risks associated with commercial business lending, TCF originates commercial business loans in order to increase its short-term, variable-rate asset base and to contribute to its profitability through the higher rates earned on these loans and the marketing of other bank products. TCF concentrates on originating commercial business loans primarily to middle-market companies based in its primary markets with borrowing requirements of less than $15 million. Substantially all of TCF's commercial business loans outstanding at December 31, 1997 were to borrowers based in its primary markets. 5 LEASE FINANCING TCF engages in lease financing through Winthrop. Lease financings increased $72.5 million from year-end 1996 to $414.3 million at December 31, 1997, reflecting a $79.7 million increase in direct financing leases, partially offset by a $9.9 million decrease in sales-type leases. See "Financial Review -- Financial Condition - Loans and Leases" on pages 25 through 27 of TCF's 1997 Annual Report, incorporated herein by reference, for additional information on lease financing. CLASSIFIED ASSETS, LOAN AND LEASE DELINQUENCIES AND DEFAULTS TCF has established a classification system for individual commercial loans or other assets based on OCC regulations under which all or part of a loan or other asset may be classified as "substandard," "doubtful," "loss" or "special mention." It has also established overall ratings for various credit portfolios. A loan or other asset is placed in the substandard category when it is considered to have a well-defined weakness. A loan or other asset is placed in the doubtful category when some loss is likely but there is still sufficient uncertainty to permit the asset to remain on the books at its full value. All or a portion of a loan or other asset is classified as loss when it is considered uncollectible, in which case it is generally charged off. In some cases, loans or other assets for which there is perceived some possible exposure to credit loss are classified as special mention. Loans and other assets that are classified are subject to periodic review of their appropriate regulatory classifications. The following table summarizes information about TCF's non-accrual, restructured and past due loans and leases:
AT DECEMBER 31, ------------------------------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (IN MILLIONS) Non-accrual loans and leases $36.8 $26.4 $44.3 $33.8 $88.3 Restructured loans 1.3 3.0 1.6 4.3 10.8 ----- ----- ----- ----- ----- Total non-accrual and restructured loans and leases $38.1 $29.4 $45.9 $38.1 $99.1 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Accruing loans and leases 90 days or more past due $ - $ - $ .7 $ 2.4 $ 5.2 ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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. See "Financial Review -- Financial Condition - Non-Performing Assets" on pages 27 through 29 of TCF's 1997 Annual Report, incorporated herein by reference, for information regarding other problem loans and leases in TCF's portfolio. TCF has established loan and lease loss reserves for known and anticipated problem loans and leases as well as for loans and leases which are not currently known to require a specific reserve. Total loan and lease loss reserves at December 31, 1997 were $82.6 million, which amounts to 1.15% of gross loans and leases outstanding. The following table summarizes the allocation of the allowance for loan and lease losses (includes general and specific loss allocations):
ALLOCATIONS AS A PERCENTAGE OF GROSS LOANS AND LEASES OUTSTANDING BY TYPE(1) AT DECEMBER 31, AT DECEMBER 31, ------------------------------------------- --------------------------------- 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ----- ----- ----- ----- ----- (DOLLARS IN THOUSANDS) Residential real estate $ 3,501 $ 2,379 $ 3,238 $ 2,493 $ 2,449 .10% .11% .12% .09% .11% Commercial real estate 15,065 16,213 20,701 22,006 24,869 1.75 1.88 2.13 2.21 2.28 Commercial business 4,520 3,072 7,261 5,603 13,605 1.89 1.96 4.33 2.93 6.33 Consumer 28,129 26,700 16,667 10,757 7,797 1.38 1.48 1.05 .83 .72 Lease financing 2,004 1,116 595 - - .48 .33 .21 - - Unallocated 29,364 22,385 17,828 15,484 5,724 N.A. N.A. N.A. N.A. N.A. ------- ------- ------- ------- ------- Total allowance balance $82,583 $71,865 $66,290 $56,343 $54,444 1.15 1.33 1.18 1.05 1.12 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
- --------------------------- (1) Excluding loans held for sale. N.A. - Not applicable. 6 The following table summarizes the percentage of the outstanding balance of gross loans and leases in each category to total gross loans and leases, excluding loans held for sale:
AT DECEMBER 31, -------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Residential real estate 50.5% 41.7% 46.5% 49.5% 47.3% Commercial real estate 12.0 15.9 17.2 18.5 22.4 Commercial business 3.3 2.9 3.0 3.6 4.4 Consumer 28.4 33.2 28.3 24.2 22.1 Lease financing 5.8 6.3 5.0 4.2 3.8 ----- ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
The following table summarizes additional information about TCF's allowance for loan and lease losses:
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Balance at beginning of year $ 71,865 $ 66,290 $ 56,343 $ 54,444 $ 47,834 Acquired balance 10,592 - - - - Adjustments for pooling of interests - - - - (56) Charge-offs: Residential real estate (444) (333) (472) (1,070) (896) Commercial real estate (927) (1,944) (4,189) (8,039) (18,942) Commercial business (1,485) (2,786) (1,695) (2,804) (8,473) Consumer (21,660) (18,317) (8,414) (4,081) (4,483) Lease financing (2,297) (914) (247) (109) (2,381) --------- --------- --------- --------- --------- (26,813) (24,294) (15,017) (16,103) (35,175) --------- --------- --------- --------- --------- Recoveries: Residential real estate 167 131 157 222 274 Commercial real estate 2,530 3,690 1,080 2,475 2,132 Commercial business 2,488 2,675 4,862 3,132 2,309 Consumer 3,141 1,918 1,892 1,262 1,353 Lease financing 618 9 - - - --------- --------- --------- --------- --------- 8,944 8,423 7,991 7,091 6,068 --------- --------- --------- --------- --------- Net charge-offs (17,869) (15,871) (7,026) (9,012) (29,107) Provision charged to operations 17,995 21,446 16,973 10,911 35,773 --------- --------- --------- --------- --------- Balance at end of year $ 82,583 $ 71,865 $ 66,290 $ 56,343 $ 54,444 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Ratio of net loan and lease charge-offs to average loans and leases outstanding (1) .30% .29% .13% .18% .63% Year-end allowance as a percentage of year-end gross loan and lease balances (2) 1.15 1.33 1.18 1.05 1.12
- --------------------------- (1) Excluding loans held for sale. In addition to its allowance for loan and lease losses, TCF had an industrial revenue bond reserve of $1.5 million at December 31, 1997. A summary of the industrial revenue bond reserves follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- (IN THOUSANDS) Balance at beginning of year $1,660 $1,960 $2,759 $2,689 $1,463 Adjustments for pooling of interests - - - - 225 Provision for losses (200) (200) (919) - 1,726 Net (charge-offs) recoveries - (100) 120 70 (725) ------- ------- ------- ------- ------- Balance at end of year $1,460 $1,660 $1,960 $2,759 $2,689 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
7 The allowance for loan and lease losses and industrial revenue bond reserves are based upon management's periodic analysis of TCF's loan and lease portfolios and industrial revenue bond financial guarantees. Although appropriate levels of reserves have been estimated based upon factors and trends identified by management, there can be no assurance that the levels are adequate. Economic stagnation or reversals in the economy could give rise to increasing risk of credit losses and necessitate an increase in the required level of reserves. The expansion in the Company's consumer finance operation, and in particular the emphasis on sub-prime automobile lending, creates increased exposure to increases in delinquencies, repossessions, foreclosures and losses that generally occur during economic downturns or recessions. Adverse economic developments are also likely to adversely affect commercial lending operations and increase the risk of loan defaults and credit losses on such loans. Carrying values of foreclosed commercial real estate properties are based on appraisals, prepared by certified appraisers, whenever possible. TCF reviews each external commercial real estate appraisal it receives for accuracy, completeness and reasonableness of assumptions used. Renewed weaknesses in real estate markets may result in further declines in property values and the sale of properties at less than previously estimated values, resulting in additional charge-offs. TCF recognizes the effect of such events in the periods in which they occur. Additional information concerning TCF's allowance for loan and lease losses and industrial revenue bond reserves is set forth in "Financial Review - -- Financial Condition - Allowance for Loan and Lease Losses and Industrial Revenue Bond Reserves" on page 27, in Note 1 of Notes to Consolidated Financial Statements on pages 40 through 42 of TCF's 1997 Annual Report and in Note 7 of Notes to Consolidated Financial Statements on page 49 of TCF's 1997 Annual Report, incorporated herein by reference. INVESTMENT ACTIVITIES The TCF Banks have authority to invest in various types of liquid assets, including United States Treasury obligations and securities of various federal agencies, deposits of insured banks, bankers' acceptances and federal funds. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans and leases. The TCF Banks must also meet reserve requirements of the FRB, which are imposed based on amounts on deposit in various types of deposit categories. Following is a table indicating the investments comprising TCF's portfolio, excluding securities available for sale:
AT DECEMBER 31, ----------------------------- 1997 1996 1995 -------- -------- ------- (IN THOUSANDS) Interest-bearing deposits with banks $ 20,572 $386,224 $11,594 U.S. Government and other marketable securities held to maturity: U.S. Government and agency obligations - - 50 Commercial paper 4,061 3,910 3,666 -------- -------- ------- 4,061 3,910 3,716 Federal Home Loan Bank stock, at cost 82,002 66,061 60,096 Federal Reserve Bank stock, at cost 22,977 - - -------- -------- ------- $129,612 $456,195 $75,406 -------- -------- ------- -------- -------- -------
8 Information regarding the carrying values and fair values of TCF's investments is set forth in Note 3 of Notes to Consolidated Financial Statements on page 45 of TCF's 1997 Annual Report, incorporated herein by reference. Following is a table summarizing yields by scheduled maturities for indicated investment securities:
U.S. GOVERNMENT AND AGENCY OBLIGATIONS ALL OTHER TOTAL HELD TO MATURITY INVESTMENTS INVESTMENTS ------------------- ------------------- ------------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ------ ----- ------ ----- ------ ----- (DOLLARS IN THOUSANDS) At December 31, 1997: Due in one year or less $ - - % $ 24,633 6.09% $ 24,633 6.09% No stated maturity - - 104,979(1) 7.04 104,979 7.04 ----- -------- -------- Total $ - - $129,612 6.86 $129,612 6.86 ----- -------- -------- ----- -------- -------- Weighted-average life (in years) - .1 .1 At December 31, 1996: Due in one year or less $ - - % $390,134 5.20% $390,134 5.20% No stated maturity - - 66,061(1) 7.24 66,061 7.24 ----- -------- -------- Total $ - - $456,195 5.50 $456,195 5.50 ----- -------- -------- ----- -------- -------- Weighted-average life (in years) - .1 .1
- --------------------------- (1) Balance represents FHLB stock, a required regulatory investment at adjustable rates having no stated maturity, and FRB stock, a required regulatory investment at fixed rates having no stated maturity. FHLB stock and FRB stock have been excluded from the weighted-average life calculation. Following is a table indicating the investments comprising TCF's securities available for sale:
AT DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- -------- ---------- (IN THOUSANDS) U.S. Government and other marketable securities: U.S. Government and agency obligations $ - $ - $ 1,005 Other - 32 92 ---------- -------- ---------- - 32 1,097 ---------- -------- ---------- Mortgage-backed securities: FHLMC 710,799 317,177 360,631 FNMA 469,900 542,147 655,568 GNMA 43,993 116,388 138,723 Private issuer 200,325 22,531 26,903 Collateralized mortgage obligations 1,114 1,311 18,603 ---------- -------- ---------- 1,426,131 999,554 1,200,428 ---------- -------- ---------- $1,426,131 $999,586 $1,201,525 ---------- -------- ---------- ---------- -------- ----------
Information regarding the amortized cost and fair values of TCF's securities available for sale is set forth in Note 4 of Notes to Consolidated Financial Statements on page 46 of TCF's 1997 Annual Report, incorporated herein by reference. 9 SOURCES OF FUNDS DEPOSITS Deposits are the primary source of TCF's funds for use in lending and for other general business purposes. Deposit inflows and outflows are significantly influenced by economic conditions, interest rates, money market conditions and other factors. Higher-cost borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels or net deposit outflows, or to support expanded activities. Consumer and commercial deposits are attracted principally from within TCF's primary market areas through the offering of a broad selection of deposit instruments including consumer and commercial demand deposit accounts, Negotiable Order of Withdrawal or "NOW" (interest-bearing checking) accounts, money market accounts, regular savings accounts, certificates of deposit and retirement savings plans. The composition of TCF's deposits has a significant impact on its cost of funds. TCF's marketing strategy emphasizes attracting deposits held in checking, regular savings and money market accounts. These accounts provide significant fee income and are a source of low-interest cost funds. Checking, savings and money market accounts comprised 48% of total deposits at December 31, 1997, down from 53% and 49% of total deposits at December 31, 1996 and December 31, 1995, respectively. The decrease reflects the impact of the acquisition of Standard, which had a lower proportion of checking, savings and money-market accounts to total deposits than TCF. In addition, there were approximately 1.3 million retail checking, savings and money market accounts at December 31, 1997, compared with approximately 1.1 million and 1 million such accounts at December 31, 1996 and 1995, respectively. Information concerning TCF's deposits is set forth in "Financial Review - -- Financial Condition - Deposits" on page 29 and in Note 11 of Notes to Consolidated Financial Statements on page 51 of TCF's 1997 Annual Report, incorporated herein by reference. BORROWINGS The FHLB System functions as a central reserve bank providing credit for financial institutions through a regional bank located within a particular financial institution's assigned region. All of the TCF Banks, except for TCF Colorado, are members of the FHLB System, and are required to own a minimum level of FHLB capital stock and are authorized to apply for advances on the security of such stock and certain of their loans and other assets (principally securities which are obligations of, or guaranteed by, the United States Government), provided certain standards related to creditworthiness have been met. TCF's FHLB advances totaled $1.3 billion at December 31, 1997, compared with $1.1 billion at December 31, 1996. FHLB advances are made pursuant to several different credit programs. Each credit program has its own interest rates and range of maturities. The FHLB prescribes the acceptable uses to which the advances pursuant to each program may be made as well as limitations on the size of advances. Acceptable uses prescribed by the FHLB have included expansion of residential mortgage lending and meeting short-term liquidity needs. In addition to the program limitations, the amounts of advances for which an institution may be eligible are generally based on the FHLB's assessment of the institution's creditworthiness. As a result of the failure of a number of savings institutions and reductions in outstanding loans to its members, the FHLB system has become less profitable and its continued viability may depend upon its ability to attract new members. As an additional source of funds, TCF may sell securities subject to its obligation to repurchase these securities under repurchase agreements ("reverse repurchase agreements") with the FHLMC or major investment bankers utilizing government securities or mortgage-backed securities as collateral. Reverse repurchase agreements totaled $112.2 million at December 31, 1997, compared with $293.7 million at December 31, 1996. Generally, securities with a value in excess of the amount borrowed are required to be deposited as collateral with the counterparty to a reverse repurchase agreement. The creditworthiness of the counterparty is important in establishing that the overcollateralized amount of securities delivered by TCF is protected and it is TCF's policy to enter into reverse repurchase agreements only with institutions with a satisfactory credit history. The use of reverse repurchase agreements may expose TCF to certain risks not associated with other sources of funds, including possible requirements to provide additional collateral and the possibility that such agreements may not be renewed. If for some reason TCF were no longer able to obtain reverse repurchase agreement financing, it would 10 be necessary for TCF to obtain alternative sources of short-term funds. Such alternative sources of funds, if available, may be higher-cost substitutes for the reverse repurchase agreement funds. Information concerning TCF's FHLB advances, reverse repurchase agreements and other borrowings is set forth in "Financial Review -- Financial Condition - Borrowings" on page 29 and in Note 12 of Notes to Consolidated Financial Statements on pages 52 and 53 of TCF's 1997 Annual Report, incorporated herein by reference. The following tables set forth TCF's maximum and average borrowing levels for each of the years in the three-year period ended December 31, 1997:
YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Maximum Balances (1): FHLB advances $1,339,578 $1,141,040 $1,089,993 Securities sold under repurchase agreements and federal funds purchased 482,231 647,707 747,825 Discounted lease rentals 241,895 189,105 178,457 Subordinated debt 42,142 42,172 50,676 Collateralized obligations 40,374 41,170 41,817 Other borrowings 61,089 42,808 40,020
- --------------------------- (1) Maximum month-end balances.
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1997 1996 1995 --------------- --------------- ---------------- BALANCE RATE BALANCE RATE BALANCE RATE ------- ---- ------- ---- ------- ---- (DOLLARS IN THOUSANDS) Average Balances and Rates: FHLB advances $817,464 5.89% $674,703 5.52% $860,948 5.89% Securities sold under repurchase agreements and federal funds purchased 346,339 5.74 506,298 5.65 596,935 6.05 Discounted lease rentals 222,558 8.28 180,586 8.25 163,871 8.31 Subordinated debt 37,953 9.44 28,911 8.87 46,429 10.74 Collateralized obligations 37,938 6.43 40,831 6.33 41,586 6.93 Other borrowings 21,656 6.24 15,829 6.39 8,095 6.89
OTHER INFORMATION ACTIVITIES OF SUBSIDIARIES OF TCF FINANCIAL TCF's business operations include those conducted by direct and indirect subsidiaries of TCF Financial. During the year ended December 31, 1997, TCF's subsidiaries were principally engaged in the following activities: Mortgage Banking TCF Mortgage Corporation, a subsidiary of TCF Minnesota, Great Lakes Michigan and Standard Financial Mortgage Corporation, a subsidiary of TCF Illinois, originate, purchase, sell and service residential mortgage loans. During 1997, a subsidiary of TCF Mortgage Corporation was involved in a joint venture known as Burnet Home Loans with Burnet Mortgage Corporation, an affiliate of Burnet Realty Inc., for the origination of residential mortgage loans from offices of Burnet Realty. TCF sold its interest in the joint venture on February 13, 1998. 11 Leasing Winthrop, a subsidiary of TCF Minnesota, provides a range of comprehensive lease finance products. Winthrop leases high-technology and other business-essential equipment to customers ranging from large corporations to small, growing businesses. Annuities and Investment Services TCF Financial Insurance Agency, Inc., TCF Financial Insurance Agency Illinois, Inc., TCF Financial Insurance Agency Wisconsin, Inc. and TCF Financial Insurance Agency Michigan, Inc. are insurance agencies engaging in the sale of fixed-rate, single premium tax-deferred annuities. TCF Securities, Inc. engages in the sale of non-proprietary mutual fund products, and in the sale of variable-rate, single premium tax-deferred annuities. Insurance, Title Insurance and Appraisal Services TCF Agency Minnesota, Inc., TCF Agency Wisconsin, Inc., TCF Agency Illinois, Inc., TCF Agency Colorado, Inc., TCF Agency Insurance Services, Inc. and Lakeland Group Insurance Agency, Inc. provide various types of insurance, principally credit-related insurance, marketed primarily to TCF's customers. North Star Title, Inc. is a title insurance agent for several title insurance underwriters, operating primarily in Minnesota, Illinois, Wisconsin and Michigan, providing title insurance, real estate abstracting, and closing services to affiliates and third parties. North Star Real Estate Services, Inc. provides real estate appraisal services to its affiliates and to third parties. Consumer Finance TCF Financial Services, Inc., TCF Consumer Financial Services, Inc. and TCF Real Estate Financial Services, Inc. make loans to consumers for personal, family or household purposes such as debt consolidation or the financing of home improvements and automobiles. RECENT ACCOUNTING DEVELOPMENTS During the past several years, there has been an ongoing review of the accounting principles and practices used by financial institutions for certain types of transactions. This review is expected to continue by banking regulators, the Securities and Exchange Commission ("SEC"), the Financial Accounting Standards Board ("FASB"), the American Institute of Certified Public Accountants ("AICPA") and other organizations. As a result of this process, there have been new accounting pronouncements which have had an impact on TCF. Further developments may be forthcoming in light of this ongoing review process. In June 1996, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Additional information on SFAS No. 125 is set forth in Note 1 of Notes to Consolidated Financial Statements on pages 40 through 42 of TCF's 1997 Annual Report, incorporated herein by reference. In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." Additional information on SFAS No. 128 is set forth in Note 1 of Notes to Consolidated Financial Statements on pages 40 through 42 of TCF's 1997 Annual Report, incorporated herein by reference. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." Additional information on SFAS No. 123 is set forth in Note 1 of Notes to Consolidated Financial Statements on pages 40 through 42 and Note 18 of Notes to Consolidated Financial Statements on pages 61 and 62 of TCF's 1997 Annual Report, incorporated herein by reference. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." Additional information on SFAS No. 130 is set forth in "Financial Review -- Financial Condition - Recent Accounting Developments" on page 30 of TCF's 1997 Annual Report, incorporated herein by reference. 12 In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Additional information on SFAS No. 131 is set forth in "Financial Review -- Financial Condition - Recent Accounting Developments" on page 30 of TCF's 1997 Annual Report, incorporated herein by reference. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers' disclosures about pension and other postretirement benefits plans. It does not change the measurement or recognition of those plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Restatement of disclosures for earlier periods provided for comparative purposes is required. Management believes the adoption of this statement will not significantly impact TCF's financial condition or results of operations. COMPETITION TCF Minnesota is the third largest depository institution headquartered in Minnesota. TCF Illinois, TCF Wisconsin, TCF Colorado and Great Lakes Michigan compete with a number of larger depository institutions in their market areas. The TCF Banks experience significant competition in attracting and retaining deposits and in lending funds. TCF believes the primary factors in competing for deposits are the ability to offer attractive rates and products, convenient office locations and supporting data processing systems and services. Direct competition for deposits comes primarily from other commercial banks, credit unions and savings institutions. Additional significant competition for deposits comes from institutions selling money market mutual funds and corporate and government securities. The primary factors in competing for loans are interest rates, loan origination fees and the range of services offered. TCF competes for origination of loans with commercial banks, mortgage bankers, mortgage brokers, consumer finance companies, credit unions, insurance companies and savings institutions. TCF, through Winthrop, also competes nationwide with other leasing companies in the financing of high-technology and business-essential equipment. EMPLOYEES As of December 31, 1997, TCF had approximately 5,600 employees, including 1,400 part-time employees. TCF provides its employees with a comprehensive program of benefits, some of which are on a contributory basis, including comprehensive medical and dental plans, life insurance, accident insurance, short- and long-term disability coverage, a pension plan and a shared contribution stock ownership-401(k) plan. REGULATION The banking industry is generally subject to extensive regulatory oversight. TCF Financial, as a publicly held bank holding company, and the TCF Banks, as national banks with deposits insured by the FDIC, are subject to a number of laws and regulations. Many of these laws and regulations have undergone significant change in recent years. These laws and regulations impose restrictions on activities, minimum capital requirements, lending and deposit restrictions and numerous other requirements. Future changes to these laws and regulations are likely and cannot be predicted with certainty. RECENT DEVELOPMENTS Federal legislation enacted in September 1996 addressed a funding shortfall that had resulted in a significant deposit insurance premium disparity between banks insured by the Bank Insurance Fund ("BIF") and thrifts insured by the Savings Association Insurance Fund ("SAIF"). This new legislation imposed a one-time special assessment on thrift institutions such as the TCF Banks and provided a reduction in deposit insurance premiums in subsequent periods and other regulatory reforms. In other federal legislation enacted in 1996, the reserve method of accounting for thrift bad debt reserves was repealed, eliminating the recapture of a thrift's bad debt reserve under certain circumstances, including a thrift institution's conversion to a bank or similar charter changes. As a result of these legislative changes and to reflect TCF's community banking strategies, TCF's management elected to seek the conversion of the TCF Banks from federal savings banks to national banks. In April 1997, the TCF Banks became national banks (collectively, the "Bank Conversion") regulated by the OCC and TCF Financial became a bank holding company regulated by the FRB. As a result of these changes, TCF Financial and the TCF Banks ceased to be regulated by the Office of Thrift Supervision ("OTS"). Among other changes following 13 the Bank Conversion, TCF Illinois and TCF Wisconsin became direct subsidiaries of TCF Financial as opposed to TCF Minnesota, and TCF's annuity and mutual fund sales operations became subsidiaries of the TCF Banks as opposed to TCF Financial. REGULATORY CAPITAL REQUIREMENTS TCF Financial and the TCF Banks are subject to risk-based and leverage capital requirements of the FRB and the OCC, respectively. These requirements are described below. In addition, these regulatory agencies are required by law to take prompt action where institutions do not meet certain other minimum capital standards. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") defines five levels of capital condition, the highest of which is "well-capitalized," and requires that regulatory authorities subject undercapitalized institutions to various restrictions such as limitations on dividends or other capital distributions, limitations on growth or activity restrictions. Undercapitalized banks must also develop a capital restoration plan and the parent bank holding company is required to guarantee compliance with the plan. TCF Financial and the TCF Banks believe they would be considered "well-capitalized" under the FDICIA capital standards. The FRB's risk-based capital guidelines include among their objectives making regulatory capital requirements more sensitive to differences in risk profiles of banking organizations, factoring off-balance-sheet exposures into the assessment of capital adequacy and minimizing disincentives to holding liquid, low-risk assets. Under these guidelines, a bank holding company's assets and certain off-balance sheet items are assigned to one of four risk categories, each weighted differently in accordance with the perceived level of risk posed by such assets or off-balance-sheet items. FRB guidelines also prescribe two "tiers" of capital. "Tier 1" capital includes common stockholders' equity; qualifying noncumulative perpetual preferred stock (including related surplus); qualifying cumulative perpetual preferred stock (including related surplus), subject to certain limitations; and minority interests in the equity accounts of consolidated subsidiaries. Tier 1 capital excludes goodwill and certain other intangible and other assets. "Supplementary" or "Tier 2" capital consists of the allowance for loan and lease losses, subject to certain limitations; perpetual preferred stock and related surplus, subject to certain conditions; hybrid capital instruments (i.e., those with characteristics of both equity and debt), perpetual debt and mandatory convertible debt securities; and term subordinated debt and intermediate-term preferred stock (including related surplus), subject to certain limitations. The maximum amount of Tier 2 capital that is allowed to be included in an institution's qualifying total capital is 100% of Tier 1 capital, net of goodwill and other intangible assets required to be deducted. TCF Financial is currently required to maintain (i) Tier 1 capital equal to at least four percent of its risk-weighted assets and (ii) total capital (the sum of Tier 1 and Tier 2 capital) equal to eight percent of risk-weighted assets. The FRB also requires bank holding companies to maintain a minimum Tier 1 "leverage ratio" (measuring Tier 1 capital as a percentage of adjusted total assets) of at least three percent. Higher leverage ratio requirements (a minimum additional "cushion" of 100 to 200 basis points) are imposed for institutions that do not have the highest regulatory rating or that fail to meet certain other criteria. At December 31, 1997, TCF believes it met all these requirements. See Note 15 of Notes to Consolidated Financial Statements on page 56 of TCF's 1997 Annual Report, incorporated herein by reference. The FRB has not advised TCF of any specific minimum Tier 1 leverage ratio applicable to it. The FRB's guidelines indicate that the FRB expects that bank holding companies experiencing internal growth or making acquisitions should maintain stronger capital positions, substantially above the minimum supervisory levels, without significant reliance on intangible assets. In addition, the guidelines provide that the FRB will use Tier 1 leverage guidelines in its inspection and supervisory process and as part of its analysis of applications to be approved by the FRB (this would include applications relating to bank holding company activities, acquisitions or other matters). The guidelines also indicate that the FRB will review the Tier 1 leverage measure periodically and will consider adjustments needed to reflect significant changes in the economy, financial markets and banking practices. The OCC also imposes on the TCF Banks regulatory capital requirements that are substantially similar to those imposed by the FRB, and TCF believes each of the TCF Banks complied with OCC regulatory capital requirements at December 31, 1997. 14 The FRB and the OCC have recently adopted rules that could permit them to quantify and account for interest-rate risk exposure and market risk from trading activity and reflect these risks in higher capital requirements. New legislation, additional rulemaking, or changes in regulatory policies may affect future regulatory capital requirements applicable to TCF Financial and the TCF Banks. The ability of TCF Financial and the TCF Banks to comply with regulatory capital requirements may be adversely affected by legislative changes or future rulemaking or policies of their regulatory authorities, or by unanticipated losses or lower levels of earnings. RESTRICTIONS ON DISTRIBUTIONS Dividends or other capital distributions from the TCF Banks to TCF Financial are an important source of TCF Financial's ability to pay dividends on its common stock, to make payments on TCF Financial's other borrowings, or for other cash needs. The TCF Banks' ability to pay dividends is heavily dependent on regulatory policies and regulatory capital requirements. The ability to pay such dividends in the future may be adversely affected by new legislation or regulations, or by changes in regulatory policies. In general, the TCF Banks may not declare or pay a dividend to TCF Financial in excess of 100% of their net profits during a year combined with their retained net profits for the preceding two years without prior approval of the OCC. The TCF Banks' ability to make any capital distributions in the future may require regulatory approval and may be restricted by their regulatory authorities. The TCF Banks' ability to make any such distributions may also depend on their earnings and ability to meet minimum regulatory capital requirements in effect during future periods. The OCC also has the authority to prohibit the payment of dividends by a national bank when it determines such payments would constitute an unsafe and unsound banking practice. These capital adequacy standards may be higher than existing minimum capital requirements. In addition, tax considerations may limit the ability of the TCF Banks to make dividend payments in excess of their current and accumulated tax "earnings and profits" ("E&P"). Annual dividend distributions in excess of E&P could invoke a tax liability based on the amount of excess earnings distributed and current tax rates. REGULATION OF TCF FINANCIAL AND AFFILIATE AND INSIDER TRANSACTIONS TCF Financial is subject to regulation as a bank holding company. It is required to register with the FRB and is subject to FRB regulations, examinations and reporting requirements relating to its bank holding companies. As subsidiaries of a bank holding company, the TCF Banks are subject to certain restrictions in their dealings with TCF Financial and with other companies affiliated with TCF Financial, and also with each other. As a result of FDICIA, TCF Financial may be required to make up certain capital deficiencies of the TCF Banks. Under FRB policy, a bank holding company must serve as a source of strength for its subsidiary banks. Under this policy, the FRB may require a holding company to contribute additional capital to an undercapitalized subsidiary bank. In addition, Section 55 of the National Bank Act may permit the OCC to order the pro rata assessment of shareholders of a national bank where the capital of the bank has become impaired. If a shareholder fails to pay such an assessment within three months, the OCC may order the sale of the shareholder's stock to cover a deficiency in the capital of a subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors. Under the Bank Holding Company Act ("BHCA"), a bank holding company must obtain FRB approval before acquiring more than 5% control, or substantially all of the assets, of another bank or bank holding company, or merging or consolidating with another bank holding company. The BHCA also generally prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, or conducting activities permitted by the FRB as being closely related and proper incidents to the business of banking. RESTRICTIONS ON CHANGE IN CONTROL Federal and state laws and regulations contain a number of provisions which impose restrictions on changes in control of financial institutions such as the TCF Banks, and which require regulatory approval prior to any such changes in control. The Restated Certificate of Incorporation of TCF Financial and a Shareholder Rights Plan adopted by TCF Financial in 1989, among other items, contain features which may inhibit a change in control of TCF Financial. 15 ACQUISITIONS AND INTERSTATE OPERATIONS Under federal law, interstate merger transactions may be approved by federal bank regulators without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks opted out of the Riegle-Neal Interstate Banking and Branching Act of 1994 (the "Act") by adopting a law after the date of enactment of the Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches by banks are permitted only if the law of the state in which the branch is located permits such acquisitions. Interstate mergers and branch acquisitions may also be subject to certain nationwide and statewide insured deposit concentration amounts described above. INSURANCE OF ACCOUNTS; DEPOSITOR PREFERENCE The deposits of the TCF Banks are insured by the FDIC up to $100,000 per insured depositor. Substantially all of TCF's deposits are SAIF-insured, but TCF also has deposits insured by the BIF. The FDIC has established a risk-based deposit insurance assessment under which deposit insurance assessments are based upon an institution's capital strength and supervisory condition, as determined by the institution's primary regulator. The annual insurance premiums on bank deposits insured by the BIF and SAIF may vary between $0 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. In addition to risk-based deposit insurance assessments, assessments may be imposed on deposits insured by either the BIF or the SAIF to pay for the cost of Financing Corporation ("FICO") funding. FICO assessment rates for 1997 ranged from $.0126 to $.013 per $100 of deposits annually for BIF-assessable deposits and from $.063 to $.065 per $100 of deposits annually for SAIF-assessable deposits. An increase in deposit insurance rates assessed against one of the TCF Banks could have a material adverse effect on TCF, depending on the amount and duration of the increase. In addition, the FDIC is authorized to terminate a depository institution's deposit insurance if it finds that the institution is being operated in an unsafe and unsound manner or has violated any rule, regulation, order or condition administered by the institution's regulatory authorities. Any such termination of deposit insurance is likely to have a material adverse effect on TCF, the severity of which would depend on the amount of deposits affected by such a termination. Under federal law, deposits and certain claims for administrative expenses and employee compensation against an insured depository institution are afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the liquidation or other resolution of such an institution by any receiver appointed by regulatory authorities. Such priority creditors would include the FDIC. EXAMINATIONS AND REGULATORY SANCTIONS TCF is subject to periodic examination by the FRB, OCC and the FDIC. Bank regulatory authorities may impose on institutions found to operating in an unsafe or unsound manner a number of restrictions or new requirements, including but not limited to growth limitations, dividend restrictions, individual increased regulatory capital requirements, increased loan and real estate loss reserve requirements, increased supervisory assessments, activity limitations or other restrictions that could have an adverse effect on such institutions, their holding companies or holders of their debt and equity securities. Various enforcement remedies, including civil money penalties, may be assessed against an institution or an institution's directors, officers, employees, agents or independent contractors. Subsidiaries of TCF are also subject to state and/or self-regulatory organization licensing, regulation and examination requirements in connection with certain insurance, mortgage banking, securities brokerage and consumer finance activities. NATIONAL BANK INVESTMENT LIMITATIONS Permissible investments by national banks are limited by the National Bank Act and by rules of the OCC. The OCC adopted new regulations in December 1996 that permit national banks to establish operating subsidiaries engaged in any activity that the OCC determines is incidental to banking. This rule would permit national bank subsidiaries to engage 16 in activities that are traditionally associated with the business of banking, and would also permit certain activities not traditionally associated with banking. The OCC's new rule imposes certain supervisory limitations on subsidiaries engaged in activities that are not permitted for the parent bank, including notice and comment procedures for activities not previously approved, corporate governance requirements and certain supervisory requirements, including a regulatory capital deduction requirement and application of transactions with affiliates limitations. FUTURE LEGISLATIVE AND REGULATORY CHANGE; LITIGATION AND ENFORCEMENT ACTIVITY There are a number of respects in which future legislative or regulatory change, or changes in enforcement practices or court rulings, could adversely affect TCF, and it is generally not possible to predict when or if such changes may have an impact on TCF. Legislative proposals for tax reform have sought the elimination of certain tax benefits for single premium annuities, which, if adopted, could impair TCF's ability to market annuity products. Recent legislation and administrative action has limited the role of private lenders in education loans and may adversely impact the profitablilty of student lending activity. TCF's non-interest income in future periods may be negatively impacted by pending state and federal legislative proposals which, if enacted, could limit loan, deposit or other fees and service charges. Financial institutions have also increasingly been the subject of private class action lawsuits challenging escrow account practices, private mortgage insurance requirements, the use of loan brokers and other practices. The Community Reinvestment Act ("CRA") and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. In recent periods, federal regulatory agencies, including the FRB and the Department of Justice ("DOJ"), have sought a more rigorous enforcement of the CRA and other fair lending laws and regulations. The DOJ is authorized to use the full range of its enforcement authority under the fair lending laws. The DOJ has authority to commence pattern or practice investigations of possible lending discrimination on its own initiative or through referrals from the federal financial institutions regulatory agencies, and to file lawsuits in federal court where there is reasonable cause to believe that such violations have occurred. The DOJ is also authorized to bring suit based on individual complaints filed with the Department of Housing and Urban Development where one of the parties to the complaint elects to have the case heard in federal court. A successful challenge to an institution's performance under the CRA and related laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, prospective and retrospective injunctive relief and the imposition of restrictions on mergers and acquisitions activity. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation. The ultimate effects of the foregoing or other possible legal and regulatory developments cannot be predicted but may have an adverse impact on TCF. OTHER LAWS AND REGULATIONS TCF is subject to a wide array of other laws and regulations, both federal and state, including, but not limited to, usury laws, the CRA and regulations thereunder, the Equal Credit Opportunity Act and Regulation B, Regulation D reserve requirements, Regulation E Electronic Funds transfer requirements, the Truth-in-Lending Act and Regulation Z, the Real Estate Settlement Procedures Act and Regulation X, and the Truth-in Savings Act and Regulation DD. TCF is also subject to laws and regulations that may impose liability on lenders and owners for clean-up costs and other costs stemming from hazardous waste located on property securing real estate loans made by lenders or on real estate that is owned by lenders following a foreclosure or otherwise. Although TCF's lending procedures include measures designed to limit lender liability for hazardous waste clean-up or other related liability, TCF has engaged in significant commercial lending activity, and lenders may be held liable for clean up costs relating to hazardous wastes under certain circumstances. TAXATION FEDERAL TAXATION Bad Debt Reserves TCF files consolidated federal income tax returns and is an accrual basis taxpayer. The TCF Banks are subject to federal income tax under the Internal Revenue Code of 1986 (the "Code") in the same general manner as other corporations. Prior to 1996, savings institutions were subject to special bad debt reserve rules and certain other rules. 17 During this period of time, a savings institution that held 60% or more of its assets in "qualifying assets" (as defined in the Code) was permitted to maintain reserves for bad debts and to make annual additions to such reserves that qualified as deductions from taxable income. Beginning in 1996, the favorable bad debt method described above was repealed putting savings institutions on the same tax bad debt method as commercial banks. This legislation requires recapture of the amount of the tax bad debt reserves to the extent that they exceed the adjusted base year reserve ("the applicable excess reserves"). The applicable excess reserves are recaptured over a six-year period. This recapture period can be deferred for a period of up to two years to the extent that a certain residential lending test is met. TCF has previously provided taxes for the applicable excess reserves. IRS Audit History TCF's consolidated tax returns are closed through 1994. See "Financial Review -- Results of Operations - Income Taxes" on page 24, Note 1 of Notes to Consolidated Financial Statements on pages 40 through 42 and Note 13 of Notes to Consolidated Financial Statements on pages 54 and 55 of TCF's 1997 Annual Report, incorporated herein by reference, for additional information regarding TCF's income taxes. STATE TAXATION TCF and its subsidiaries that operate in Minnesota are subject to Minnesota state taxation. A Minnesota corporation's income or loss is allocated based on a three-factor apportionment of the corporation's Minnesota gross receipts, payroll and property over the total gross receipts, payroll and property of all corporations in the unitary group. The corporate tax rate in Minnesota is 9.8%. The Minnesota Alternative Minimum Tax rate is 5.8%. TCF and its subsidiaries that operate in Illinois are subject to Illinois state taxation. The Illinois corporate tax rate is 7.3%. Illinois corporate income or loss is apportioned in a similar manner to Minnesota. Subsequent to the Bank Conversion, all TCF entities are included in a single unitary return and income is allocated using only the sales factor in accordance with Illinois financial organization tax law. TCF and its subsidiaries that operate in Wisconsin are subject to Wisconsin state taxation. The Wisconsin state tax rate is 7.9%, and is computed on a separate company basis. For all TCF entities operating in Wisconsin, except the TCF Banks, the three-factor apportionment method is used. For the TCF Banks, income is allocated using only the sales and payroll factors in accordance with Wisconsin financial organization tax law. TCF and its subsidiaries that operate in Michigan are subject to Michigan state taxation. The corporate tax rate in Michigan is 2.3% and is computed on taxable business activity in Michigan. For all TCF entities operating in Michigan, except for the TCF Banks, the three-factor apportionment method is used. For the TCF Banks, taxable business activity is allocated using only the sales factor in accordance with Michigan financial organization tax law. Currently, TCF and its subsidiaries file state tax returns in all 50 states, and local tax returns in certain cities. ITEM 2. PROPERTIES OFFICES At December 31, 1997, TCF owned the buildings and land for 121 of its bank branch offices, owned the buildings but leased the land for 7 of its bank branch offices and leased the remaining 93 bank branch offices, all of which are well maintained. The properties related to the bank branch offices owned by TCF, including vacant land upon which permanent offices may be constructed, had a depreciated cost of approximately $93 million at December 31, 1997. At December 31, 1997, the aggregate net book value of leasehold improvements associated with leased bank branch office facilities was $11.5 million. In addition to the above-referenced branch offices, TCF owned and leased other facilities 18 with an aggregate net book value of $15 million at December 31, 1997. See Note 8 of Notes to Consolidated Financial Statements on page 50 of TCF's 1997 Annual Report, incorporated herein by reference. COMPUTER EQUIPMENT TCF maintains depositor and borrower customer files on a batch and/or on-line basis, utilizing an IBM computer system. TCF's general ledger accounting and information reporting systems are generally maintained on the mainframe computer. The net book value of all computer equipment was $18.6 million at December 31, 1997. TCF also leases a variety of data processing equipment at a total annual rental of $1.6 million. ITEM 3. LEGAL PROCEEDINGS From time to time, TCF is a party to legal proceedings arising out of its general lending and operating activities. TCF is and expects to become engaged in a number of foreclosure proceedings and other collection actions as part of its loan collection activities. From time to time, borrowers have also brought actions against TCF, in some cases claiming substantial amounts in damages. TCF is also from time to time involved in litigation relating to its retail banking, consumer credit and mortgage banking operations and related consumer financial services, including class action litigation. Management, after review with its legal counsel, believes that the ultimate disposition of its litigation will not have a material effect on TCF's financial condition. On November 2, 1993, TCF Minnesota filed a complaint in the United States Court of Federal Claims seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. TCF Minnesota's claim is based on the government's breach of contract in connection with TCF Minnesota's acquisitions of certain savings institutions prior to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), which contracts allowed TCF Minnesota to treat the "supervisory goodwill" created by the acquisitions as an asset that could be counted toward regulatory capital, and provided for other favorable regulatory accounting treatment. The United States has not yet answered TCF Minnesota's complaint. TCF Minnesota's complaint involves approximately $80.3 million in supervisory goodwill. In August 1995, Great Lakes Michigan filed with the United States Court of Federal Claims a complaint seeking monetary damages from the United States for breach of contract, taking of property without just compensation and deprivation of property without due process. Great Lakes Michigan's claim is based on the government's breach of contract in connection with Great Lakes Michigan's acquisitions of certain savings institutions prior to the enactment of FIRREA in 1989, which contracts allowed Great Lakes Michigan to treat the "supervisory goodwill" created by the acquisitions as an asset that could be counted toward regulatory capital, and provided for other favorable regulatory accounting treatment. The United States has not yet answered Great Lakes Michigan's complaint. Great Lakes Michigan's complaint involves approximately $87.3 million in supervisory goodwill. On July 1, 1996, the United States Supreme Court issued a decision affirming the August 30, 1995 decision of the United States Court of Appeals for the Federal Circuit, which decision had affirmed the Court of Federal Claims' liability determinations in three other "supervisory goodwill" cases, consolidated for review under the title WINSTAR CORP. V. UNITED STATES, 116 S.Ct. 2432 (1996). In rejecting the United States' consolidated appeal from the Court of Federal Claims' decisions, the Supreme Court held in WINSTAR that the United States had breached contracts it had entered into with the plaintiffs which provided for the treatment of supervisory goodwill, created through the plaintiffs' acquisitions of failed or failing savings institutions, as an asset that could be counted toward regulatory capital. Two of the three cases consolidated in the Supreme Court proceedings are now proceeding to trials before the Court of Federal Claims on the issue of damages. One of these trials commenced on February 24, 1997, and the other is currently scheduled to begin on May 11, 1998. In connection with the trials in those cases, the Court of Federal Claims in December of 1996 denied the government's motion seeking to preclude the plaintiffs in these cases from offering evidence regarding the scope and extent of any lost profits they suffered as a result of the government's breach. On December 22, 1997, the Court of Federal Claims issued a decision finding the existence of contracts and governmental breaches of those contracts in four other "supervisory goodwill" cases, consolidated for purposes of that decision only under the title CALIFORNIA FEDERAL BANK V. UNITED STATES, Nos. 92-138C, et al. In reaching its decision, the 19 Court of Federal Claims rejected a number of "common issue" defenses that the government has raised in a number of "supervisory goodwill" cases. There are a variety of contracts and contract provisions in the TCF Minnesota and Great Lakes Michigan transactions. The government has indicated that it will have a number of affirmative defenses against goodwill litigation filed against it. There can be no assurance that the U.S. Supreme Court decision in WINSTAR or the Court of Federal Claims' recent decision in CALIFORNIA FEDERAL will mean that a similar result would be obtained in the actions filed by TCF Minnesota and Great Lakes Michigan. There also can be no assurance that the government will be determined liable in connection with the loss of supervisory goodwill by either TCF Minnesota or Great Lakes Michigan or, even if a determination favorable to TCF Minnesota or Great Lakes Michigan is made on the issue of the government's liability, that a measure of damages will be employed that will permit any recovery on TCF Minnesota's or Great Lakes Michigan's claim. Because of the complexity of the issues involved in both the liability and damages phases of this litigation, and the usual risks associated with litigation, the Company cannot predict the outcome of TCF Minnesota's or Great Lakes Michigan's cases, and investors should not anticipate any recovery. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS TCF's common stock trades on the New York Stock Exchange under the symbol "TCB." The following table sets forth the high and low prices and dividends declared for TCF's common stock. The stock prices represent the high and low sale prices for the common stock on the New York Stock Exchange Composite Tape, as reported by THE WALL STREET JOURNAL.
DIVIDENDS HIGH LOW DECLARED ---- --- -------- 1997: First Quarter $23 3/4 $19 1/2 $.09375 Second Quarter 25 3/16 18 3/4 .125 Third Quarter 29 11/16 24 1/8 .125 Fourth Quarter 34 3/8 27 .125 1996: First Quarter $19 $14 13/16 $.078125 Second Quarter 18 7/8 16 .09375 Third Quarter 19 5/16 15 9/16 .09375 Fourth Quarter 22 11/16 18 3/4 .09375
As of March 13, 1998, there were approximately 11,000 record holders of TCF's common stock. The Board of Directors of TCF has not adopted a formal dividend policy. The Board of Directors intends to continue its present practice of paying quarterly cash dividends on TCF's common stock as justified by the financial condition of TCF. The declaration and amount of future dividends will depend on circumstances existing at the time, including TCF's earnings, financial condition and capital requirements, the cash available to pay such dividends (derived mainly from dividends and distributions from the TCF Banks), as well as regulatory and contractual limitations and such other factors as the Board of Directors may deem relevant. In general, the TCF Banks may not declare or pay a dividend to TCF in 20 excess of 100% of their net profits for that year combined with their retained net profits for the preceding two calendar years without prior approval of the OCC. Restrictions on the ability of the TCF Banks to pay cash dividends or possible diminished earnings of the indirect subsidiaries of the Holding Company may limit the ability of the Holding Company to pay dividends in the future to holders of its common stock. See "REGULATION -- Regulatory Capital Requirements," "REGULATION -- Restrictions on Distributions" and Note 14 of Notes to Consolidated Financial Statements on pages 55 and 56 of TCF's 1997 Annual Report, incorporated herein by reference. Federal income tax rules may also limit dividend payments under certain circumstances. See "TAXATION," and Note 14 of Notes to Consolidated Financial Statements on pages 55 and 56 of TCF's 1997 Annual Report, incorporated herein by reference. 21 ITEM 6. SELECTED FINANCIAL DATA The following table summarizes selected consolidated financial data of TCF and its subsidiaries, and should be read in conjunction with the Consolidated Financial Statements and related notes appearing on pages 34 through 71 of TCF's 1997 Annual Report, incorporated herein by reference.
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER-SHARE DATA) OPERATING DATA: Interest income $682,614 $612,884 $631,198 $568,864 $572,200 Interest expense 289,018 258,316 302,106 283,421 306,067 -------- -------- -------- -------- -------- Net interest income 393,596 354,568 329,092 285,443 266,133 Provision for credit losses 17,795 21,246 16,054 10,911 37,499 -------- -------- -------- -------- -------- Net interest income after provision for credit losses 375,801 333,322 313,038 274,532 228,634 Gain on sale of loans 145 5,443 - - - Loss on sale of mortgage-backed securities - - (21,037) - - Gain (loss) on sale of securities available for sale 8,509 86 (152) 981 10,182 Gain on sale of loan servicing 1,622 - 1,535 2,353 137 Gain on sale of branches 14,187 2,747 1,103 - - Other non-interest income 202,205 173,336 151,104 139,981 150,281 Amortization of goodwill and other intangibles 15,757 3,540 3,163 3,282 2,981 FDIC special assessment - 34,803 - - - Merger-related expenses - - 21,733 - 5,494 Cancellation cost on early termination of interest-rate exchange contracts - - 4,423 - - Other non-interest expense 345,805 315,183 297,583 282,378 275,868 -------- -------- -------- -------- -------- Income before income tax expense and extraordinary items 240,907 161,408 118,689 132,187 104,891 Income tax expense 95,846 61,031 45,482 52,643 41,903 -------- -------- -------- -------- -------- Income before extraordinary items 145,061 100,377 73,207 79,544 62,988 Extraordinary items, net - - (963) - (157) -------- -------- -------- -------- -------- Net income 145,061 100,377 72,244 79,544 62,831 Dividends on preferred stock - - 678 2,710 2,769 -------- -------- -------- -------- -------- Net income available to common shareholders $145,061 $100,377 $ 71,566 $ 76,834 $ 60,062 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Basic earnings per common share: Income before extraordinary items $ 1.72 $ 1.23 $ .89 $ .98 $ .77 Extraordinary items - - (.01) - - -------- -------- -------- -------- -------- Net income $ 1.72 $ 1.23 $ .88 $ .98 $ .77 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Diluted earnings per common share: Income before extraordinary items $ 1.69 $ 1.20 $ .87 $ .94 $ .75 Extraordinary items - - (.01) - - -------- -------- -------- -------- -------- Net income $ 1.69 $ 1.20 $ .86 $ .94 $ .75 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Dividends declared per common share $ .46875 $.359375 $.296875 $ .25 $.171875 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Average common and common equivalent shares outstanding: Basic 84,478 81,904 81,115 78,419 78,013 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Diluted 86,134 83,939 83,560 81,803 80,837 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
22
AT DECEMBER 31, -------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER-SHARE DATA) FINANCIAL CONDITION DATA: Total assets $9,744,660 $7,430,487 $7,507,856 $8,072,299 $7,809,645 Investments (1) 129,612 456,195 75,406 291,437 307,484 Securities available for sale 1,426,131 999,586 1,201,525 138,742 10,073 Loans held for sale 244,612 203,869 242,413 201,511 444,780 Mortgage-backed securities held to maturity - - - 1,601,200 1,751,916 Loans and leases 7,069,188 5,292,920 5,516,348 5,312,760 4,825,169 Goodwill 177,700 15,431 11,569 13,355 14,549 Deposits 6,907,310 4,977,630 5,191,552 5,399,718 5,695,928 Federal Home Loan Bank advances 1,339,578 1,141,040 893,587 1,354,663 945,492 Other borrowings 387,574 567,132 726,314 684,125 587,712 Stockholders' equity 953,680 630,687 582,399 520,786 465,488 Tangible net worth 756,159 604,413 557,912 492,769 434,189 Book value per common share 10.27 7.61 6.98 6.24 5.57 Tangible book value per common share 8.15 7.29 6.69 5.89 5.17
AT OR FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1996 1995 1994 1993 ------- ------- ------- ------- -------- KEY RATIOS AND OTHER DATA: Net interest margin 5.20% 5.27% 4.61% 3.95% 3.69% Return on average assets 1.77 1.39 .95 1.03 .81 Return on average realized common equity 19.57 16.77 13.69 16.55 14.72 Average total equity to average assets 9.12 8.31 7.04 6.33 5.59 Average interest-earning assets to average interest-bearing liabilities 117.15 115.29 111.30 108.35 106.37 Common dividend payout ratio 27.74% 29.95% 34.52% 26.60% 22.92% Number of full service bank offices 221 196 185 177 177
- --------------------------- (1) Includes interest-bearing deposits with banks, federal funds sold, U.S. Government and other marketable securities held to maturity, FRB stock and FHLB stock. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Financial Review on pages 17 through 33 of TCF's 1997 Annual Report, presenting management's discussion and analysis of TCF's financial condition and results of operations, is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The quantitative and qualitative disclosures about market risk set forth on pages 31 through 33 of TCF's 1997 Annual Report are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, Notes to Consolidated Financial Statements, Independent Auditors' Report and Selected Quarterly Financial Data set forth on pages 34 through 71 of TCF's 1997 Annual Report are incorporated herein by reference. See Index to Consolidated Financial Statements on page 32 of this report. 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and executive officers of TCF is set forth on pages 2 through 18 of TCF's definitive proxy statement dated March 20, 1998 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding compensation of directors and executive officers of TCF is set forth on pages 10 through 18 of TCF's definitive proxy statement dated March 20, 1998 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding ownership of TCF's common stock by TCF's directors, executive officers, and certain other shareholders is set forth on pages 9 and 10 of TCF's definitive proxy statement dated March 20, 1998 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and transactions between TCF and management is set forth on pages 15, 16 and 20 of TCF's definitive proxy statement dated March 20, 1998 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS 1. Financial Statements See Index to Consolidated Financial Statements on page 28 of this report. 2. Financial Statement Schedules All schedules to the Consolidated Financial Statements normally required by the applicable accounting regulations are omitted since the required information is included in the Consolidated Financial Statements or the Notes thereto or is not applicable. 3. Exhibits See Index to Exhibits on page 28 of this report. 24 (b) REPORTS ON FORM 8-K A Current Report on Form 8-K, dated September 4, 1997, was filed in connection with TCF's announcement that it had completed its acquisition of Standard. An Amendment No. 1 to Current Report on Form 8-K/A, dated September 4, 1997, was filed in connection with the completion of the Standard acquisition. A Current Report on Form 8-K, dated October 20, 1997, was filed in connection with TCF's announcement that its Board declared a two-for-one stock split in the form of a 100% stock dividend payable November 28, 1997 to shareholders of record as of November 7, 1997, and that TCF's Board declared a cash dividend of 25 cents per common share, to be paid November 28, 1997, prior to the stock split. A Current Report on Form 8-K, dated November 10, 1997, was filed in connection with TCF's execution of an agreement relating to its pending acquisition of 76 branches in Jewel-Osco stores. A Current Report on Form 8-K, dated January 20, 1998, was filed in connection with TCF's announcement that it had authorized the repurchase of up to 5% of the Company's outstanding shares through open market or privately negotiated transactions. A Current Report on Form 8-K, dated January 30, 1998, was filed in connection with TCF's announcement that it had completed the acquisition of 76 branches in Jewel-Osco stores. 25 SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TCF FINANCIAL CORPORATION Registrant By /s/ WILLIAM A. COOPER ----------------------------- William A. Cooper Chairman of the Board and Chief Executive Officer Dated: March 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ WILLIAM A. COOPER Chairman of the Board, Chief Executive March 27, 1998 - ---------------------------------- Officer and Director William A. Cooper /s/ THOMAS A. CUSICK Vice Chairman of the Board, Chief March 27, 1998 - ---------------------------------- Operating Officer and Director Thomas A. Cusick /s/ LYNN A. NAGORSKE President and Director March 27, 1998 - ---------------------------------- Lynn A. Nagorske /s/ RONALD J. PALMER Executive Vice President, Chief March 27, 1998 - ---------------------------------- Officer and Treasurer (Principal Ronald J. Palmer Financial Officer) Chairman of the Board of Great Lakes March 27, 1998 - ---------------------------------- National Bank Michigan and Director Robert J. Delonis /s/ MARK R. LUND Senior Vice President, Assistant March 27, 1998 - ---------------------------------- Treasurer and Controller (Principal Mark R. Lund Accounting Officer) Chairman of the Board of TCF National March 27, 1998 - ---------------------------------- Bank Illinois and Director David H. Mackiewich /s/ JOHN L. MORGAN President of Winthrop Resources March 27, 1998 - ---------------------------------- Corporation and Director John L. Morgan /s/ BRUCE G. ALLBRIGHT Director March 27, 1998 - ---------------------------------- Bruce G. Allbright Director March 27, 1998 - ---------------------------------- William F. Bieber /s/ RUDY BOSCHWITZ Director March 27, 1998 - ---------------------------------- Rudy Boschwitz Director March 27, 1998 - ---------------------------------- John M. Eggemeyer III /s/ ROBERT E. EVANS Director March 27, 1998 - ---------------------------------- Robert E. Evans /s/ LUELLA G. GOLDBERG Director March 27, 1998 - ---------------------------------- Luella G. Goldberg /s/ DANIEL F. MAY Director March 27, 1998 - ---------------------------------- Daniel F. May
26 /s/ THOMAS J. McGOUGH Director March 27, 1998 - ---------------------------------- Thomas J. McGough Director March 27, 1998 - ---------------------------------- Mark K. Rosenfeld /s/ RALPH STRANGIS Director March 27, 1998 - ---------------------------------- Ralph Strangis Director March 27, 1998 - ---------------------------------- Ronald A. Ward
27 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial statements of TCF and its subsidiaries, included in TCF's 1997 Annual Report, are incorporated herein by reference in this report:
PAGE IN 1997 DESCRIPTION ANNUAL REPORT ----------- ------------- Independent Auditors' Report 69 Consolidated Statements of Financial Condition at December 31, 1997 and 1996 34 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1997 35 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1997 36 Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 1997 38 Notes to Consolidated Financial Statements 40 Selected Quarterly Financial Data (Unaudited) 70
INDEX TO EXHIBITS
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 3(a) Restated Certificate of Incorporation of TCF Financial Corporation, as amended [incorporated by reference to Exhibit 3(a) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431], as amended June 5, 1997 . . . . . . . 3(b) Bylaws of TCF Financial Corporation, as amended [incorporated by reference to Exhibit 3(b) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 4(a) Rights Agreement, dated as of May 23, 1989, between TCF Financial Corporation and Manufacturers Hanover Trust Company [incorporated by reference to Exhibit 1 to TCF Financial Corporation's Registration Statement on Form 8-A, No. 0-16431 (filed May 25, 1989)], as amended October 1, 1995 [incorporated by reference to Exhibit 4(a) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, No. 0-16431 (filed November 14, 1995)], as amended October 20, 1997 . . . . . . . . . . . . . . . . . . . . . . . 4(b) Indenture dated July 1, 1996 relating to 9.50% Senior Notes due 2003 between Winthrop Resources Corporation ("Winthrop") and Norwest Bank Minnesota, National Association, as Trustee [incorporated by reference to Exhibit 4.5 to Winthrop's Registration Statement on Form S-2, File No. 333-04539 (filed May 24, 1996)], as amended by First Supplemental Indenture dated as of June 20, 1997 by and among Winthrop, TCF Financial Corporation and Norwest Bank Minnesota, National Association, as Trustee [incorporated by reference to Exhibit 4(d) to TCF Financial Corporation's Amendment No. 1 to Registration Statement on Form S-4, File No. 333-25905 (filed May 21, 1997)]
28
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 4(c) Copies of instruments with respect to long-term debt will be furnished to the Securities and Exchange Commission upon request. 10(a) Stock Option and Incentive Plan of TCF Financial Corporation, as amended [incorporated by reference to Exhibit 10.1 to TCF Financial Corporation's Registration Statement on Form S-4, No. 33-14203 (filed May 12, 1987)]; Second Amendment, Third Amendment and Fourth Amendment to the Plan [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, No. 0-16431]; Fifth Amendment to the Plan [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, No. 0-16431]; amendment dated January 21, 1991 [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431]; and as further amended by amendment dated January 28, 1992 and amendment dated March 23, 1992 (effective April 15, 1992) [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, No. 0-16431] 10(b) TCF Financial 1995 Incentive Stock Program, as amended October 1, 1995 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431], as amended October 22, 1996 [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 0-16431] 10(c) Amended and Restated TCF Financial Corporation Executive Deferred Compensation Plan effective July 21, 1997, and as amended effective January 1, 1998 . . . . . . . . . . . . . . . . . . . . 10(d) Trust Agreement for TCF Financial Corporation Executive Deferred Compensation Plan, as amended [the Trust Agreement incorporated by reference to Exhibit 10(c) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, No. 0-16431]; amendment effective April 1, 1991 [incorporated by reference to Exhibit 10(c) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431]; and as further amended by amendment dated March 23, 1992 [incorporated by reference to Exhibit 10(c) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, No. 0-16431]; as amended July 23, 1996 [incorporated by reference to Exhibit 10(d) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 0-16431]; as amended on October 20, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 10(e) Employment Agreement of William A. Cooper, dated July 1, 1996 [incorporated by reference to Exhibit 10(a) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, No. 0-16431], as amended March 1, 1997 [incorporated by reference to Exhibit 10(e) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 0-16431] 10(f) Change in Control Agreement of William A. Cooper, dated July 1, 1996 [incorporated by reference to Exhibit 10(b) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, No. 0-16431]
29
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 10(g) Severance Agreement of Thomas A. Cusick, dated August 22, 1988 [incorporated by reference to Exhibit 19(c) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431], amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(f) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431], and amendment dated October 24, 1995 [incorporated by reference to Exhibit 10(f) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(h) Severance Agreement of William E. Dove, dated August 22, 1988 [incorporated by reference to Exhibit 19(d) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431], amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(g) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431], and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(g) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(i) Severance Agreement of Robert E. Evans, dated August 23, 1988 [incorporated by reference to Exhibit 19(e) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431], amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(h) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431], and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(h) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(j) Severance Agreement of Lynn A. Nagorske, dated August 22, 1988 [incorporated by reference to Exhibit 19(f) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431], amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(i) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431], and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(i) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(k) Severance Agreement of Gregory J. Pulles, dated August 23, 1988 [incorporated by reference to Exhibit 19(g) to TCF Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, No. 0-16431], amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(j) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431], and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(j) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(l) Severance Agreement of Barry N. Winslow, dated December 30, 1988 and amendment thereto dated December 4, 1990 [incorporated by reference to Exhibit 10(n) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431], and amendment thereto dated October 24, 1995 [incorporated by reference to Exhibit 10(m) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(m) Supplemental Employee Retirement Plan, as amended and restated effective July 21, 1997. . . . . . . . . . . . . . . . . . . . . . . 10(n) Trust Agreement for TCF Financial Corporation Supplemental Employee Retirement Plan, dated August 21, 1991 [incorporated by reference to Exhibit 10.16 to TCF Financial Corporation's Registration Statement on Form S-2, filed November 15, 1991, No. 33-43988]; as amended on October 20, 1997....
30
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 10(o) TCF Financial Corporation Senior Officer Deferred Compensation Plan as amended and restated effective July 21, 1997, and as amended effective January 1, 1998. . . . . . . . . . . . . . . . . . . . . . 10(p) Trust Agreement for TCF Financial Corporation Senior Officer Deferred Compensation Plan [incorporated by reference to Exhibit 10(p) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, No. 0-16431]; amendment effective April 1, 1991, [incorporated by reference to Exhibit 10(q) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, No. 0-16431]; amendment dated December 18, 1994 [incorporated by reference to Exhibit 10(q) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, No. 0-16431]; as amended July 23, 1996 [incorporated by reference to Exhibit 10(p) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 0-16431]; as amended October 20, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 10(q) Directors Stock Program [incorporated by reference to Program filed with registrant's definitive proxy statement dated March 22, 1996, No. 0-16431] 10(r) Management Incentive Plan-Executive [incorporated by reference to Plan filed with registrant's definitive proxy statement dated March 16, 1994, No. 0-16431] and 1995 Plan Acknowledgment [incorporated by reference to Exhibit 10(s) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(s) 1996 Performance-Based Incentive Policy [incorporated by reference to Policy filed with registrant's definitive proxy statement dated March 22, 1996, No. 0-16431]; 1996 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(t) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431]; Incentive Compensation 1997 Plan [incorporated by reference to Plan filed with registrant's definitive proxy statement dated March 17, 1997, No. 0-16431]; 1997 Management Incentive Plan-Executive [incorporated by reference to Exhibit 10(t) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 0-16431]; and 1998 Management Incentive Plan-Executive . . . . . . . . . . . . . . . . . . . . . . 10(t) Supplemental Pension Agreement with Robert E. Evans, dated July 9, 1991 [incorporated by reference to Exhibit 10.22 to TCF Financial Corporation's Registration Statement on Form S-4, No. 33-57290 (filed January 22, 1993)] 10(u) Employment Agreement of Robert J. Delonis, dated February 9, 1995 [incorporated by reference to Exhibit 10(v) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, No. 0-16431], as amended December 18, 1995 [incorporated by reference to Exhibit 10(w) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431], as amended January 23, 1998 . . . . 10(v) TCF Directors Deferred Compensation Plan [incorporated by reference to Plan filed with registrant's definitive proxy statement dated March 15, 1995, No. 0-16431], as amended October 22, 1996 [incorporated by reference to Exhibit 10(x) to TCF Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, No. 0-16431]
31
EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 10(w) TCF Directors Retirement Plan dated October 24, 1995 [incorporated by reference to Exhibit 10(y) to TCF Financial Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, No. 0-16431] 10(x) Employment Agreement of John L. Morgan, dated November 6, 1996 [incorporated by reference to Exhibit 10.8 to Winthrop Resources Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, No. 0-20123], as amended on February 28, 1997 . . 10(y) Employment Agreement of David Mackiewich dated September 5, 1997 . . 11 Statement regarding computation of earnings per common share . . . . 13 TCF Financial Corporation 1997 Annual Report (portions incorporated by reference) . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Subsidiaries of TCF Financial Corporation (as of March 24, 1998) . . 24 Consent of KPMG Peat Marwick LLP dated March 27, 1998. . . . . . . .
32 EX-3.A 2 EXHIBIT 3.A EXHIBIT 3(a) - -------------------------------------------------------------------------------- STATE OF DELAWARE CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION - -------------------------------------------------------------------------------- TCF Financial Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of directors of TCF Financial Corporation resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said Corporation, declaring said amendment to be advisable and directing that the amendment proposed be considered at the next annual meeting. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "4" (Section A) so that, as amended, said Article 4.A shall be and read as follows: A. Authorized Shares The total number of shares of all classes of stock which the Corporation shall have the authority to issue is one hundred seventy million (170,000,000) shares, $.01 par value, divided into two classes of which one hundred and forty million (140,000,000) shares shall be Common Stock (hereinafter the "Common Stock") and thirty million (30,000,000) shares shall be Preferred Stock (hereinafter the "Preferred Stock"). The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote without a separate vote of the holders of Preferred Stock as a class. SECOND: That thereafter, pursuant to resolution of its Board of Directors, at an annual meeting of the stockholders of said corporation duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said TCF Financial Corporation has caused this certificate to be signed by Gregory J. Pulles, an Authorized Officer this 5 day of June, 1997. BY: /s/ Gregory J. Pulles --------------------- TITLE OF OFFICER: Secretary ------------------ EX-4.A 3 EXHIBIT 4.A EXHIBIT 4(a) SECRETARIAL CERTIFICATION BOARD OF DIRECTORS TCF FINANCIAL CORPORATION OCTOBER 20, 1997 RE: SHAREHOLDER RIGHTS PLAN *********************************************************************** Following discussion, and upon motion duly made, seconded and carried, the following resolutions were adopted: WHEREAS, the Corporation has maintained a Shareholder Rights Plan dated as of May 23, 1989 (the "Plan"); and WHEREAS, the Board of Directors of the Corporation desires to amend the Plan in contemplation of the declaration of a 100% stock dividend which would be payable on the common stock, $.01 par value of the Corporation (the "Common Stock") in November 1997 (the "Stock Dividend"); NOW, THEREFORE, BE IT HEREBY: RESOLVED, that an amendment to the Plan substantially in the form of Exhibit A hereto is hereby approved. Such amendment shall provide for an amendment to paragraph (b) of Section 7 of such Plan to read as follows: (b) The Purchase Price for each one one-hundreth of a Preferred Share pursuant to the exercise of a Right shall be $180.00 until November 30, 1997, and thereafter shall be $90.00, subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. FURTHER, RESOLVED, that William A. Cooper, Lynn A. Nagorske and Gregory J. Pulles, and each of them, whether acting alone or with the Secretary (the "Authorized Officers") shall be and they hereby are authorized, empowered and directed to execute and deliver such documents and take such actions and to advance funds and to pay such costs and expenses as may be necessary or appropriate, in the judgment of such Authorized Officer, in order to carry out the purposes and intents of these resolutions. FURTHER RESOLVED, that any person dealing with any of the Authorized Officers in connection with any of the foregoing matters shall be conclusively entitled to rely upon the authority of such Authorized Officer and upon their execution of any document, agreement or instrument, the same shall be the valid and binding obligations of the Corporation, enforceable in accordance with its terms. FURTHER RESOLVED, that all of the acts and doings of an Authorized Officer, whether heretofore or hereafter taken or done, which are in conformity with the purposes and intents of these resolutions, shall be and the same are hereby in all respects ratified, approved and confirmed. I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby certify that the foregoing is a true and correct copy of excerpt of minutes of the Board of Directors Meeting of TCF Financial Corporation held on October 20, 1997, and that the minutes have not been modified or rescinded as of the date hereof. (Corporate Seal) Dated: March 19, 1998 /s/ Gregory J. Pulles ------------------------------ Gregory J. Pulles EX-10.C 4 EXHIBIT 10.C EXHIBIT 10(c) - #1 TCF FINANCIAL EXECUTIVE DEFERRED COMPENSATION PLAN Amended and Restated as of July 21, 1997 1. DEFERRAL OF INCENTIVE COMPENSATION AND SALARIES. a. From time to time eligible employees ("Employees") of TCF Financial Corporation ("TCF Financial") or any of its direct or indirect subsidiaries (each such corporation being referred to hereinafter as the "Company") may, by written notice, elect to have payment of a portion of their salary for the next succeeding calendar year, and/or all or a portion of their incentive compensation payable for the next succeeding calendar year, deferred as hereinafter provided. Each such deferral of compensation shall be (and is hereinafter referred to as) a "Deferred Amount." Notwithstanding the foregoing, however, an Employee may not elect to defer any portion of salary or incentive compensation with respect to any calendar year, unless such Employee's deferrals with respect to such year are at least $1,000 in the aggregate, and no deferral may be made of any salary or incentive compensation payable within 12 months after such Employee has received a distribution of pre-tax from the TCF Employees Stock Ownership Plan - 401(k) pursuant to the financial hardship withdrawal provisions of such plan. b. Any elections with respect to Deferred Amounts of salary shall be exercised in writing by the Employee prior to the latest to occur of the following: (i) the beginning of the calendar year for which the salary is to be earned; (ii) such Employee's first day of employment service in that year; or (iii) the first day of the calendar month next following the date the Employee first becomes eligible to participate in the Plan. Any election with respect to Deferred Amounts of incentive compensation shall be made no later than December 31 of the calendar year preceding the calendar year in which the periods of service are rendered for which the incentive compensation is to be paid. An election of Deferred Amounts, once made, is irrevocable, except as provided in paragraph 6 hereof. c. Deferred Amounts shall be subject to the rules set forth in this document, and each Employee shall have the right to receive cash payments on account of previously Deferred Amounts only in the amounts and under the circumstances hereinafter set forth. d. Employees eligible to participate in this Plan are Employees of a Company who have been designated by TCF Financial as subject to the reporting requirements of Section 16(a) under the Securities Exchange Act of 1934. Eligibility shall be determined annually as of the latest practicable date prior to the commencement of each new calendar year. In the event an Employee ceases to be eligible for this Plan during the course of a calendar year, the Employee's eligibility shall nevertheless continue through the end of that calendar year. Notwithstanding the foregoing, individuals who become employees of a Company as a result of a merger or acquisition shall not be eligible Employees under this Plan unless and until TCF Financial has adopted a resolution identifying them as eligible Employees. 2. PERSONNEL COMMITTEE. The Committee (the "Committee") shall consist of such members of the Personnel Committee of the Board of Directors of TCF Financial Corporation who qualify as non-employee directors from time to time under Rule 16b-3 of the Securities and Exchange Commission. Full power and authority to construe, interpret, and administer this Plan document shall be vested in the Committee. The Committee shall have full power and authority to make each determination provided for in this Plan document, and in this connection, to promulgate such rules and regulations as the Committee considers necessary or appropriate for the implementation and management of this Plan. The Committee shall have sole and absolute discretion in the performance of its powers and duties under this Plan. All determinations made by the Committee shall be final, conclusive and binding upon the Companies, each Employee and former Employee and their designees, unless found by a court of competent jurisdiction to have been arbitrary and capricious. The Committee shall have authority to designate officers of TCF Financial and to delegate authority to such officers to receive documents which are required to be filed with the Committee, to execute and provide directions to the Trustee and other administrators, and to do such other actions as the Committee may specify on its behalf, and any such actions undertaken by such officers shall be deemed to have the same authority and effect as if done by the Committee itself. 3. DEFERRED COMPENSATION ACCOUNTS. Each Company shall establish on its books a separate account ("Account") for each of its Employees who becomes a participant in this Plan, and each such Account shall be maintained as follows: a. Each Account shall be credited with the Deferred Amounts elected by the Employee for whom such Account is established as of the date on which such Deferred Amount would otherwise have been paid to the Employee. b. To the extent that a Company has made contributions to the Trust described in paragraph 4 with respect to an Employee's Deferred Amounts, the Employee's Account shall thereafter be adjusted as described in paragraph 4. To the extent such contributions have not been made with respect to an Employee's Deferred Amounts, and within 30 days after the date on which such Deferred Amounts are credited to an Employee's Account, they shall have been deemed to have been invested in such investments as shall be permitted by the Committee and as the Employee shall direct. While an Employee's Account is deemed to be so invested, it shall be credited with all interest, dividends (whether in stock, cash, or other property), stock splits, or other property that would have been received if the Deferred Amounts had actually been so invested. All cash deemed to have been received with respect to investments deemed to have been made for an Employee's Account shall be deemed to be reinvested in such investments as the Employee shall direct as of a date selected by the Committee, which date shall be not less than 30 days after receipt of such direction, and the balance credited to an Employee's Account as of any date shall be equal to the fair market value of the investments deemed to have been made for such Account as of such date. c. Although the value of an Employee's Account is to be measured by the value of and income from certain investments, the value of and income from such investments are merely a measuring device to determine the payments to be made to each Employee hereunder. Each Employee, and each other recipient of an Employee's Deferred Amounts pursuant to paragraph 7, shall be and remain an unsecured general creditor of the Company by which he is employed with respect to any payments due and owing to such Employee hereunder. If a Company should from time to time, in its discretion, actually purchase the investments deemed to have been made for an Employee's Account, either directly or through the trust described in paragraph 4, such investments shall be solely for the Company's or such trust's own account, and the Employees shall have no right, title or interest therein. 4. TRUST. TCF Financial may establish a trust (of the type commonly known as a "rabbi trust") to aid in the accumulation of assets for payment of Deferred Amounts. In the event that such a Trust is established, the amounts credited to the Employee's Accounts shall be adjusted as follows: a. Each Company may, in its discretion, contribute to the trust an amount equal to the balance credited to the Account of each Employee (other than Employees who have made the election described in paragraph 3.c.) employed by such Company on the date of such contribution. Thereafter, each Company may, in its discretion, contribute to the trust an amount equal to the Deferred Amounts of the Employees employed by such Company within five business days after the Deferred Amount is earned by the Employee. The assets of the trust shall be invested in such investments as may be permitted by the Committee and directed by an Employee for his own Account. Any investment direction of an Employee shall be made consistent with Section 10 and shall be irrevocable with respect to the calendar year to which it applies. Insofar as the trustee of the Trust ("Trustee") has acquired an investment for an Employee's Account pursuant to such directions, the Employee shall have the right to determine confidentially whether such investment will be tendered in a tender or exchange offer, and to direct the Trustee accordingly. The terms of the trust shall be consistent with the terms of this Plan. The Trustee shall be a corporate trustee independent of the Company or, if individual(s), shall not include at any time any person who is or has been eligible for participation in this Plan. Nothing herein shall be construed as requiring the Company to make any contributions to the trust. To the extent such contributions are actually made, the trust assets shall remain subject to the claims of the Company's general creditors in the event of its insolvency. b. The trust shall provide for separate accounts in the name of each Employee who has elected a Deferred Amount. Except as provided in paragraph 4.d., from and after the date as of which such accounts are established, the balances in the Accounts established for Employees pursuant to this Plan shall be equal to the balances credited to such separate accounts. Each such separate account shall then be adjusted as follows: (i) Contributions made by the Companies to the trust on behalf of such Employee, and all dividends or other distributions made with respect to property allocated to such separate account, and shall be credited to such separate account and invested as the Employee shall direct. (ii) Each Employee's separate account shall be increased by the amount of any increase in the fair market value, as determined by the Trustee, of any assets allocated to such separate account, and shall be decreased by any decrease in the fair market value of such assets, as determined by the Trustee. (iii) Each Employee's separate account shall be reduced by any distributions made to the Employee from the trust which are chargeable to such separate account. c. An Employee's right to direct the investment of the Employee's separate account shall continue during any period of distribution subsequent to the Employee's termination of employment in the same manner as if the Employee had continued as an active Employee, although the Committee may, in its discretion, add additional registered mutual funds or collective or common trustee funds which are available only for the accounts of terminated Employees if the Committee deems such funds to be particularly appropriate or suitable for such accounts. d. The adjustments described in this paragraph 4 shall only be made to an Employee's Account to the extent that a Company has made contributions to the trust pursuant to this paragraph 4. If for any reason such contributions have not been made then, and only to that extent, the Employee's Account shall be adjusted as provided in paragraph 3.b. 5. PAYMENT OF DEFERRED AMOUNT. Not later than the next regularly scheduled meeting of the Committee following the termination of an Employee's employment or disability (as defined herein), the Committee shall direct the Trustee to commence distribution of the amounts credited to such Employee's Account. Commencing within the 30 day period following the Committee's direction, the balance credited to the Employee's Account shall be paid as follows: a. For distributions commencing on or after January 1, 1996 (or distributions commencing on or after January 1, 1994 after a termination of employment due to death or disability), payment shall be in fifteen annual installments except that the Committee may determine on a case by case basis to approve a different payment schedule for an Employee after taking into account whether such a schedule would be in the best interests of TCF Financial, including whether the Employee has executed or will execute a non-competition agreement in form and scope reasonably acceptable to the Committee, and such other factors as the Committee considers appropriate in each case. Any alternative payment schedule approved by the Committee under this paragraph 5.a. may be in the form of installments over such period as the Committee selects, in the form of a lump sum, or any combination of installments and lump sum payments as the Committee determines to be in TCF Financial's best interests. For distributions commencing prior to January 1, 1996 and not after a termination of employment due to death or disability, and for distributions from the Accounts of Employees who did not consent to the terms of this paragraph 5.a., the balance in the Account shall be paid as provided in paragraph h of this section. b. The first payment under paragraph 5.a. shall be paid on a date selected by the Committee which is no later than 30 days after the Committee's direction as to the form and timing of distributions is made, or if no date is selected, the later of 30 days after the Committee's action or 30 days after the Employee's termination of employment. Succeeding installments (if any) shall be paid on January 31 of each calendar year following the calendar year in which the first payment was made. c. Each payment shall be made in cash or in kind as the Committee, in its discretion, shall determine, or if the Committee makes no instruction, the payment shall be in cash, except that any portion of the Account which is invested in securities of TCF Financial shall be distributed in kind. Each annual installment payment shall have a value equal to the amount credited to Employee's Account, as reported on the latest available account statement as of the first day of the calendar month in which the installment is paid, multiplied by a fraction, the numerator of which is one and the denominator of which is the number if installments remaining to be paid, including the current installment. d. For purposes of this section, an Employee's employment is considered to terminate as of the date which is the later of (i) Employee's last date of service for the Company, or (ii) the last date on which there is an employment relationship between the Employee and a Company. e. For purposes of this section, an Employee is disabled as of the date the Employee is eligible for payments under the long term disability plan of a Company. f. In the event installment payments commence and any installments are unpaid at the time of Employee's death, the payments shall be made at the times and in such amounts as if Employee were living to the persons specified in paragraph 7.a. g. For purposes of this section, an Employee's termination of employment is considered a retirement if it occurs on or after the date the employee has attained age 55. h. For distributions to Employees who did not consent to the terms of paragraph 5.a. or distributions otherwise not subject to the terms of Paragraph 5.a., distribution shall occur on or about the 30th day after the Employee's termination of employment and shall consist of a single lump sum equal to the total value of the Employee's Account unless the termination of employment was due to retirement or disability (as defined herein), in which case the distribution shall be in five annual installments PROVIDED THAT the Committee shall reduce the number of the installments as necessary to provide for annual payments of at least $15,000 or, if the value of the Employee's Account is less than $15,000 as of any annual installment payment date, the Account shall be paid in full as of such installment payment date. Distributions shall be in the form of cash, except that any portion of the Account invested in securities of TCF Financial shall be distributed in kind, unless the Committee directs otherwise, and the value of any portion of the account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. i. Notwithstanding any other provision of this Section 5 or any payment schedule approved by the Committee pursuant to this Section 5 and regardless of whether payments have commenced under this Section 5, in the event that the Internal Revenue Service should finally determine with respect to an Employee who has terminated employment with the Company that part or all of the value of the Employee's Deferred Amounts or Plan Account which have not actually been distributed to the Employee, or that part or all of a related Trust Account which has not actually been distributed to the Employee, is nevertheless required to be included in the Employee's gross income for federal and/or State income tax purposes, then the Deferred Amounts or the Account or the part thereof that was determined to be includible in gross income shall be distributed to the Employee in a lump sum as soon as practicable after such determination without any action or approval by the Committee. A "final determination" of the Internal Revenue Service for purposes of this paragraph 5.i. is a determination in writing by said Service ordering the payment of additional tax, reporting of additional gross income or otherwise requiring Plan amounts to be included in gross income, which is not appealable or which the Employee does not appeal within the time prescribed for appeals. 6. EMERGENCY PAYMENTS. In the event of an "unforeseeable emergency" as determined hereafter, the Committee may determine the amounts payable under paragraph 5 hereof and pay all or a part of such amounts without regard to the payment dates provided in paragraph 5 to the extent the Committee determines that such action is necessary in light of immediate and heavy needs of the Employee (or his beneficiary) occasioned by severe financial hardship. For the purposes of this paragraph 6, an "unforeseeable emergency" is a severe financial hardship to the Employee resulting from a sudden and unexpected illness or accident of the Employee or beneficiary, or of a dependent (as defined in Section 152(a) of the Internal Revenue Code of 1986, as amended) of the Employee or beneficiary, loss of the Employee's or beneficiary's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Employee or beneficiary. Payments shall not be made pursuant to this paragraph 6 to the extent that such hardship is or may be relieved: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Employee's or beneficiary's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of the Employee's deferrals under the Plan. Such action shall be taken only if Employee (or Employee's legal representatives or successors) signs an application describing fully the circumstances which are deemed to justify the payment, together with an estimate of the amounts necessary to prevent such hardship, which application shall be approved by the Committee after making such inquiries as the Committee deems necessary or appropriate. 7. METHOD OF PAYMENTS. a. In the event of Employee's death, payments shall be made to the persons (including a trustee or trustees) named in the last written instrument signed by Employee and received by the Committee prior to Employee's death, or if Employee fails to so name any person, the amounts shall be paid to Employee's estate or the appropriate distributee thereof. The Committee, the Company, and the Trustee shall be fully protected in making any payments due hereunder in accordance with what the Committee believes to be such last written instrument received by it. b. Payments due to a legally incompetent person may be made in such of the following ways as the Committee shall determine: (i) directly to such incompetent person, (ii) to the legal representative of such incompetent person, or (iii) to some near relative of the incompetent person to be used for the latter's benefit. c. Except as otherwise provided in paragraphs 7.a. and b., all payments to persons entitled to benefits hereunder shall be made to such persons in person or upon their personal receipt or endorsement, and shall not be grantable, transferable, or otherwise assignable in anticipation of payment thereof, in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be pledged, encumbered, or otherwise liable or taken for any obligation of such person. d. All payments to persons entitled to benefits hereunder shall be made out of the general assets, and shall be the sole obligations, of the Employer(s) by which the Eligible Employee was employed, except to the extent that such payments are made out of the trust described in paragraph 4. 8. CLAIMS PROCEDURES. a. If a claim for benefits made by any person (the "Applicant") is denied, the Committee shall furnish to the Applicant within 90 days after its receipt of such claim (or within 180 days after such receipt if special circumstances require an extension of time) a written notice which: (i) specifies the reasons for the denial, (ii) refers to the pertinent provisions of the Plan on which the denial is based, (iii) describes any additional material or information necessary for the perfection of the claim and explains why such material or information is necessary, and (iv) explains the claim review procedures. b. Upon the written request of the Applicant submitted within 60 days after his receipt of such written notice, the Committee shall afford the Applicant a full and fair review of the decision denying the claim and, if so requested: (i) permit the Applicant to review any documents which are pertinent to the claim, (ii) permit the Applicant to submit to the Committee issues and comments in writing, and (iii) afford the Applicant an opportunity to meet with a quorum of the Committee as a part of the review procedure. c. Within 60 days after its receipt of a request for review (or within 120 days after such receipt if special circumstances, such as the need to hold a hearing, require an extension of time) the Committee shall notify the Applicant in writing of its decision and the reasons for its decision and shall refer the Applicant to the provisions of the Plan which form the basis for its decision. 9. MISCELLANEOUS. a. Except as limited by paragraph 7.c. and except that an Employee shall have a continuing power to designate a new recipient in the event of Employee's death at any time prior to such death without the consent or approval of any person theretofore named as Employee's recipient by an instrument meeting the requirements of paragraph 7.a., this document shall be binding upon and inure to the benefit of each Company, the Employees, their legal representatives, successors and assigns, and all persons entitled to benefits hereunder. b. Any notice given in connection with this document shall be in writing and shall be delivered in person or by registered mail or overnight delivery service, return receipt requested. Any notice given by registered mail or overnight delivery service shall be deemed to have been given upon the date of delivery indicated on the return receipt, if correctly addressed. c. Nothing in this document shall interfere with the rights of any Employee to participate or share in any profit sharing or pension plan which is now in force or which may at some future time become a recognized plan of any Company. d. Nothing in this document shall be construed as an employment agreement nor as in any way impairing the right of any Company to terminate an Employee's employment at will. e. This Plan constitutes a mere promise by the Company to make benefit payments in the future, and it is intended to be unfunded for tax purposes and for the purposes of Title I of ERISA. The rights of an Employee or beneficiary to receive benefit payments hereunder are solely those of an unsecured general creditor of the Company. 10. SPECIAL PROVISION FOR EMPLOYEES SUBJECT TO SECTION 16 OF THE SECURITIES AND EXCHANGE ACT OF 1934. Notwithstanding anything in this Plan to the contrary, for an Employee who is subject to liability under Section 16 of the Securities and Exchange Act of 1934, the following special provisions apply: a. Any election of Deferred Amounts of salary or incentive compensation under paragraph 1.b. shall be exercised in writing by the Employee and filed with the Committee no later than the date prior to the date the first salary or incentive compensation, part or all of which is to become a Deferred Amount, is earned. b. Any investment election under paragraph 3 or 4 relating to initial or periodic investment of Deferred Amounts in stock of TCF Financial, whether as a result of an initial or yearly election to participate in the Plan or a change in the level of participation in the Plan, shall be exercised in writing by the Employee and filed with the Committee no later than the date prior to the date the first salary or incentive compensation, part or all of which is to become a Deferred Amount, is earned. Deferred Amounts of salary or incentive compensation, to the extent they are forwarded to the trustee, shall be so forwarded on or immediately after the payroll date of the salary or incentive compensation which is being deferred and shall be deemed to be invested on the same date on which the Trustee purchases the designated investments. The Trustee shall purchase such investments as soon as practicable after the payroll date for which the Deferred Amount is received, and in the case of investments consisting of equity securities of TCF Financial, no later than two weeks after such payroll date, with the exact date and purchase terms to be determined by a stock broker or other investment professional on the basis of such person's judgment as to the best available purchase price for the Plan and Trust. If Deferred Amounts are not forwarded to the Trustee, investments in equity securities of TCF Financial shall be deemed to occur at the average of the high and low trading price for such securities on the payroll date. c. Any investment election under paragraph 3 or 4 relating to liquidation of existing investments and reinvestment or reapplication of proceeds within the Plan or Trust shall be exercised in writing and filed with the Committee by the Employee on any date, provided that any such election relating to equity securities of TCF Financial is at least six months after the date of the Employee's last such discretionary election of an opposite type (buy-sell or sell-buy) relating to equity securities of TCF Financial under this or any other benefit plan of the Company. Liquidation and/or reinvestment of funds within the Plan or Trust under Section 3 or 4 shall occur as soon as practicable after the Employee's election is filed with the Committee, provided that the Committee determines it is a valid election and, in the case of liquidation or reinvestment in equity securities of TCF Financial, such election is implemented by the Trustee no later than two weeks after the date such election is filed with the Committee and determined to be valid, with the exact date(s) and terms of any such transaction involving equity securities of TCF Financial to be determined by a stock broker or other investment professional on the basis of such person's judgment as to the then best available purchase or sale price for the Plan and Trust. If Deferred Amounts have not been forwarded to the Trustee, to the extent there are no actual funds to implement the Employee's election, such election shall be deemed to be implemented at the average of the high and low sales prices for the equity securities of TCF Financial on the date the election was filed with the Committee and determined to be valid and, for other investments, on such basis as the Trustee reasonably determines. d. In the event of one or more distributions under Section 5 of this Plan to an Employee subject to this Section, the Committee shall specify whether such distributions will be in cash or in kind (or, if the Committee does not so specify, the distribution will be in cash except that securities of TCF Financial will be distributed in kind) and, the value of any cash portion of such distribution shall be equal to the value obtained upon liquidating the investment, provided that such liquidation occurs on the latest practicable day prior to the distribution date. e. In the case of any Employee subject to this Section, an election under Section 6 for an emergency payout resulting in liquidation of equity securities of TCF Financial shall be exercised by such Employee no sooner than six months after any election by such Employee to purchase equity securities of TCF Financial under this plan or any other plan of the Company. The value of equity securities of TCF Financial for purposes of such distribution shall be their value on or about the third business day prior to the date of the distribution. 11. SPECIAL PROVISIONS REGARDING OSPIP AND DEFERRED STOCK. Effective for deferrals of incentive compensation with respect to the 1992 calendar year and thereafter, Employees' deferrals of incentive compensation payable in the form of common stock of TCF Financial pursuant to the Officer's Stock Performance Incentive Plan ("OSPIP") or otherwise subject to issuance as Deferred Stock under the Stock Option and Incentive Plan of TCF Financial , the TCF Financial 1995 Stock Incentive Plan, or any successor stock option plan or restricted stock plan of TCF Financial shall be credited to the Employee's account as "Deferred Stock" and the Employee shall be prohibited from making any investment election with respect to such Deferred Stock until the date or dates specified in an award agreement entered into pursuant to the Stock Option and Incentive Plan by TCF Financial, subject to acceleration upon the occurrence of events as specified in such agreement. Upon and after such date or dates, the Deferred Stock credits to the Employee's account shall be subject to investment elections the same as any other credits in the Employee's accounts. In the event TCF Financial so notifies the Trustee, dividend credits on Deferred Stock shall be withheld until such time as the Deferred Stock becomes subject to investment elections. In the event the Employee's employment terminates or in the event of the Employee's disability, any Deferred Stock credits not yet subject to investment election by the Employee shall be reduced to zero and no benefits shall be payable with respect to them. Deferred Stock credits shall not be distributable pursuant to paragraph 6 (Emergency Payments) until they are subject to investment election by the Employee. 12. TERMINATION OR AMENDMENT. The Board of Directors of TCF Financial may, in its discretion, terminate or amend this document from time to time, provided, however, that no such termination or amendment shall (without the Employee's consent) alter any Employee's right to payments of amounts previously credited to such Employee's Account or delay the time or times at which an Employee is entitled to receive payments with respect to his Deferred Amounts, unless such termination or amendment is necessary as a condition of receiving a ruling from the Internal Revenue Service that Employees' Deferred Amounts will not be included in their gross income for Federal income tax purposes until such time as they are actually paid or otherwise made available to the Employee. EXHIBIT 10(c) - #2 SECRETARIAL CERTIFICATION BOARD OF DIRECTORS MEETING TCF FINANCIAL CORPORATION DECEMBER 15, 1997 RE: AMENDMENT OF EXECUTIVE AND SENIOR OFFICER DEFERRED COMPENSATION PLANS TO ALLOW ANNUAL ELECTION OF PAYMENT METHOD *********************************************************************** Following discussion, and upon motion duly made, seconded and carried, the following resolutions were adopted: WHEREAS, this Board is authorized to amend the Executive and/or Senior Officer Deferred Compensation Plans and WHEREAS, this Board considers it advisable to amend such plans to allow terminated participants in pay status to annually elect the timing and form of the payments to be made in the upcoming year; NOW, THEREFORE, IT IS HEREBY: RESOLVED, that Section 5b of the Executive Deferred Compensation Plan and of the Senior Officer Deferred Compensation Plan is amended effective January 1, 1998 to provide as follows: The first payment under paragraph 5.a shall be paid on a date selected by the Committee which is no later than 30 days after the Committee's direction as to the form and timing of distributions is made, or if no date is selected, the later of 30 days after the Committee's action or 30 days after the Employee's termination of employment. Succeeding installments (if any) shall be paid on January 31 of each calendar year following the calendar year in which the first payment was made, except that an executive who has terminated employment and commenced receiving payments may elect each year to have the payment otherwise due on January 31 of the next succeeding year paid as monthly installments instead, with each payment made on the last day of each month. Any such election shall be made in writing and delivered to the Committee on or before December 1 prior to any year for which it is to be effective. Such election may also indicate the assets to be liquidated in connection with each monthly payment. The amount of each monthly payment shall be equal to the amount that would otherwise be paid in one payment in January, divided by 12. Any assets to be liquidated in order to pay monthly benefits shall be liquidated on the last practicable date prior to the installment's payment date. In no event shall this paragraph be construed as allowing the executive to lengthen or shorten the number of years over which his or her benefits will be paid; the election herein pertains only to timing of payments within a year. I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby certify that the foregoing is a true and correct copy of excerpt of minutes of the Board of Directors Meeting of TCF Financial Corporation held on December 15, 1997, and that the minutes have not been modified or rescinded as of the date hereof. (Corporate Seal) Dated: March 19, 1998 /s/ Gregory J. Pulles ------------------------- Gregory J. Pulles EX-10.D 5 EXHIBIT 10.D EXHIBIT 10(d) AMENDMENT TO TRUST AGREEMENT FOR TCF FINANCIAL EXECUTIVE DEFERRED COMPENSATION PLAN The Trust Agreement for the TCF Financial Executive Deferred Compensation Plan is hereby amended effective November 1, 1997 to replace the existing Article 9.1 with the following: ARTICLE 9 AMENDMENT AND TERMINATION OF THE TRUST SECTION 9.1. The Board of Directors of TCF Financial may, in its discretion, terminate or amend this Trust Agreement from time to time, provided, however, that no such termination or amendment shall (without the Employee's consent) alter any Employee's right to payments of amounts previously credited to such Employee's Account or delay the time or times at which an Employee is entitled to receive payments with respect to his Deferred Amounts, unless such termination or amendment is necessary as a condition of receiving a ruling from the Internal Revenue Service that Employees' Deferred Amounts will not be included in their gross income for Federal income tax purposes until such time as they are actually paid or otherwise made available to the Employee. The Trust Agreement is hereby amended effective October 20, 1997, to replace Article 11 with the following: ARTICLE 11 SPECIAL PROVISIONS FOR EMPLOYEES SUBJECT TO SECTION 16 OF THE SECURITIES AND EXCHANGE ACT OF 1934 SECTION 11.1. Notwithstanding anything in this Trust to the contrary, for an Employee who is subject to liability under Section 16 of the Securities and Exchange Act of 1934, the Company shall administer participation elections and investment elections pursuant to the provisions of Paragraph 10 of the Plan and the Trustee shall provide for investment elections as permitted under Paragraph 10.c. EX-10.M 6 EXHIBIT 10.M EXHIBIT 10(m) TCF FINANCIAL CORPORATION SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN Restated as of July 21, 1997 I. PURPOSE OF PLAN The purpose of this Plan is to provide Eligible Employees with supplemental retirement benefits as set forth herein to remedy limitations or reductions in benefits to such Employees under certain tax-qualified plans. This Plan was originally effective as of October 1, 1988. This restatement of the Plan includes all amendments to the Plan that have been adopted through July 21, 1997. II. DEFINITIONS (a) COMMITTEE. Such members of the Personnel Committee of the Board of Directors of TCF Financial Corporation ("TCF Financial") who qualify from time to time as non-employee directors under Rule 16b-3 of the Securities and Exchange Commission. (b) ELIGIBLE EMPLOYEE. Employees of TCF Financial, or any of its direct or indirect subsidiaries, are eligible for this Plan if they are eligible to participate in either the TCF Financial Executive Deferred Compensation Plan or the TCF Financial Senior Officer Deferred Compensation Plan. Notwithstanding the foregoing, no employee shall be eligible for benefits under Article III of this Plan unless the employee is also an Active Participant in the Stockshare Plan and no Employee shall be eligible for benefits under Article IV of this Plan unless the employee is also a Participant and Qualified Employee in the TCF Pension Plan and individuals who become employees of an Employer as a result of a merger or acquisition shall not be eligible Employees under this Plan unless and until TCF Financial has adopted a resolution identifying them as eligible Employees. (c) STOCKSHARE PLAN. The "Stockshare Plan" is the TCF Employees' Stock Ownership Plan - 401(k) as amended from time to time. (d) TCF PENSION PLAN. The "TCF Pension Plan" is the TCF Cash Balance Pension Plan as amended from time to time; provided, however, that for periods prior to September 1, 1990, the "TCF Pension Plan" is the TCF Pension Plan as in effect on August 31, 1990. (e) INTERNAL REVENUE CODE. The "Internal Revenue Code" is the Internal Revenue Code of 1986, as amended. (f) DEFERRED COMPENSATION. "Deferred Compensation" is any portion of an Eligible Employee's Covered Compensation which such Employee has elected to have treated as Deferred Compensation under Article III of this Plan. (g) COVERED COMPENSATION. "Covered Compensation" is any compensation paid to an Eligible Employee by the Employer in any calendar year, as reported on form W-2, plus any amounts of compensation which would have been paid to the Employee in such calendar year except that such Employee elected to defer such amounts under this Plan or any other tax-qualified or non-tax qualified plan of deferred compensation maintained by an Employer. (h) TCF FINANCIAL. "TCF Financial" is TCF Financial Corporation, a Delaware Corporation. (i) EMPLOYER. "Employer" is TCF Financial, or any of its direct or indirect subsidiary companies which is the employer of an Eligible Employee under this Plan. III. SUPPLEMENTAL BENEFITS RELATED TO THE STOCKSHARE PLAN. (a) CONTRIBUTIONS OF DEFERRED COMPENSATION AND EMPLOYER MATCHING CONTRIBUTIONS. Each Eligible Employee may elect to have treated as Deferred Compensation that portion of such Employee's Covered Compensation which is earned subsequent to the date of such election and which does not exceed the sum of the following: (i) the amount by which such Employee's elective deposits are reduced under the Stockshare Plan, in order to cause such Plan to comply with the limitations set forth in Sections 401(k)(3) and/or 401(m)(2) of the Internal Revenue Code; and (ii) the amount by which such Employee's elective deposits are limited under the Stockshare Plan by the restriction of covered compensation under such Plan to the dollar limitation under Internal Revenue Code Section 401(a)(17); and (iii) the amount by which such Employee's elective deposits are limited under the Stockshare Plan by restrictions on covered compensation under such Plan resulting from anti-discrimination standards under Internal Revenue Code Sections 401(a)(5)(B) and 414(s). For purposes of this subparagraph (iii), a limitation on covered compensation shall be deemed to occur with respect to any amounts which are deferred under the TCF Financial Executive Deferred Compensation Plan or TCF Financial Senior Officer Deferred Compensation Plan and which are excluded from covered compensation under the Stockshare Plan as a result of Internal Revenue Code Sections 401(a)(5)(B) and 414(s); and (iv) the amount by which such Employee's deposits to the Stockshare Plan exceed the limitation in Section 402(g) of the Internal Revenue Code; and (v) for the calendar year ending December 31, 1988, only, the amount by which such Employee voluntarily elects to reduce elective deposits to the Stockshare Plan in order to cause such Plan to comply with the limitations set forth in Sections 401(k)(3) and/or 401(m)(2) of the Internal Revenue Code for such year. Notwithstanding the foregoing, contributions of Deferred Compensation by an Eligible Employee under this paragraph (a) in a calendar year shall not exceed the amount such Employee could have deposited in the Stockshare Plan from such Employee's Covered Compensation as defined in this Plan, reduced by the amount of elective deposits actually made by such Employee to the Stockshare Plan during such calendar year. Any election of Deferred Compensation pursuant to this section (a) shall be in writing, shall be made prior to the beginning of the calendar year in which the Deferred Compensation is earned, or, if later, within thirty (30) days after the employee first becomes eligible (provided such election only applies to compensation earned after the election is received by the Company), shall be applicable to all compensation earned for such calendar year, and shall be irrevocable when received by the Employer. At the same time as an amount of Deferred Compensation is deferred under this paragraph (a), the Employer shall be deemed to contribute to this Plan the amount of Employer Matching Contribution due under the Stockshare Plan with respect to such Deferred Compensation if it had been contributed to the Stockshare Plan, together with the "gross-up" contribution, if any, provided under section (c) of this Article III. (b) ESTABLISHING ACCOUNTS AND VALUATION OF ACCOUNTS. On the date that an amount of Deferred Compensation or Employer Matching Contribution under paragraph (a) would otherwise be paid to the Stockshare Plan (the "contribution date"), the amount of such Deferred Compensation or Employer Matching Contribution shall be credited to an account on the books of the Employer and shall be deemed as of such date to be invested in whole or fractional shares of common stock of TCF Financial. Thereafter, such account shall be increased to reflect the number of shares of TCF Financial stock deemed to be purchased as of each future contribution date (including any fractional shares) and shall be further increased to reflect the deemed purchase of additional shares upon the issuance of a cash dividend on such stock, and shall be further adjusted to reflect any stock splits or stock dividends or other similar events involving a change in the number or form of outstanding shares of TCF Financial stock. Adjustments shall be determined in each case by the Committee and the Committee's determination shall be final. (c) DISTRIBUTIONS FROM ACCOUNTS. An Eligible Employee shall receive a lump sum distribution of cash equal to the then-current value of the number of shares in such Employee's account in this Plan no later than 30 days after the Employee's termination of employment with the Employer or termination of the Stockshare Plan, whichever occurs first. For purposes of the foregoing sentence, a termination of employment shall not be deemed to occur upon a transfer of employment between two or more Employers. Notwithstanding the foregoing, any contributions made pursuant to subsection (a)(v) of this Article III shall be distributable as provided in this subsection (c) unless the Employee elected otherwise prior to the commencement of participation in this Plan and selected a form of distribution set forth below in this subsection(c). In the event the Eligible Employee did not make such an election with respect to contributions under section (a)(v), an Employer contributed to this Plan a "gross-up" amount which was equal to the reasonable estimate of TCF Financial of the rate of income tax which will be applicable to the amount of such Employee's contribution multiplied by the amount of such contribution. An Eligible Employee may elect to have benefits from this Article III distributed in one of the following forms, provided that such election is in writing, is irrevocable, and is executed prior to the commencement of such Employee's participation in this Plan: (i) distribution in five equal annual installments, (ii) distribution in ten equal annual installments, or (iii) distribution of $10,000.00 annually until the account is depleted. Installment payments shall commence on the 15th day of the first calendar quarter immediately following the Employee's termination of employment with succeeding amounts paid on each January 15th thereafter. The amount of each installment under (i) and (ii) shall be determined each year by dividing the total of whole and fractional shares in the account by the number of installments remaining to be paid, including the current installment. If the Eligible Employee is deceased, the distribution shall be payable to the beneficiary or survivor of the Eligible Employee in the form payable to the Eligible Employee hereunder. In the event of one or more distributions to an Eligible Employee under this Article III, the Committee shall specify whether such distributions will be in cash or in TCF Financial stock and for purposes of the distribution the value of such stock shall be equal to its value on or about the first day of the calendar month in which a distribution occurs. IV. SUPPLEMENTAL BENEFITS RELATED TO THE TCF PENSION PLAN. (a) BENEFITS. (i) For pension benefits accrued on or before August 31, 1990, each Eligible Employee shall receive as a supplemental pension benefit under this Plan the actuarial equivalent of the difference between the amount such employee will receive in the form of a normal pension under the TCF Pension Plan (increased by any other supplements to such Plan provided to such Employee in any other pension supplementary agreements) and the amount such Employee would have received in the form of a normal pension under the TCF Pension Plan (and such other supplements) in the absence of the Restrictions defined in subsection (b) below. The normal pension provided under Section IV(a) shall be determined for each Eligible Employee with respect to the TCF Pension Plan as in effect on August 31, 1990. This pension shall be paid in a lump sum which is the actuarial equivalent of the form of the normal pension provided under the TCF Pension Plan as in effect on August 31, 1990. The lump sum value of supplemental pension benefits attributable to service prior to September 1, 1990 shall be determined in accordance with the actuarial assumptions in use for such purpose under the TCF Pension Plan as in effect on or about the date the supplemental pension benefit is paid, determined in a manner consistent with the way such determinations are made under the TCF Pension Plan. (ii) With respect to benefits accrued under the TCF Cash Balance Pension Plan on and after September 1, 1990, the supplemental pension benefit under this Plan shall be equal to an Account Balance which is 0 on September 1, 1990, and thereafter is increased each month by the difference between the pay credit provided to the Eligible Employee for such month under the TCF Cash Balance Pension Plan and the amount such Employee would have received as a pay credit for such month in the absence of the Restrictions defined in subsection (b) below. The Eligible Employee's Account Balance shall also be increased each month by the interest factor applicable to account balances under Section 4.6 of the TCF Cash Balance Pension Plan as of said month. (b) "Restrictions" means: (i) limitations on benefits provided in Internal Revenue Code Section 415 (currently generally $90,000 in annual benefits); (ii) limitations of Covered Compensation under the TCF Pension Plan to the dollar limits provided in Internal Revenue Code Section 401(a)(17); and (iii) limitations on Covered Compensation occurring as a result of the anti-discrimination provisions of Internal Revenue Code Sections 401(a)(5)(B) and 414(s). For purposes of this sub-paragraph (iii), a limitation on covered compensation shall be deemed to occur with respect to any amounts which are deferred under the TCF Financial Executive Deferred Compensation Plan or the TCF Financial Senior Officer Deferred Compensation Plan, and which are excluded from covered compensation under the TCF Pension Plan as a result of Internal Revenue Code Sections 401(a)(5)(B) and 414(s). (c) PAYMENT OF BENEFITS. The Eligible Employee's supplemental pensionbenefit under this Section IV shall be paid in a lump sum twelve months after termination of employment of the Eligible Employee or, in the case of normal, late or early retirement under the TCF Pension Plan, or death, the amount shall be paid in a lump sum as soon as practicable thereafter. In the case of death of the Eligible Employee, such lump sum shall be paid to the Employee's Beneficiary, as defined in the TCF Pension Plan. V. COMMITTEE. The Committee shall have full power to construe, interpret and administer this Plan, including to make any determination required under this Plan and to make such rules and regulations as it deems advisable for the operation of this Plan. The Committee shall have sole and absolute discretion in the performance of their powers and duties under this Plan. A majority of the Committee shall constitute a quorum. Actions of the Committee shall be by a majority of persons constituting a quorum and eligible to vote on an issue. Meetings may be held in person or by telephone. Action by the Committee may be taken in writing without a meeting provided such action is executed by all members of the Committee. To the extent it is feasible to do so, determinations, rules and regulations of the Committee under this Plan shall be consistent with similar determinations, rules and regulations of the Stockshare Plan (Article III benefits) or TCF Pension Plan (Article IV benefits). All determinations of the Committee shall be final, conclusive and binding unless found by a court of competent jurisdiction to have been arbitrary and capricious. The Committee shall have authority to designate officers of TCF Financial and to delegate authority to such officers to receive documents which are required to be filed with the Committee, to execute and provide directions to the Trustee and other administrators, and to do such other actions as the Committee may specify on its behalf, and any such actions undertaken by such officers shall be deemed to have the same authority and effect as if done by the Committee itself. VI BENEFITS UNFUNDED. The rights of beneficiaries, survivors and participants to benefits from this Plan are solely as unsecured creditors of the Employer. Benefits payable under this Plan shall be payable from the general assets of the Employer and there shall be no trust fund or other assets secured for the payment of such benefits. In its discretion, the Employer may purchase or set aside assets, including annuity policies, to provide for the payment of benefits hereunder but such assets shall in all cases remain assets of the Employer. This Plan constitutes a mere promise by the Employers to make benefit payments in the future, and it is intended to be unfunded for tax purposes and for purposes of Title I of ERISA. VII. BENEFICIARIES AND SURVIVORS. An Eligible Employee's beneficiary or survivor under Article III of this Plan shall be the same as the person(s) designated as such pursuant to or under the provisions of the Stockshare Plan, unless the employee has designated in writing and filed with the Committee a different beneficiary for this Plan. An Eligible Employee's beneficiary or survivor under Article IV of this Plan shall be the same as the person(s) designated as such pursuant to or under the provisions of the TCF Pension Plan, unless the Employee has designated in writing and filed with the Committee a different beneficiary for this Plan. VIII. PLAN ADMINISTRATOR, AMENDMENTS, CLAIMS PROCEDURE The Plan Administrator of this Plan is the Committee, which shall have full power to amend this Plan from time to time, or to terminate this Plan, except that no such amendment or termination shall deprive an Eligible Employee or beneficiary or survivor thereof of any benefits accrued under this Plan prior to such amendment or termination without the written consent of such Eligible Employee, or if deceased, the beneficiary or survivor thereof. If an Eligible Employee, or beneficiary or survivor thereof, wishes to make a claim for benefits or disagrees with a determination of the Committee, such person may file a claim and make such appeals as are permitted under the Stockshare Plan (claims for benefits under Article III) or the TCF Pension Plan (claims for benefits under Article IV). The claims shall then be processed as provided for claims under the Stockshare Plan or the TCF Pension Plan, as applicable, except that all determinations which would be made by the "Company" under such Plans shall be made by the Committee instead. IX. MISCELLANEOUS. (a) Notices under this Plan to the Employer, TCF Financial or the Committee shall be sent by Certified Mail, Return Receipt Requested to: Personnel Committee, TCF Financial Corporation, 801 Marquette Avenue, Suite 302, Minneapolis, MN 55402. Notices under this Plan to Eligible Employees or their beneficiaries or survivors shall be sent by Certified Mail to the last known address for such person(s) on the books and records of the Employer, by Certified Mail. (b) Nothing in this Plan shall change an Eligible Employee's status to anything other than an employee "at will" or otherwise enlarge or modify such Employee's employment rights or benefits other than as provided herein. (c) Nothing in this Plan shall abridge an Eligible Employee's rights, or such Employee's beneficiary's or survivor's rights, of participation in the Stockshare Plan or TCF Pension Plan. (d) Expenses of administering the Plan shall be borne by the Employers in proportion to their share of Eligible Employees in this Plan. (e)An Eligible Employee's benefits under this Plan may not be assigned, transferred, pledged or otherwise hypothecated by said Employee or the beneficiary or survivor thereof. EX-10.N 7 EXHIBIT 10.N EXHIBIT 10(n) AMENDMENT TO TRUST AGREEMENT FOR TCF FINANCIAL CORPORATION SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN Article 9 of the existing Trust Agreement is amended effective November 1, 1997, by replacing it with the following: ARTICLE 9 AMENDMENT AND TERMINATION OF THE TRUST SECTION 9.1. The Personnel Committee of the TCF Financial Board of Directors, which is the Plan Administrator of this Plan, shall have full power to amend this Trust from time to time, or to terminate this Trust, except that no such amendment or termination shall deprive an Eligible Employee or beneficiary or survivor thereof of any benefits accrued under this Trust prior to such amendment or termination without the written consent of such Eligible Employee, or if deceased, the beneficiary or survivor thereof. EX-10.O 8 EXHIBIT 10.O EXHIBIT 10(o) - #1 TCF FINANCIAL SENIOR OFFICER DEFERRED COMPENSATION PLAN (Amended and Restated effective July 21, 1997). 1. DEFERRAL OF INCENTIVE COMPENSATION AND SALARIES. a. From time to time eligible employees ("Employees") of TCF Financial Corporation ("TCF Financial") or any of its direct or indirect subsidiaries (each such corporation being referred to hereinafter as the "Company") may, by written notice, elect to have payment of a portion of their salary for the next succeeding calendar year, and/or all or a portion of their incentive compensation payable for the next succeeding calendar year, deferred as hereinafter provided. Each such deferral of compensation shall be (and is hereinafter referred to as) a "Deferred Amount." Notwithstanding the foregoing, however, an Employee may not elect to defer any portion of salary or incentive compensation with respect to any calendar year, unless such Employee's deferrals with respect to such year are at least $1,000 in the aggregate, and no deferral may be made of any salary or incentive compensation payable within 12 months after such Employee has received a distribution of pre-tax deposits from the TCF Employees Stock Ownership Plan - 401(k) pursuant to the financial hardship withdrawal provisions of such plan. b. Any elections with respect to Deferred Amounts of salary shall be exercised in writing by the Employee prior to the latest to occur of the following: (i) the beginning of the calendar year for which the salary is to be earned; (ii) such Employee's first day of employment service in that year; or (iii) the first day of the calendar month next following the date the Employee first becomes eligible to participate in the Plan. Any election with respect to Deferred Amounts of incentive compensation shall be made no later than December 31 of the calendar year preceding the calendar year in which the periods of service are rendered for which the incentive compensation is to be paid. An election of Deferred Amounts, once made, is irrevocable, except as provided in paragraph 6 hereof. c. Deferred Amounts shall be subject to the rules set forth in this document, and each Employee shall have the right to receive cash payments on account of previously Deferred Amounts only in the amounts and under the circumstances hereinafter set forth. a. Employees eligible to participate in this Plan are Employees of a Company who hold the office of Senior Vice President of TCF Financial Corporation or TCF National Bank Minnesota or President or Executive Vice President of an insured institution subsidiary of TCF Financial or President of a direct or indirect subsidiary of TCF Financial; PROVIDED, that an employee who is eligible to participate in the TCF Financial Executive Deferred Compensation Plan shall not be eligible to participate in this Plan. Effective on and after February 9, 1995, employees of Great Lakes National Bank Michigan ("Great Lakes") or Great Lakes National Bank Ohio, are eligible for this plan if they hold the officer position of Senior Vice President or above and are selected for eligibility in the plan by the Chairman and President of Great Lakes. Effective on and after September 1, 1997, the Executive Vice President, Senior Vice President and Vice President, Sales and Marketing of Winthrop Resources Corporation are eligible to participate in this Plan. Notwithstanding the foregoing, individuals who become employees of a Company as a result of a merger or acquisition shall not be eligible Employees under this Plan unless and until TCF Financial has adopted a resolution or amended this Plan to identify them as eligible Employees. 2. PERSONNEL COMMITTEE. The Committee (the Committee") shall consist of such members of the Personnel Committee of the Board of Directors of TCF Financial Corporation who qualify as non-employee directors from time to time under Rule 16b-3 of Securities and Exchange Commission. Full power and authority to construe, interpret, and administer this Plan document shall be vested in the Committee. The Committee shall have full power and authority to make each determination provided for in this Plan document, and in this connection, to promulgate such rules and regulations as the Committee considers necessary or appropriate for the implementation and management of this Plan. The Committee shall have sole and absolute discretion in the performance of its powers and duties under this Plan. All determinations made by the Committee shall be final, conclusive and binding upon the Companies, each Employee and former Employee and their designees, unless found by a court of competent jurisdiction to have been arbitrary and capricious. The Committee shall have authority to designate officers of TCF Financial and to delegate authority to such officers to receive documents which are required to be filed with the Committee, to execute and provide directions to the Trustee and other administrators, and to do such other actions as the Committee may specify on its behalf, and any such actions undertaken by such officers shall be deemed to have the same authority and effect as if done by the Committee itself. 3. DEFERRED COMPENSATION ACCOUNTS. Each Company shall establish on its books a separate account ("Account") for each of its Employees who becomes a participant in this Plan, and each such Account shall be maintained as follows: a. Each Account shall be credited with the Deferred Amounts elected by the Employee for whom such Account is established as of the date on which such Deferred Amount would otherwise have been paid to the Employee. b. To the extent that a Company has made contributions to the Trust described in paragraph 4 with respect to an Employee's Deferred Amounts, the Employee's Account shall thereafter be adjusted as described in paragraph 4. To the extent such contributions have not been made with respect to an Employee's Deferred Amounts, and within 30 days after the date on which such Deferred Amounts are credited to an Employee's Account, they shall be deemed to have been invested in such investments as shall be permitted by the Committee and as the Employee shall direct. While an Employee's Account is deemed to be so invested, it shall be credited with all interest, dividends (whether in stock, cash, or other property), stock splits, or other property that would have been received if the Deferred Amounts had actually been so invested. All cash deemed to have been received with respect to investments deemed to have been made for an Employee's Account shall be deemed to have been reinvested in such investments as the Employee shall direct as of a date selected by the Committee, which date shall be not less than 30 days after receipt of such direction, and the balance credited to an Employee's Account as of any date shall be equal to the fair market value of the investments deemed to have been made for such Account as of such date. c. Although the value of an Employee's Account is to be measured by the value of and income from certain investments, the value of and income from such investments are merely a measuring device to determine the payments to be made to each Employee hereunder. Each Employee, and each other recipient of an Employee's Deferred Amounts pursuant to paragraph 7, shall be and remain an unsecured general creditor of the Company by which he is employed with respect to any payments due and owing to such Employee hereunder. If a Company should from time to time, in its discretion, actually purchase the investments deemed to have been made for an Employee's Account, either directly or through the trust described in paragraph 4, such investments shall be solely for the Company's or such trust's own account, and the Employees shall have no right, title or interest therein. 4. TRUST. TCF Financial may establish a trust (of the type commonly known as a "rabbi trust") to aid in the accumulation of assets for payment of Deferred Amounts. Upon the establishment of such a Trust, the amounts credited to the Employee's Accounts shall thereafter be adjusted as follows: a. Each Company may, in its discretion, contribute to the trust an amount equal to the Deferred Amounts of the Employees employed by such Company within five business days after the Deferred Amount is earned by the Employee. The assets of the trust shall be invested in such investments as may be permitted by the Committee and directed by an Employee for his own Account. Insofar as the trustee of the Trust ("Trustee") has acquired an investment for an Employee's Account pursuant to such directions, the Employee shall have the right to determine confidentially whether such investment will be tendered in a tender or exchange offer, and to direct the Trustee accordingly. The terms of the trust shall be consistent with the terms of this Plan. The Trustee shall be a corporate trustee independent of the Company or, if individual(s), shall not include at any time any person who is or has been eligible for participation in this Plan. Nothing herein shall be construed as requiring the Company to make any contributions to the trust. To the extent such contributions are actually made, the trust assets shall remain subject to the claims of the Company's general creditors in the event of it insolvency. b. The trust shall provide for separate accounts in the name of each Employee who has elected a Deferred Amount. Except as provided in paragraph 4.d., from and after the date as of which such accounts are established, the balances in the Accounts established for Employees pursuant to this Plan shall be equal to the balances credited to such separate accounts. Each such separate account shall then be adjusted as follows: (i) Contributions made by the Companies to the trust on behalf of such Employee, and all dividends or other distributions made with respect to property allocated to such separate account, shall be credited to such separate account and invested as the Employee shall direct. (ii) Each Employee's separate account shall be increased by the amount of any increase in the fair market value, as determined by the Trustee, of any assets allocated to such separate account, and shall be decreased by any decrease in the fair market value of such assets, as determined by the Trustee. (iii) Each Employee's separate account shall be reduced by any distributions made to the Employee from the trust which are chargeable to such separate account. c. An Employee's right to direct the investment of the Employee's separate account shall continue during any period of distribution subsequent to the Employee's termination of employment in the same manner as if the Employee had continued as an active Employee, although the Committee may, in its discretion, add additional registered mutual funds or collective or common trustee funds which are available only for the accounts of terminated Employees if the Committee deems such funds to be particularly appropriate or suitable for such accounts. d. The adjustments described in this paragraph 4 shall only be made to an Employee's Account to the extent that a Company has made contributions to the trust pursuant to this paragraph 4. If for any reason such contributions have not been made then, and only to that extent, the Employee's Account shall be adjusted as provided in paragraph 3.b. 5. PAYMENT OF DEFERRED AMOUNTS. Not later than the next regularly scheduled meeting of the Committee following the termination of an Employee's employment or disability (as defined herein), the Committee shall direct the Trustee to commence distribution of the amounts credited to such Employee's Account. Commencing within the 30 day period following the Committee's direction, the balance credited to the Employee's Account shall be paid as follows: a. For distributions commencing on or after January 1, 1997 (or distributions commencing on or after January 1, 1995 after a termination of employment due to death or disability), payment shall be in fifteen annual installments except that the Committee may determine on a case by case basis to approve a different payment schedule for an Employee after taking into account whether such a schedule would be in the best interests of TCF Financial, including whether the Employee has executed or will execute a non-competition agreement in form and scope reasonably acceptable to the Committee, and such other factors as the Committee considers appropriate in each case. Any alternative payment schedule approved by the Committee under this paragraph 5.a. may be in the form of installments over such period as the Committee selects, in the form of a lump sum, or any combination of installments and lump sum payments as the Committee determines to be in TCF Financial's best interests. For distributions commencing prior to January 1, 1997 and not after a termination of employment due to death or disability, and for distributions from the Accounts of Employees who did not consent to the terms of this paragraph 5.a., the balance in the Account shall be paid as provided in paragraph h of this section. b. The first payment under paragraph 5.a. shall be paid on a date selected by the Committee which is no later than 30 days after the Committee's direction as to the form and timing of distributions is made, or if no date is selected, the later of 30 days after the Committee's action or 30 days after the Employee's termination of employment. Succeeding installments (if any) shall be paid on January 31 of each calendar year following the calendar year in which the first payment was made. c. Each payment shall be made in cash or in kind as the Committee, in its discretion, shall determine, or if the Committee makes no instruction, the payment shall be in cash, except that any portion of the Account which is invested in securities of TCF Financial shall be distributed in kind. Each annual installment payment shall have a value equal to the amount credited to Employee's Account, as reported on the latest available account statement as of the first day of the calendar month in which the installment is paid, multiplied by a fraction, the numerator of which is one and the denominator of which is the number if installments remaining to be paid, including the current installment. d. For purposes of this section, an Employee's employment is considered to terminate as of the date which is the later of (i) Employee's last date of service for the Company, or (ii) the last date on which there is an employment relationship between the Employee and a Company. e. For purposes of this section, an Employee is disabled as of the date the Employee is eligible for payments under the long term disability plan of a Company. f. In the event installment payments commence and any installments are unpaid at the time of Employee's death, the payments shall be made at the times and in such amounts as if Employee were living to the persons specified in paragraph 7.a. g. For purposes of this section, an Employee's termination of employment is considered a retirement if it occurs on or after the date the employee has attained age 55. h. For distributions to Employees who did not consent to the terms of paragraph 5.a. or distributions otherwise not subject to the terms of Paragraph 5.a., distribution shall occur on or about the 30th day after the Employee's termination of employment and shall consist of a single lump sum equal to the total value of the Employee's Account unless the termination of employment was due to retirement or disability (as defined herein), in which case the distribution shall be in five annual installments PROVIDED THAT the Committee shall reduce the number of the installments as necessary to provide for annual payments of at least $15,000 or, if the value of the Employee's Account is less than $15,000 as of any annual installment payment date, the Account shall be paid in full as of such installment payment date. Distributions shall be in the form of cash, except that any portion of the Account invested in securities of TCF Financial shall be distributed in kind, unless the Committee directs otherwise, and the value of any portion of the account distributed in cash shall be equal to the cash received upon its liquidation by the Trustee, provided that such liquidation occurs on the latest practicable date prior to the distribution date. i. Notwithstanding any other provision of this Section 5 or any payment schedule approved by the Committee pursuant to this Section 5 and regardless of whether payments have commenced under this Section 5, in the event that the Internal Revenue Service should finally determine with respect to an Employee who has terminated employment with the Company that part or all of the value of the Employee's Deferred Amounts or Plan Account which have not actually been distributed to the Employee, or that part or all of a related Trust Account which has not actually been distributed to the Employee, is nevertheless required to be included in the Employee's gross income for federal and/or State income tax purposes, then the Deferred Amounts or the Account or the part thereof that was determined to be includible in gross income shall be distributed to the Employee in a lump sum as soon as practicable after such determination without any action or approval by the Committee. A "final determination" of the Internal Revenue Service for purposes of this paragraph 5.i. is a determination in writing by said Service ordering the payment of additional tax, reporting of additional gross income or otherwise requiring Plan amounts to be included in gross income, which is not appealable or which the Employee does not appeal within the time prescribed for appeals. 6. EMERGENCY PAYMENTS. In the event of an "unforeseeable emergency" as determined hereafter, the Committee may determine the amounts payable under paragraph 5 hereof and pay all or a part of such amounts without regard to the payment dates provided in paragraph 5 to the extent the Committee determines that such action is necessary in light of immediate and heavy needs of the Employee (or his beneficiary) occasioned by severe financial hardship. For the purposes of this paragraph 6, an "unforeseeable emergency" is a severe financial hardship to the Employee resulting from a sudden and unexpected illness or accident of the Employee or beneficiary, or of a dependent (as defined in Section 152(a) of the Internal Revenue Code of 1986, as amended) of the Employee or beneficiary, loss of the Employee's or beneficiary's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Employee or beneficiary. Payments shall not be made pursuant to this paragraph 6 to the extent that such hardship is or may be relieved: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Employee's or beneficiary's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of the Employee's deferrals under the Plan. Such action shall be taken only if the Employee (or the Employee's legal representatives or successors) signs an application describing fully the circumstances which are deemed to justify the payment, together with an estimate of the amounts necessary to prevent such hardship, which application shall be approved by the Committee after making such inquiries as the Committee deems necessary or appropriate. 7. METHOD OF PAYMENTS. a. In the event of an Employee's death, payments shall be made to the persons (including a trustee or trustees) named in the last written instrument signed by the Employee and received by the Committee prior to the Employee's death, or if the Employee fails to so name any person, the amounts shall be paid to the Employee's estate or the appropriate distributee thereof. The Committee, the Company, and the Trustee shall be fully protected in making any payments due hereunder in accordance with what the Committee believes to be such last written instrument received by it. b. Payments due to a legally incompetent person may be made in such of the following ways as the Committee shall determine: (i) directly to such incompetent person, (ii) to the legal representative of such incompetent person, or (iii) to some near relative of the incompetent person to be used for the latter's benefit. c. Except as otherwise provided in paragraphs 7.a. and b., all payments to persons entitled to benefits hereunder shall be made to such persons in person or upon their personal receipt or endorsement, and shall not be grantable, transferable, or otherwise assignable in anticipation of payment thereof, in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be pledged, encumbered, or otherwise liable or taken for any obligation of such person. d. All payments to persons entitled to benefits hereunder shall be made out of the general assets, and shall be the sole obligations, of the Employer Companies, except to the extent that such payments are made out of the trust described in paragraph 4. 8. CLAIMS PROCEDURE. a. If a claim for benefits made by any person (the "Applicant") is denied, the Committee shall furnish to the Applicant within 90 days after its receipt of such claim (or within 180 days after such receipt if special circumstances require an extension of time ) a written notice which: (i) specifies the reason for the denial, (ii) refers to the pertinent provisions of the Plan on which the denial is based, (iii) describes any additional material or information necessary for the perfection of the claim and explains why such material or information is necessary, and (iv) explains the claim review procedures. b. Upon the written request of the Applicant submitted within 60 days after his receipt of such written notice, the Committee shall afford the Applicant a full and fair review of the decision denying the claim and, if so requested: (i) permit the Applicant to review any documents which are pertinent to the claim, (ii) permit the Applicant to submit to the Committee issues and comments in writing, and (iii) afford the Applicant an opportunity to meet with a quorum of the Committee as a part of the review procedure. c. Within 60 days after its receipt of a request for review (or within 120 days after such receipt if special circumstances, such as the need to hold a hearing, require an extension of time) the Committee shall notify the Applicant in writing of its decision and the reasons for its decision and shall refer the Applicant to the provisions of the Plan which form the basis for its decision. 9. MISCELLANEOUS. a. Except as limited by paragraph 7.c. and except that an Employee shall have a continuing power to designate a new recipient in the event of the Employee's death at any time prior to such death without the consent or approval of any person theretofore named as the Employee's recipient by an instrument meeting the requirements of paragraph 7.a., this document shall be binding upon the inure to the benefit of each Company, the Employees, their legal representatives, successors and assigns, and all persons entitled to benefits hereunder. b. Any notice given in connection with this document shall be in writing and shall be delivered in person or by registered mail or overnight delivery service, return receipt requested. Any notice given by registered mail or overnight delivery service shall be deemed to have been given upon the date of delivery indicated on the return receipt, if correctly addressed. c. Nothing in this document shall interfere with the rights of any Employee to participate or share in any profit sharing or pension plan which is now in force or which may at some future time become a recognized plan of any Company. d. Nothing in this document shall be construed as an employment agreement nor as in any way impairing the right of any Company to terminate an Employee's employment at will. e. This Plan constitutes a mere promise by the Company to make benefit payments in the future, and it is intended to be unfunded for tax purposes and for the purposes of Title I of ERISA. The rights of an Employee or beneficiary to receive benefit payments hereunder are solely those of an unsecured general creditor of the Company. 10. ELECTIONS BY EMPLOYEES TO TRANSFER BETWEEN FUNDS. Employees may elect to liquidate funds in their Deferred Compensation Accounts under Paragraph 3 and reinvest them as directed provided that any investment election shall be exercised in writing by the Employee and approved by the Committee or its approved representative under such terms and conditions as the Committee deems appropriate. 11. SPECIAL PROVISIONS REGARDING OSPIP AND DEFERRED STOCK. Effective for deferrals of incentive compensation with respect to the 1992 calendar year and thereafter, Employees' deferrals of incentive compensation payable in the form of common stock of TCF Financial pursuant to the Officer's Stock Performance Incentive Plan ("OSPIP") or otherwise subject to issuance as Deferred Stock under the Stock Option and Incentive Plan of TCF Financial , the TCF Financial 1995 Stock Incentive Plan, or any successor stock option plan or restricted stock plan of TCF Financial shall be credited to the Employee's account as "Deferred Stock" and the Employee shall be prohibited from making any investment election with respect to such Deferred Stock until the date or dates specified in an award agreement entered into pursuant to the Stock Option and Incentive Plan by TCF Financial, subject to acceleration upon the occurrence of events as specified in such agreement. Upon and after such date or dates, the Deferred Stock credits to the Employee's account shall be subject to investment elections the same as any other credits in the Employee's accounts. In the event TCF Financial so notifies the Trustee, dividend credits on Deferred Stock shall be withheld until such time as the Deferred Stock becomes subject to investment elections. In the event the Employee's employment terminates or in the event of the Employee's disability, any Deferred Stock credits not yet subject to investment election by the Employee shall be reduced to zero and no benefits shall be payable with respect to them. Deferred Stock credits shall not be distributable pursuant to paragraph 6 (Emergency Payments) until they are subject to investment election by the Employee. 12. TERMINATION OR AMENDMENT. The Board of Directors of TCF Financial may, in its discretion, terminate or amend this document from time to time; PROVIDED, however, that no such termination or amendment shall (without the Employee's consent) alter any Employee's right to payments of amounts previously credited to such Employee's Account or delay the time or times at which an Employee is entitled to receive payments with respect to his Deferred Amounts, unless such termination or amendment is necessary as a condition of receiving a ruling from the Internal Revenue Service that Employees' Deferred Amounts will not be included in their gross income for Federal income tax purposes until such time as they are actually paid or otherwise made available to the Employee. EXHIBIT 10(o) -#2 12-1-97 AMENDMENT TO TCF FINANCIAL SENIOR OFFICER DEFERRED COMPENSATION PLAN Section 1.c.a. of the TCF Financial Senior Officer Deferred Compensation Plan is hereby amended effective January 1, 1998, to read as follows: Section 1.c.a. (DEFERRAL OF INCENTIVE COMPENSATION AND SALARIES.): Employees eligible to participate in this Plan are Employees of a Company who hold the office of Senior Vice President of TCF Financial Corporation or TCF National Bank Minnesota or President or Executive Vice President of an insured institution subsidiary of TCF Financial or President of a direct or indirect subsidiary of TCF Financial; PROVIDED, that an employee who is eligible to participate in the TCF Financial Executive Deferred Compensation Plan shall not be eligible to participate in this Plan. Effective on and after February 9, 1995, employees of Great Lakes National Bank Michigan ("Great Lakes") are eligible for this Plan if they hold the officer position of Senior Vice President or above and are selected for eligibility in the Plan by the Chairman and President of Great Lakes. Effective on September 1, 1997, the Executive Vice President and Senior Vice President of Winthrop Resources Corporation are eligible to participate in this Plan. Effective on and after January 1, 1998, the Plan is amended to also include the Senior Vice Presidents of Winthrop Resources Corporation as eligible to participate in this Plan. Notwithstanding the foregoing, individuals who become employees of a Company as a result of a merger or acquisition shall not be eligible Employees under this Plan unless and until TCF Financial has adopted a resolution or amended this Plan to identify them as eligible Employees. EXHIBIT 10(o) - #3 SECRETARIAL CERTIFICATION BOARD OF DIRECTORS MEETING TCF FINANCIAL CORPORATION DECEMBER 15, 1997 RE: AMENDMENT OF EXECUTIVE AND SENIOR OFFICER DEFERRED COMPENSATION PLANS TO ALLOW ANNUAL ELECTION OF PAYMENT METHOD *********************************************************************** Following discussion, and upon motion duly made, seconded and carried, the following resolutions were adopted: WHEREAS, this Board is authorized to amend the Executive and/or Senior Officer Deferred Compensation Plans and WHEREAS, this Board considers it advisable to amend such plans to allow terminated participants in pay status to annually elect the timing and form of the payments to be made in the upcoming year; NOW, THEREFORE, IT IS HEREBY: RESOLVED, that Section 5b of the Executive Deferred Compensation Plan and of the Senior Officer Deferred Compensation Plan is amended effective January 1, 1998 to provide as follows: The first payment under paragraph 5.a shall be paid on a date selected by the Committee which is no later than 30 days after the Committee's direction as to the form and timing of distributions is made, or if no date is selected, the later of 30 days after the Committee's action or 30 days after the Employee's termination of employment. Succeeding installments (if any) shall be paid on January 31 of each calendar year following the calendar year in which the first payment was made, except that an executive who has terminated employment and commenced receiving payments may elect each year to have the payment otherwise due on January 31 of the next succeeding year paid as monthly installments instead, with each payment made on the last day of each month. Any such election shall be made in writing and delivered to the Committee on or before December 1 prior to any year for which it is to be effective. Such election may also indicate the assets to be liquidated in connection with each monthly payment. The amount of each monthly payment shall be equal to the amount that would otherwise be paid in one payment in January, divided by 12. Any assets to be liquidated in order to pay monthly benefits shall be liquidated on the last practicable date prior to the installment's payment date. In no event shall this paragraph be construed as allowing the executive to lengthen or shorten the number of years over which his or her benefits will be paid; the election herein pertains only to timing of payments within a year. I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby certify that the foregoing is a true and correct copy of excerpt of minutes of the Board of Directors Meeting of TCF Financial Corporation held on December 15, 1997, and that the minutes have not been modified or rescinded as of the date hereof. (Corporate Seal) Dated: March 19, 1998 /s/ Gregory J. Pulles ------------------------------ Gregory J. Pulles EX-10.P 9 EXHIBIT 10.P EXHIBIT 10(p) AMENDMENT TO TRUST AGREEMENT FOR TCF FINANCIAL SENIOR OFFICER DEFERRED COMPENSATION PLAN The Trust Agreement for the TCF Financial Senior Officer Deferred Compensation Plan is hereby amended effective November 1, 1997 to replace the existing Article 9 as follows: ARTICLE 9 AMENDMENT AND TERMINATION OF THE TRUST SECTION 9.1. The Board of Directors of TCF Financial may, in its discretion, terminate or amend this Agreement from time to time; PROVIDED, however, that no such termination or amendment shall (without the Employee's consent) alter any Employee's right to payments of amounts previously credited to such Employee's Account or delay the time or times at which an Employee is entitled to receive payments with respect to his Deferred Amounts, unless such termination or amendment is necessary as a condition of receiving a ruling from the Internal Revenue Service that Employees' Deferred Amounts will not be included in their gross income for Federal income tax purposes until such time as they are actually paid or otherwise made available to the Employee. SECTION 9.2. This Trust shall not be terminated until such time as all of the Companies' obligation to make distributions pursuant to the Plan have been fully discharged unless all of the Plan's participants (excluding any terminated participants and beneficiaries then receiving distribution pursuant to the Plan, other than terminated participants entitled to a lump sum distribution) shall consent in writing to an earlier termination. If all of the Plan's participants do not consent to an early termination, the Trust shall terminate with respect to such consenting participants (and with respect to participants or beneficiaries whose consent is not required), but shall continue in effect with respect to the nonconsenting participants. Upon a termination or partial termination of the Trust, the Trust assets, if any, that remain in the accounts established for participants in the Plan (or for the consenting participants (and the participants or beneficiaries whose consent is not required), if fewer than all of the Plan's participants have consented to a termination for which the participants' consent is required) shall be paid or distributed to TCF Financial or its successor in interest. The Trust Agreement is amended effective October 20, 1997 to replace Article 11 with the following: ARTICLE 11 ELECTIONS BY EMPLOYEES TO TRANSFER BETWEEN FUNDS SECTION 11.1. Effective October 20, 1997, the Company shall permit investment elections transferring between funds in the Trust and the Trustee shall provide for investment elections provided under Paragraph 10 of the Plan, as amended. EX-10.S 10 EXHIBIT 10.S EXHIBIT 10(s) TCF FINANCIAL CORPORATION 1998 MANAGEMENT INCENTIVE PLAN - EXECUTIVE 1. ELIGIBILITY - Each Participant shall be given a copy of this 1998 Management Incentive Plan for Executives (the "Plan") and required to sign an acknowledgment of its terms. The participants in the Plan are those approved by the Personnel/Affirmative Action Committee (the "Committee"*): the Chairman, Vice Chairs, President and Executive Vice Presidents of TCF Financial. 2. All participants will be initially evaluated by the Chairman of TCF Financial (the "Chairman") who will forward all recommendations to the Committee for approval. The Committee evaluates the performance of the Chairman. The Committee will consider the Return on Average Assets ("ROA") performance and shall also evaluate all other matters it deems appropriate in its sole discretion, subject to limits imposed on such discretion under the Performance-Based Plan. Evaluations will be performed pursuant to the terms of the TCF Performance-Based Compensation Policy for Covered Executive Officers (the "Performance-Based Plan") in the case of Covered Executive Officers (as defined in that Plan). 3. The criteria for awards (subject to paragraph 4) is as follows: a. The amount of incentive payable to a participant shall be determined by the achievement of ROA financial goals on Exhibit A attached. ROA will be calculated as provided in the Performance-Based Plan rounded to the nearest one-hundredth. The bonus percentage shall be calculated, in the case of ROA achievement which falls between goals, by interpolation as follows: The amount by which the ROA achievement exceeds the goal shall be divided by the amount between the ROA goal exceeded and the next ROA goal. The result shall be stated in the form of a percentage which shall be multiplied by the total percentage points between ROA goals. The result shall be added to the bonus percentage corresponding to the ROA goal that was exceeded. 4. The Committee may, in its discretion, reduce, defer or eliminate the amount of the incentive determined under paragraph 3.a. of this Agreement for a Covered Executive Officer in the Performance-Based Plan. In addition, for participants who are not subject to the Performance-Based Plan, the Committee may in its discretion increase the amount of the incentive calculated under paragraph 3.a. of this Agreement. The Committee has authority to make interpretations under this Plan and to approve the calculation under Paragraph 3.a. Incentive compensation will be paid in cash as soon as possible following approval of awards by the Personnel Committee. Except for Covered Executive Officers, the participant must be employed by TCF Financial (or the same subsidiary as employed by on the date of this Acknowledgment) on the date the incentive is paid in the same job position as the position for which the incentive was earned in order to receive the incentive payment. However, where the participant has transferred to another position within TCF, the Committee may in its discretion determine to pay part, none, or all of the incentive based on any factors the Committee considers to be relevant. 5. The Committee may amend this Plan from time to time as it deems appropriate, except that no provision of the Performance-Based Plan may be amended except in accordance with its terms. This Plan shall not be construed as a contract of employment, nor shall it be considered a term of employment, nor as a binding contract to pay awards. The undersigned acknowledges he/she is employed "at will". 6. This Plan is effective for service on or after January 1, 1998 and supersedes and replaces the prior Management Incentive Compensation Plan and any other prior incentive arrangements with respect to executives in this Plan. The Plan may not be amended except in writing signed by TCF Financial, the employer (if other than TCF Financial) and the executive. ACKNOWLEDGMENT I have received, read, and acknowledge the terms of the foregoing plan. - -------------------- ------------------------- Date Signature EX-10.U 11 EXHIBIT 10.U EXHIBIT 10(u) C E R T I F I C A T I O N I, Charles P. Hoffman, Jr., do hereby certify that I am the duly elected Secretary and keeper of the records of Great Lakes National Bank Michigan, a National Banking Association, and that the following is a true and correct copy of a resolution unanimously adopted at a regular meeting of the Board of Directors of the Bank, held in accordance with the Bylaws of the Bank at its offices at Ann Arbor, Michigan on January 23, 1998. [EXTENSION OF ROBERT J. DELONIS EMPLOYMENT AGREEMENT] WHEREAS, this Bank is a party to an employment agreement ("Agreement") with Robert J. Delonis, the Chairman; and WHEREAS, the Agreement provides the Chairman with the option to extend the term of the Agreement for one year from February 9, 1998, to February 8, 1999, subject to this Board's approval following its review of a formal performance evaluation of the Chairman conducted by the Board or a committee thereof; NOW THEREFORE BE IT RESOLVED, that the Board of Directors has considered the Chairman's performance evaluation and found that the Chairman has fulfilled the requirements for his duties as Chairman, including services related to branch sales, chairing the Board of Directors, financial and business advice, representation of the Bank in community and industry affairs, and other services as provided by the Chairman; BE IT FURTHER RESOLVED, that the extension of the Chairman's Agreement is approved for an additional term of one year, from February 9, 1998, to February 8, 1999. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of this Bank today, March 23, 1998. /s/ Charles P. Hoffman --------------------------------- Charles P. Hoffman, Jr., Secretary EX-10.X 12 EXHIBIT 10.X EXHIBIT 10(x) AMENDMENT TO EMPLOYMENT AND NONCOMPETITION AGREEMENT 1. THIS AMENDMENT is dated as of February 28, 1997, is between WINTHROP RESOURCES CORPORATION, a Minnesota corporation (the "Company") and John L. Morgan, an individual residing in the State of Minnesota (the "Employee"), and is an amendment to the Employment and Noncompetition Agreement executed as of November 6, 1996 by and between Company and Employee. RECITALS A. Company has entered into an Agreement and Plan of Reorganization (the "Merger Agreement") with TCF Financial Corporation ("TCF") pursuant to which Company will merge with a subsidiary of TCF (the "Merger"). B. Company and Employee are parties to an Employment and Noncompetition Agreement (the "Employment Contract") executed as of November 6, 1996. C. In connection with the pending Merger, Company desires assurance of Employee's continued services for a minimum of three years and Employee is willing to make such a commitment but desires assurance of ongoing compensation in the event Company should terminate his employment, therefore the parties wish to amend the Employment Contract accordingly in the respects set forth herein. AMENDMENT NOW THEREFORE, in consideration of the mutual agreements set forth herein the parties hereby amend the Employment Contract as follows: 1. Section 2.03 (TERM) is amended to read as follows in full: The term of this Agreement shall commence January 1, 1997 and run for three (3) years unless terminated as provided in this Agreement. Commencing January 1, 2000, the term of Employee's employment hereunder shall be automatically extended on each January 1 for one additional year unless on or before the June 1 immediately preceding any such January 1 either party gives written notice to the other of the cessation of further extensions, in which case no further extensions shall occur. 2. Section 6.01 (NONCOMPETITION) is amended to revise the title to read NONCOMPETITION AND NONSOLICITATION and to add the following at the end thereof: Employee also agrees that for a period of three (3) years following termination of employment with the Company for any reason, Employee will not solicit any employee or former employee of the Company for employment by or any other type of affiliation with any business with which Employee is associated in any capacity, or directly or indirectly encourage such employment or affiliation in any manner. Employee agrees to show a copy of the entire Section 6.01 (NONCOMPETITION AND NONSOLICITATION), including these amendments, to any potential new employer or business venture (other than companies in which Employee is only a shareholder and his holdings are less than five percent, as defined earlier in this section) prior to commencing his employment or other relationship with such employer or business venture. 3. Section 4.03 (TERMINATION WITHOUT CAUSE) is amended to read as follows: Effective as of the "Effective Time" of the Merger, as defined in the Merger Agreement, the Employee shall no longer have the right to terminate this Employment Contract without Good Reason, however Company shall retain the right to terminate this Contract without cause. In the event of a termination of this Employment Contract by Company without cause, or by Employee for Good Reason, Employee shall be paid at the usual rate of his annual Base Salary (subject to the terms of Section 3.01) through the end of the term of this Employment Contract and shall also receive through such date all monthly advances against the anticipated maximum bonus (subject to the terms of Section 3.02) and all benefits under plans in accordance with their terms. Notwithstanding the foregoing, in the event the Committee should determine in good faith, and after providing Employee with an opportunity to present any evidence he may wish to present, that Employee is acting in violation of his NonCompetition, NonSolicitation, Confidentiality or other ongoing obligations under this Employment Contract, then the Committee may reduce or terminate payments to Employee under this Section 4.03, including immediate cancellation of any stock options or restricted stock grants to Employee which may be outstanding. Company agrees that any amounts not paid under this Section 4.03 as a result of any such action on the part of the Committee shall reduce the amount of any legal damages to which Company might otherwise be entitled. Employee agrees that any such action by the Committee will not preclude the Company from seeking damages and/or other legal or equitable remedies for his breach of obligations under this Contract, if any, so long as such damages are reduced in the manner aforesaid. 4. Section 1.06 (GOOD REASON) is amended to read as follows: Effective as of the "Effective Time" of the Merger, as defined in the Merger Agreement, "Good Reason" shall mean a termination by Employee after Company has failed to pay any amounts due under the Employment Contract, and such failure has continued for a period of thirty days after Employee provides written notice of such occurrence to the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EMPLOYEE WINTHROP RESOURCES CORPORATION /s/ John L. Morgan By: /s/ Kirk A. MacKenzie - ---------------------- ------------------------------------- Address: Its Executive Vice President & Treasurer ------------------------------------------ 1015 Opus Center - ---------------------- 9900 Bren Road East - ---------------------- Minnetonka, MN 55343 - ---------------------- EX-10.Y 13 EXHIBIT 10.Y EXHIBIT 10(y) SECRETARIAL CERTIFICATION PERSONNEL/AFFIRMATIVE ACTION COMMITTEE TCF FINANCIAL CORPORATION JULY 21, 1997 RE: APPROVAL OF EMPLOYMENT AGREEMENTS ******************************************************************************** Following discussion, and upon motion duly made, seconded and carried, the following resolutions were adopted: WHEREAS: this Corporation has executed an Agreement and Plan of Reorganization (the "Reorganization Agreement") by an between TCF Financial Corporation, Standard Financial, Inc. ("Standard") and TCF National Bank Illinois ("TCF Illinois") providing for the merger of Standard and its wholly-owned subsidiary, Standard Federal Bank for savings ("Standard Bank") with and into TCF Illinois, with TCF Illinois as the resulting institution (the "Combination"); and WHEREAS: in connection with the Combination it is anticipated that certain employment agreements and change in control agreements will be executed with certain officers of Standard and Standard Bank, who will become officers of TCF Illinois as a result of the Combination; NOW, THEREFORE, IT IS HEREBY RESOLVED: that this Committee hereby authorizes and directs the Chairman or any Vice Chairman of this Corporation to execute, on behalf of TCF Financial, employment contracts and change in control severance contract arrangements with David H. Mackiewich, Thomas M. Ryan and Kurtis D. Mackiewich, on such terms and conditions as such officer deems appropriate. I, Gregory J. Pulles, Secretary of TCF Financial Corporation do hereby certify that the foregoing is a true and correct copy of excerpt of minutes of the Personnel\Affirmative Action Committee of TCF Financial Corporation held on July 21, 1997, and that the minutes have not been modified or rescinded as of the date hereof. (Corporate Seal) Dated: March 19, 1998 /s/ Gregory J. Pulles ------------------------------ Gregory J. Pulles 9-3-97 TCF NATIONAL BANK ILLINOIS EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is entered into as of September 5, 1997 (the "Effective Date"), by and among TCF National Bank Illinois ("TCF Illinois"), TCF Financial Corporation ("TCF Financial") and David H. Mackiewich ("Executive"). WHEREAS, TCF Illinois is a wholly owned subsidiary of TCF Financial; WHEREAS, Executive has been elected to and has agreed to serve in the position of Executive Chairman for TCF Illinois, a position of substantial responsibility; WHEREAS, TCF Illinois and TCF Financial recognize the substantial contribution Executive is expected to make to TCF Illinois and TCF Financial and considers the establishment and maintenance of sound and vital senior management to be essential to protecting and enhancing the best interests thereof and therefore desires to enter into an agreement governing the terms and conditions of Executive's employment; and WHEREAS, the Board of Directors of TCF Illinois and TCF Financial have considered and approved this Agreement with respect to Executive's employment. NOW, THEREFORE, in consideration of the contribution and responsibilities of Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: SECTION 1 - DEFINITIONS 1.1 A "Change in Control" shall mean: (a) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of TCF Financial cease for any reason to constitute a majority thereof, unless the election or nomination for election of each new Director was approved by a vote of at lease two-thirds of the Board members then still in office who were Board members at the begging of the period or who were similarly nominated; (b) a change in control of TCF Financial as described in 12 C.F.R. Section 574.4(a) occurs; (c) the Board of Directors of TCF Financial adopts a resolution to the effect that a Change in Control of TCF Financial for purposes of this Agreement has occurred; (d) an event of a nature that TCF Financial would be required to report in response to item 1(a) of the current report on Form 8-K as in effect on the date of this Agreement, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") occurs; (e) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the "beneficial owner" (as such term is defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of TCF Financial representing twenty percent (20%) or more of TCF Financial's outstanding securities, except for any securities purchased by TCF's employee stock ownership plan and trust and any person who becomes a twenty percent (20%) beneficial owner solely as a result of stock repurchases by TCF Financial; or (f) there is consummated a merger, plan of reorganization, consolidation, sale or liquidation of all or substantially all assets of TCF Financial or a similar transaction occurs in which TCF Financial is not the resulting entity. 1.2 The "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.3 "Date of Termination" shall mean: (a) If Executive's employment is automatically terminated under Section 7.1 of this Agreement, the date on which the event which triggered that automatic termination occurred; (b) If Executive's employment is terminated for Good Reason under Section 7.3 of this Agreement or by TCF Illinois under Section 7.2(a) of this Agreement, the date specified in the Notice of Termination. (c) If Executive's employment is terminated under Section 7.2(b) of this Agreement, the date specified in Section 7.2(b). (d) If Executive's employment is terminated at the end of the Term of this Agreement, the last day of such Term. 1.4 "Disability" shall mean Executive's inability for a period of not less than 90 consecutive days, due to accident or physical or mental illness, to adequately and fully perform the duties required by an employee in Executive's position; provided, however, that Disability for purposes of this Agreement shall not include any Disability which results from Executive's engaging in a criminal enterprise or from Executive's habitual drunkenness, addiction to narcotics or intentionally inflicted injury. If at any time during the Term, the TCF Illinois Board makes a determination with respect to Executive's Disability, that determination shall be final, conclusive, and binding upon TCF Illinois, Executive, and their successors in interest, so long as such determination has a reasonable basis. 1.5 "Good Reason" shall be deemed to exist if: (a) within two years after the Change in Control, without Executive's express written consent: (1) Executive is assigned any duties inconsistent in any material respect with Executive's employment positions, duties, responsibilities and status with TCF Illinois or TCF Financial on the Effective Date; (2) Executive's reporting responsibilities, titles or offices as in effect on the Effective Date are changed in any material respect; (3) the Term of this Agreement is not restored to three years under Section 2.2 of this Agreement; or (4) Executive is removed from or is not re-elected to any of such positions, except in connection with the termination of Executive's employment for Cause, on account of Disability, as a result of Executive's death, or by Executive other than for Good Reason; (b) within two years after the Change in Control, TCF Illinois's or TCF Financial's principal executive offices are relocated to a location at least 30 miles from its current locations; or TCF Illinois or TCF Financial requires Executive to be based anywhere other than in the Chicago, Illinois metropolitan area, except for required travel on TCF Illinois's or TCF Financial's business to an extent substantially consistent with similarly situated executives' business travel obligations; (c) within two years after the Change of Control: (1) TCF Illinois or TCF Financial reduces in any material respect the base salary of Executive; (2) TCF Illinois or TCF Financial fails to continue in effect any material benefit or compensation plan, pension plan, life insurance plan, health and accident plan or disability plan in which Executive is participating at the time of the Change of Control (and fails to implement for Executive substantially similar benefit plans as a replacement therefor), or (3) TCF Illinois or TCF Financial takes any action which would materially adversely affect Executive's participation in or materially reduce Executive's benefits under any benefit plan maintained by TCF Illinois or TCF Financial or deprive Executive of any material fringe benefits provided to similarly situated executives of TCF Illinois or TCF Financial; (d) TCF Illinois or TCF Financial fail to obtain the assumption of all obligations under this Agreement by any successor as contemplated in Section 8.5 of this Agreement; or (e) within two years after the Change in Control, Executive's employment is purported to be terminated in a manner which is not pursuant to a Notice of Termination satisfying the requirements of Section 7.4 of this Agreement. 1.6 The "TCF Financial Board" shall mean the Board of Directors of TCF Financial. 1.7 "Notice of Termination" shall mean a notice, from TCF Illinois or from Executive, which shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and shall state the effective date of the termination. 1.8 The "OCC" shall mean the Office of Comptroller of the Currency or any successor thereto. 1.9 The "TCF Illinois Board" shall mean the Board of Directors of TCF Illinois. 1.10 "Secret or Confidential Information" means secret or confidential information of TCF Financial or TCF Illinois (including secret or confidential information of predecessors, subsidiaries and affiliates), including but not limited to lists of customers; identity of customers; identity of prospective customers; contract terms; bidding information and strategies; pricing methods; computer software; computer software methods and documentation; hardware; salary information with respect to employees; financial product design information; business plans; methods of operation; the procedures, forms and techniques used in servicing accounts; and all other documents or information which are required to be maintained in confidence for continued business success, provided that secret or confidential information shall not include information reasonably available to the general public. 1.11 Termination for "Cause" by TCF Financial or TCF Illinois of Executive's employment under this Agreement shall have the same meaning as it does in 12 U.S.C. Section 1818(e): Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until (1) there shall have been delivered to Executive a written notice of the intention to terminate his employment for Cause specifying the grounds for such termination, providing a reasonable opportunity to cure any conduct or act, if curable, alleged as grounds for such termination, and; (2) following delivery of such written notice, Executive shall have been given a reasonable opportunity to present to the TCF Illinois Board his position regarding any dispute relating to the existence of such Cause. SECTION 2 - EMPLOYMENT AND TERM 2.1 EMPLOYMENT. TCF Illinois agrees to employ Executive and Executive agrees to serve as Executive Chairman of TCF Illinois. Executive agrees to accept Employment on the terms and conditions set forth in this Agreement. 2.2 TERM. Subject to extension in accordance with this Section 2 and unless sooner terminated as provided in Section 7, the term of this Agreement (the "Term") shall be the three-year period beginning on September 5, 1997 (the "Effective Date") and ending on September 4, 2000 or such earlier time as provided by Section 7.1. On or before each anniversary of the Effective Date (each an "Anniversary Date"), the TCF Financial Board shall review Executive's performance under this Agreement to determine whether TCF Financial and TCF Illinois desire that the Term of this Agreement be restored to three years. If the TCF Financial Board recommends and Executive consents to such restoration, then the then-remaining Term of this Agreement shall be restored to the three-year term beginning on such Anniversary Date (subject to early termination as provided by Section 7.1). SECTION 3 - DUTIES OF EXECUTIVE 3.1 TIME DEVOTED; DUTIES. Executive shall devote his entire time, attention and energies to the business of TCF Illinois and TCF Financial and he shall render such administrative and management services to TCF Illinois and TCF Financial as are customarily performed by persons situated in a similar executive capacity, including those services prescribed from time to time by the TCF Illinois and TCF Financial Boards. Executive shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of TCF Illinois and TCF Financial. Executive shall perform his duties under this Agreement in accordance with such reasonable standards expected of employees with comparable positions in comparable organizations and as may be established from time to time by the TCF Illinois and TCF Financial Boards. Executive shall also conduct his personal affairs, including his personal financial affairs, in a manner appropriate for his position. 3.2 NO CONFLICTING ACTIVITIES. During the term of Executive's employment under this Agreement, Executive shall not engage in any business or activity contrary to the business affairs or interests of TCF Illinois or TCF Financial. Nothing contained in this Section 3 shall be deemed to prevent or limit the right of Executive to invest in the capital stock or other securities of any business or engage in charitable or civic activities as long as such conduct or activity does not interfere with Executive's duties as set forth in Section 3.1 above. SECTION 4 - COMPENSATION 4.1 Executive shall receive for his services the following Base Compensation: (a) TCF Illinois shall pay Executive an annual salary of $433,000.00 ("Base Compensation") payable in 26 equal bi-weekly installments. (b) Any increase in Executive's Base Compensation shall be left to the sole discretion of the TCF Illinois Board. The Executive's Base Compensation shall not be subject to reduction during the Term of this Agreement except as otherwise provided in this Agreement. 4.2 BONUS COMPENSATION. TCF Illinois may pay Executive Bonus Compensation in an amount determined by the TCF Illinois Board in its sole discretion, provided that Executive participates in an executive bonus plan on a level consistent with similarly situated TCF executives ("Bonus Compensation"). 4.3 ADDITIONAL COMPENSATION. As further compensation TCF Illinois and TCF Financial shall make available the benefits provided to executives generally under TCF Financial's and TCF Illinois' general executive compensation practices including, but not limited to, equity incentive plans, retirement and supplemental retirement plans, and welfare benefit plans. Notwithstanding the foregoing, TCF Financial's supplemental plans pertaining to TCF Stockshare Plan and TCF Cash Balance Pension Plan will not apply until such time as Executive becomes eligible for the TCF Stockshare Plan and the TCF Cash Balance Pension Plan, Executive's employment service prior to the Effective Date is excluded for benefit accrual purposes, and the terms of Executive's equity grant are governed by the separate agreement entered into contemporaneously between the parties hereto. 4.4 SOURCE OF PAYMENTS. All payments provided for in this Agreement shall be timely paid by TCF Illinois. However, TCF Financial unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from TCF Illinois are not timely paid or provided by TCF Illinois, such amounts and benefits shall be paid or provided by TCF Financial. SECTION 5 - EMPLOYEE BENEFITS 5.1 BUSINESS EXPENSES. During the Term, TCF Illinois shall reimburse Executive for ordinary and necessary business expenses incurred by Executive in performing his duties pursuant to this Agreement, including but not limited to reasonable travel, entertainment and similar expenses that Executive incurs in promoting the business of TCF Financial or TCF Illinois; provided, that TCF Illinois shall not reimburse any such expense which, prior to its being incurred, TCF Illinois directed Executive not to incur. The reimbursement shall be made upon presentation to TCF Illinois by Executive, from time to time, of an account of such expenses in such form and in such detail as TCF Illinois may request, and shall comply with TCF Illinois's and TCF Financial's policies regarding expense reimbursement. 5.2 FRINGE BENEFITS. In addition to benefits specifically described herein, Executive shall be entitled to receive from TCF Financial or TCF Illinois the fringe benefits generally available to employees and to full-time senior management employees of TCF Illinois occupying the same or a similar position as Executive, as such benefits may be changed from time to time. 5.3 DISABILITY INSURANCE. Throughout the Term of this Agreement, TCF Illinois shall provide Executive with long term disability coverage of 60% of Executive's total Base Compensation from the previous year, which benefit begins no later than 90 days after the Disability occurs. TCF Illinois may provide some or all of the long term disability coverage through its Long Term Disability Plan for employees. SECTION 6 - CONFIDENTIALITY AND COVENANT NOT TO COMPETE 6.1 COVENANT NOT TO COMPETE. In consideration of the continued employment of Executive pursuant to this Agreement, Executive covenants and agrees that Executive shall not during the one-year period immediately following the termination of his employment under this Agreement, if (i) TCF Financial or TCF Illinois terminates Executive's employment and severance compensation is payable pursuant to Section 8.4, (ii) TCF Financial or TCF Illinois terminates Executive's employment on account of Disability or (iii) Executive voluntarily terminates employment by reason of retirement or otherwise: (a) without the prior written consent of TCF Financial or TCF Illinois, engage or become interested in any capacity, directly or indirectly (whether as proprietor, principal stockholder, director, partner, employee, trustee, beneficiary, or in any other capacity) in any business selling, providing or developing products or services competitive with products or services sold or maintained by TCF Financial or TCF Illinois within a 5-mile radius of the Chicago Metropolitan Statistical Area; or (b) recruit or solicit for employment any current or future employee of TCF Financial or TCF Illinois or any of its respective successors or any entities related to it. 6.2 CONFIDENTIAL INFORMATION. Executive acknowledges that all Secret or Confidential Information is the exclusive property of TCF Financial or TCF Illinois, as the case may be. Executive shall not during the period of his employment or at any time thereafter, disclose to any person, firm or corporation, or publish or use for any purpose, any Secret or Confidential Information except as properly required in the ordinary course of business of TCF Financial or TCF Illinois or as directed and authorized thereby. Upon the termination of his employment for any reason whatsoever, Executive shall return and deliver within 7 days any and all papers, books, records, documents, memoranda and manuals, including all copies thereof, belonging or relating to TCF Financial or TCF Illinois, in Executive's possession, whether prepared by Executive or others. If at any time after the termination of Executive's employment, Executive determines that he has any Secret or Confidential Information in his possession or control, Executive shall immediately return all such Secret or Confidential Information including all copies and portions thereof. 6.3 DISCLOSURE AND SURVIVAL OF COVENANTS. If Executive, in the future, seeks or is offered employment by any other company, firm, or person, he shall provide a copy of this Agreement to the prospective employer prior to accepting employment with that prospective employer. The provisions of Sections 6.1 and 6.2 shall survive any termination of this Agreement. SECTION 7 - TERMINATION 7.1 AUTOMATIC TERMINATION. Employment under this Agreement shall terminate on the earliest of death of Executive, or the determination by the Board of TCF Financial or TCF Illinois of Executive's Disability. 7.2 INVOLUNTARY TERMINATION. (a) Termination by the Board. The TCF Illinois Board may terminate this Agreement at any time by giving Notice of Termination in accordance with Section 7.4 below. (b) Termination or Suspension by the OCC. (i) If Executive is suspended and /or temporarily prohibited from performing his duties under this Agreement by a notice served under Section 8 (e) (3) or (g) (1) of the Federal Deposit Insurance Act (12 U.S.C. 1818 (e) (3) and (g) (1)), obligations under this Agreement shall be suspended as of the date of service of such notice unless stayed by appropriate proceedings. If the charges in the notice are dismissed, TCF Financial or TCF Illinois may, in its discretion, (A) pay Executive all or part of the compensation withheld while obligations under this Agreement were suspended, and (B) reinstate (in whole or in part) any of its obligations which were suspended. (ii) If Executive is removed and/ or permanently prohibited from participating in the conduct of affairs of TCF Financial or TCF Illinois by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.1818 (e) (4) or (g) (1)), all obligations under this Agreement shall terminate as of the effective date of the order, but vested rights of Executive shall not be affected. (iii) If TCF Illinois is in default (as defined in Section 3(x)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but vested rights of Executive shall not be affected. (iv) All obligations under this Agreement shall terminate, except to the extent determined that continuation of the contract is necessary for the continued operation of TCF Illinois (A) by action of the Director of the OCC (the "Director") or his or her designee, at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to or on behalf of TCF Illinois under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (B) by the Director or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems related to operation of TCF Illinois or when TCF Illinois is determined by the Director to be in an unsafe or unsound condition. Any rights of Executive that have already vested, however, shall not be affected by such action. (v) Any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) (12 USC Section 1828(k)) of the Federal Deposit Insurance Act as amended, and any regulations promulgated thereunder. 7.3 VOLUNTARY TERMINATION. Executive may terminate his employment for (i) Good Reason or (ii) if the Term of this Agreement is not restored to (3) years under section 2.2, by giving Notice of Termination in accordance with Section 7.4 below within 60 days of the event giving rise to such termination) 7.4 NOTICE OF TERMINATION. Any termination by TCF Financial, TCF Illinois or Executive, pursuant to this Agreement, shall be communicated by written Notice of Termination to the other parties hereto. Any purported termination which does not satisfy the requirements of this Section 7.4 shall not be effective for purposes of this Agreement. SECTION 8 - COMPENSATION UPON TERMINATION 8.1 COMPENSATION UPON DEATH. If Executive's employment is terminated because of the death of Executive, TCF Illinois shall pay Executive's executors or administrators: a) within 30 days of Executive's death, the unpaid balance of Executive's Base Compensation through the end of the month in which Executive's death occurred, at 100% of the rate in effect on the date of Executive's death; and b) as soon as such Executive's bonus is calculated, an amount equal to Executive's Bonus Compensation for the current year prorated based on the number of elapsed days during such year prior to Executive's death, and TCF Illinois shall have no further obligations under this Agreement. 8.2 COMPENSATION UPON DISABILITY. If Executive's active work ceases because of Disability (as hereinafter defined), TCF Illinois shall continue, as and when scheduled, to pay Executive Executive's Base Compensation through the date he ceased work, plus 90 days additional Base Compensation, at 100% of the rate in effect on the date Executive became Disabled (as hereinafter defined), and thereafter TCF Illinois shall have no further obligation for cash compensation under this Agreement (except as provided in Section 5.3) unless and until Executive returns to work. For purposes of this Section 8.2, the term Disability shall have the meaning set forth in Section 1.4 without regard to the requirement that such condition continue for 90 consecutive days. 8.3 COMPENSATION UPON TERMINATION FOR CAUSE. If Executive's employment shall be terminated by TCF Illinois for Cause, TCF Illinois shall pay Executive his Base Compensation through the Date of Termination, and TCF Illinois shall not have any further obligations to Executive under this Agreement. 8.4 COMPENSATION UPON TERMINATION OTHER THAN FOR CAUSE. If Executive's employment is terminated other than for Cause or Disability or the Executive terminates employment pursuant to Section 7.3, then unless such termination occurs simultaneous with or within two years following the change in control (as defined in Executive's TCF Change in Control Agreement (as defined herein)), Executive shall be entitled to the compensation Executive would have been entitled to under this Agreement as and when payable hereunder for the remainder of the Term, which for purposes of this paragraph shall be three years. If the Executive's employment is terminated by the Company simultaneously or within two years after such change of control or Executive terminates employment: (i) for any reason or no reason, simultaneously with or within one (1) year following such change of control, or (ii) for Good Reason, simultaneously with or within two (2) years following such change in control, Executive shall be entitled to his Base Compensation through the Date of Termination and to amounts payable under the TCF Change in Control Agreement. 8.5 SUCCESSORS OF TCF ILLINOIS. TCF Financial or TCF Illinois will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of TCF Financial or TCF Illinois, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that TCF Financial or TCF Illinois would be required if no such succession had taken place. Failure to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason under paragraph 7.3 of this Agreement. As used in this Agreement, "TCF Financial" and "TCF Illinois" shall mean TCF Financial or TCF Illinois as hereinbefore defined and any successor to its business and/or assets as aforesaid or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. SECTION 9 - MISCELLANEOUS 9.1 NOTICE. Any notice or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficiently given for all purposes if mailed by certified mail, postage prepaid and return receipt requested, addressed to the intended recipient at the following address (or at such other address as either party may designee in writing to the other party by certified mail as described above): If to TCF Illinois: TCF Illinois National Bank Illinois 800 Burr Ridge Parkway Burr Ridge, IL 60521 If to TCF Financial: TCF Illinois Financial Corporation 801 Marquette Avenue Minneapolis, MN 55402 All notices to TCF Financial or TCF Illinois shall be directed to the attention of the General Counsel thereof. If to Executive: David H. Mackiewich 709 Brougham Lane Oak Brook, IL 65021 9.2 HEADINGS. The headings used in this Agreement have been included solely for ease of reference and are not to be construed in any interpretation of this Agreement. 9.3 ENTIRE AGREEMENT; INTEGRATION WITH TCF CHANGE IN CONTROL AGREEMENT.. This instrument contains the entire agreement between the parties with respect to the subject matter hereof, and shall supersede all prior agreements and understandings with respect to the subject matter hereof, including, without limitation, any and all employment agreements or Change in Control Agreements with Standard Financial, Inc. and/or Standard Federal Bank for savings other than that certain Change in Control Agreement by and between Executive and TCF Illinois and TCF Financial, executed as of the same date as this Agreement (the "TCF Change in Control Agreement."). It is intended that the TCF Change in Control Agreement and this Agreement will operate together such that the TCF Change in Control Agreement will generally provide any compensation due upon termination of employment within two years after the change in control (as defined therein) (whereas this Agreement generally does not, pursuant to Sec. 8.4) while this Agreement will provide any compensation due upon termination of employment other than within that two year period. In the event that compensation after termination of employment should become payable under this Agreement and the TCF Change in Control Agreement, any payments made pursuant to the Change in Control Agreement shall be applied to reduce any payments due under this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. No modification or addition to this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. 9.4 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. 9.5 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a home office selected by Executive within fifty (50) miles from the location of TCF Illinois, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. In the event any dispute or controversy arising under or in connection with Executive's termination is resolved in favor of Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement and all fees and expenses incurred in seeking to obtain or enforce the rights and benefits provided by this Agreement. 9.6 BENEFIT. This Agreement shall inure to the benefit of and shall be binding upon TCF Illinois, its successors and assigns, and this Agreement shall not be assignable by Executive. 9.7 REMEDIES. Executive acknowledges that the services to be rendered under this Agreement are special, unique and of extraordinary character. If Executive breaches any covenants, terms or conditions of this Agreement to be performed by him, TCF Financial and TCF Illinois will suffer irreparable damage and it will be impossible to estimate or determine damages. Therefore, TCF Financial and TCF Illinois shall, upon proof of such breach, be entitled as a matter of course to an injunction from any court of competent jurisdiction restraining any further violation of such covenants by Executive, his employers, employees, partners, agents or other associates, or any of them, such right to an injunction to be cumulative and in addition to any other remedies available, either in law or in equity. In any proceeding to enforce any provision of this Agreement, Executive shall not assert any contention that there is an adequate remedy at law for the breach or default upon which such proceeding is based. Nothing in this paragraph shall be construed to prevent such remedy in the courts, in the case of any breach of this Agreement by Executive, as TCF Financial or TCF Illinois may elect or invoke. 9.8 SEVERABILITY. If any of the provisions of Section 6.1 of this Agreement are held to be unenforceable because of the scope, duration or area of applicability, the court making such determination shall have the power to modify such scope, duration or area of applicability or all of them, and such provision shall then be applicable in such modified form. If any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, the validity and enforceability of all other applications of that provision and of all other provisions and applications hereof shall not in any way be affected or impaired. 9.9 WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer as may be specifically designated by the Board of Directors of TCF Illinois. The failure of TCF Illinois or Executive at any time or times to enforce its rights under the Agreement strictly in accordance with the same shall not be construed as having created a custom in any way or manner contrary to the specific provisions of this Agreement or as having in any way or manner modified or waived the same. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. 9.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 9.11 TCF FINANCIAL ACTION. Notwithstanding anything contained herein to the contrary, any action permitted or required to be taken by TCF Illinois may instead, at TCF Financial's option, be taken or withheld by TCF Financial, and furthermore, any such action taken or withheld by TCF Financial shall in each particular case be deemed to constitute action taken by or withheld by TCF Illinois and shall further be deemed to preempt any inconsistent action taken or withheld by TCF Illinois in such case. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the day and year first above written. TCF NATIONAL BANK ILLINOIS By:/s/ Michael B. Johnstone ------------------------------ Title: President & CEO -------------------------- TCF FINANCIAL CORPORATION By:/s/ Thomas A. Cusick ------------------------------ Title: Vice Chairman --------------------------- DAVID H. MACKIEWICH /s/ David H. Mackiewich --------------------------------- EX-11 14 EXHIBIT 11 Exhibit 11 - Computation of Earnings Per Common Share TCF FINANCIAL CORPORATION AND SUBSIDIARIES Computation of Earnings Per Common Share (Dollars in thousands, except per-share data)
Computation of Basic Earnings Per Common Share for Statements of Operations: Year Ended December 31, - ---------------------------------------- ------------------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- Income before extraordinary item $ 145,061 $ 100,377 $ 73,207 Less: Dividends on preferred stock - - 678 --------------- --------------- --------------- Income applicable to common stock before extraordinary item 145,061 100,377 72,529 Extraordinary item - - (963) --------------- --------------- --------------- Income applicable to common shareholders $ 145,061 $ 100,377 $ 71,566 --------------- --------------- --------------- --------------- --------------- --------------- Weighted average common shares outstanding 84,477,536 81,903,690 81,115,264 --------------- --------------- --------------- --------------- --------------- --------------- Basic earnings per common share: Income before extraordinary item $ 1.72 $ 1.23 $ .89 Extraordinary item - - (.01) --------------- --------------- --------------- Net income $ 1.72 $ 1.23 $ .88 --------------- --------------- --------------- --------------- --------------- --------------- Computation of Diluted Earnings Per Common Share for Statements of Operations: - ------------------------------------------ Income before extraordinary item $ 145,061 $ 100,377 $ 73,207 Add: Interest expense on 7 1/4% convertible subordinated debentures, net of tax 132 328 382 Less: Dividends on preferred stock - - 678 --------------- --------------- --------------- Income applicable to common stock before extraordinary item 145,193 100,705 72,911 Extraordinary item - - (963) --------------- --------------- --------------- Income applicable to common shareholders including effect of dilutive securities $ 145,193 $ 100,705 $ 71,948 --------------- --------------- --------------- --------------- --------------- --------------- Weighted average number of common shares outstanding adjusted for effect of dilutive securities: Weighted average common shares outstanding used in basic earnings per common share calculation 84,477,536 81,903,690 81,115,264 Net dilutive effect of: Stock option plans and common stock warrants 468,275 537,900 1,057,861 Restrictive stock plans 838,189 654,918 376,108 Assumed conversion of 7 1/4% convertible subordinated debentures 349,936 842,850 1,010,394 --------------- --------------- --------------- 86,133,936 83,939,358 83,559,627 --------------- --------------- --------------- --------------- --------------- --------------- Diluted earnings per common share: Income before extraordinary item $ 1.69 $ 1.20 $ .87 Extraordinary item - - (.01) --------------- --------------- --------------- Net income $ 1.69 $ 1.20 $ .86 --------------- --------------- --------------- --------------- --------------- ---------------
EX-13 15 EXHIBIT 13 EXHIBIT 13 DESCRIPTION OF BUSINESS TCF Financial Corporation is a Minneapolis-based national bank holding company with nearly $10 billion in assets. TCF's banks are based in Minnesota, Illinois, Wisconsin, and Colorado as TCF National Bank, and in Michigan as Great Lakes National Bank. Other TCF affiliates include business-equipment leasing, consumer finance, mortgage banking, title insurance, annuity and mutual fund sales companies. TCF has a proven community banking philosophy focused on creating franchise and shareholder value. We emphasize higher-yielding consumer and commercial loans and leases, and lower interest-cost checking, savings, and money market deposit accounts. Since 1992, these POWER ASSETS-SM- and POWER LIABILITIES-SM- have more than doubled over their originally reported balances. That growth has fueled our core earnings improvement and created shareholder value. A $100 investment in TCF stock at the end of 1992 would have grown to $525 at year-end 1997 with dividends reinvested. The same investment in the Standard & Poor's 500 Composite Stock Price Index, which is comprised of 500 widely held stocks, would have been worth $251. TABLE OF CONTENTS Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 34 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 40 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . 69 Selected Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . 70
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 34. 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 on the southwest side of Chicago and in the nearby southwestern and western suburbs. 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 from September 4, 1997. On June 24, 1997, TCF completed its acquisition of Winthrop Resources Corporation ("Winthrop"), a leasing company with $363 million in assets. 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. On January 16, 1997, TCF completed its purchase of BOC Financial Corporation ("BOC"), 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. On January 30, 1998, TCF National Bank Illinois ("TCF Illinois") completed its 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 Illinois plans to open branches in 11 more Jewel-Osco stores in 1998, and 25 branches per year in subsequent years until branches have been installed in all targeted stores. TCF anticipates that the 1998 cost of this expansion will be weighted more heavily in the first half of 1998. TCF accounted for the acquisition using the purchase method of accounting. Further detail on the acquisitions is provided in Note 2 of Notes to Consolidated Financial Statements. During the fourth quarter of 1997, TCF adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 supersedes the standards for computing and presenting earnings per share ("EPS") previously found in Accounting Principles Board ("APB") Opinion No. 15, "Earnings per Share." SFAS No. 128 replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. In accordance with SFAS No. 128, all prior-period EPS data presented has been restated to reflect the adoption of SFAS No. 128. The per-share amounts for 1996 and 1995 have also been restated giving retroactive recognition to TCF's November 28, 1997 two-for-one stock split. See "Financial Condition - Stockholders' Equity." Further detail on the adoption of SFAS No. 128 is provided in Note 1 of Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS PERFORMANCE SUMMARY TCF reported net income of $145.1 million for 1997, up from $100.4 million for 1996 and $72.2 million for 1995. Basic earnings per common share were $1.72 for 1997, compared with $1.23 for 1996 and 88 cents for 1995. Diluted earnings per common share were $1.69 for 1997, compared with $1.20 for 1996 and 86 cents for 1995. Return on average assets was 1.77% in 1997, compared with 1.39% in 1996 and .95% in 1995. Return on average realized common equity was 19.57% in 1997, compared with 16.77% in 1996 and 13.69% in 1995. Basic cash earnings per common share, which exclude amortization of goodwill and deposit base intangibles, were $1.85 for 1997, compared with $1.26 for 1996 and 91 cents for 1995. 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. 17 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) 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 basic common share. TCF's 1995 results included certain merger-related charges incurred in connection with TCF's acquisition of Great Lakes Bancorp, A Federal Savings Bank ("Great Lakes"), which is described in Note 2 of Notes to Consolidated Financial Statements. On an after-tax basis, these merger-related charges totaled $32.8 million, or 41 cents per basic common share. Net income totaled $145.1 million for 1997, up 18.8% from $122.1 million for 1996 before the FDIC special assessment. Net income totaled $105.1 million for 1995 before the merger-related charges. On the same basis, basic earnings per common share were $1.72, up 15.4% from $1.49 for 1996, and $1.29 for 1995, and diluted earnings per common share were $1.69 for 1997, up 15.8% from $1.46 for 1996, and $1.25 for 1995. Basic cash earnings per common share, on the same basis, were $1.85 for 1997, up from $1.52 for 1996 and $1.32 for 1995. Return on average assets was a record 1.77% for 1997, compared with 1.70% for 1996 before the special assessment, and 1.38% for 1995 before the merger-related charges. On the same basis, return on average realized common equity was 19.57% for 1997, compared with 20.40% for 1996 and 19.97% for 1995. As the Standard acquisition was accounted for as a purchase transaction, TCF's results for periods prior to the Standard acquisition have not been restated. Since Standard's performance ratios were lower than TCF's, the Company's performance ratios for 1997 were negatively impacted by the acquisition of Standard. The Company's performance ratios for 1998 will continue to be negatively impacted due to the inclusion of Standard for the entire year. 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, mortgage-backed securities held to maturity, 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. The arithmetic difference between the yield on interest-earning assets and the cost of interest-bearing liabilities expressed as a percentage is referred to as the net interest-rate spread. Net interest income was a record $393.6 million for the year ended December 31, 1997, up from $354.6 million in 1996 and $329.1 million in 1995. This represents an increase of 11% in 1997, following increases of 7.7% in 1996 and 15.3% in 1995. Total average interest-earning assets increased 12.5% in 1997, following decreases of 5.6% in 1996 and 1.3% in 1995. The net interest margin for 1997 was 5.20%, compared with 5.27% in 1996 and 4.61% in 1995. TCF's net interest margin for 1997 was negatively impacted by the acquisition of Standard and is expected to decline further in 1998 due to the impact of Standard's lower net interest margin for the entire year. In addition, TCF's net interest-rate spread was 4.54% in 1997, compared with 4.68% and 4.14% in 1996 and 1995, respectively. 18 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) The following table presents TCF's average balance sheets, interest and dividends earned or paid, and the related yields and rates on major categories of TCF's interest-earning assets and interest-bearing liabilities:
Year Ended Year Ended Year Ended December 31, 1997 December 31, 1996 December 31, 1995 ------------------------------ ------------------------------ ------------------------------ Interest Interest Interest Yields Yields Yields (Dollars in thousands) Average and Average and Average and Balance Interest(1) Rates Balance Interest(1) Rates Balance Interest(1) Rates ---------- ------------ ------- ---------- ------------ ------- --------- ------------ ------- ASSETS: Securities available for sale(2) $1,338,295 $ 95,701 7.15% $1,054,434 $ 75,303 7.14% $ 57,170 $ 4,055 7.09% ---------- -------- ---------- -------- ---------- -------- Loans held for sale 211,192 15,755 7.46 227,226 17,080 7.52 226,922 18,253 8.04 ---------- -------- ---------- -------- ---------- -------- Mortgage-backed securities held to maturity - - - - - - 1,275,073 91,037 7.14 ---------- -------- ---------- -------- ---------- -------- Loans and leases: Residential real estate 2,674,107 206,853 7.74 2,416,865 191,348 7.92 2,690,667 211,128 7.85 Commercial real estate 856,712 77,829 9.08 923,838 82,971 8.98 980,074 87,764 8.95 Commercial business 205,402 18,068 8.80 157,400 13,905 8.83 186,928 17,568 9.40 Consumer 1,856,299 221,758 11.95 1,624,449 197,916 12.18 1,417,189 171,973 12.13 Lease financing 335,534 39,458 11.76 263,709 29,914 11.34 212,952 23,330 10.96 --------- ------- --------- ------- --------- ------- Total loans and leases (3) 5,928,054 563,966 9.51 5,386,261 516,054 9.58 5,487,810 511,763 9.33 --------- ------- --------- ------- --------- ------- Investments: Interest-bearing deposits with banks 15,040 1,593 10.59 6,946 282 4.06 10,343 570 5.51 Federal funds sold 4,959 279 5.63 2,448 135 5.51 8,484 506 5.96 U.S. Government and other marketable securities held to maturity 3,963 213 5.37 3,817 199 5.21 3,595 200 5.56 FHLB stock 59,243 4,338 7.32 52,642 3,831 7.28 64,757 4,814 7.43 FRB stock 12,941 769 5.94 - - - - - - --------- ------- --------- ------- --------- ------- Total investments 96,146 7,192 7.48 65,853 4,447 6.75 87,179 6,090 6.99 --------- ------- --------- ------- --------- ------- Total interest- earning assets 7,573,687 682,614 9.01 6,733,774 612,884 9.10 7,134,154 631,198 8.85 ------- ----- ------- ----- ------- ----- Other assets (4) 600,083 467,328 476,148 --------- --------- --------- Total assets $8,173,770 $7,201,102 $7,610,302 ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY: Non-interest bearing deposits $ 782,836 $ 608,213 $ 507,550 ---------- ---------- ---------- Interest-bearing deposits: Checking 551,501 6,133 1.11 510,979 5,571 1.09 529,329 6,606 1.25 Passbook and statement 901,576 17,653 1.96 793,975 14,389 1.81 855,492 18,507 2.16 Money market 658,894 20,533 3.12 630,382 19,256 3.05 649,189 21,878 3.37 Certificates 2,868,833 150,863 5.26 2,458,291 132,159 5.38 2,657,859 146,253 5.50 ----------- ------- ---------- ------- ---------- ------- Total interest-bearing deposits 4,980,804 195,182 3.92 4,393,627 171,375 3.90 4,691,869 193,244 4.12 ----------- ------- ---------- ------- ---------- ------- Borrowings: Securities sold under repurchase agreements and federal funds purchased 346,339 19,892 5.74 506,298 28,597 5.65 596,935 36,095 6.05 FHLB advances 817,464 48,142 5.89 674,703 37,277 5.52 860,948 50,729 5.89 Discounted lease rentals 222,558 18,430 8.28 180,586 14,906 8.25 163,871 13,614 8.31 Subordinated debt 37,953 3,581 9.44 28,911 2,564 8.87 46,429 4,986 10.74 Collateralized obligations 37,938 2,439 6.43 40,831 2,586 6.33 41,586 2,880 6.93 Other borrowings 21,656 1,352 6.24 15,829 1,011 6.39 8,095 558 6.89 ----------- ------- ---------- ------- ---------- ------- Total borrowings 1,483,908 93,836 6.32 1,447,158 86,941 6.01 1,717,864 108,862 6.34 ----------- ------- ---------- ------- ---------- ------- Total interest-bearing liabilities 6,464,712 289,018 4.47 5,840,785 258,316 4.42 6,409,733 302,106 4.71 ------- ----- -------- ----- ------- ----- Other liabilities (4) 180,585 153,373 157,142 ----------- ---------- ---------- Total liabilities 7,428,133 6,602,371 7,074,425 ----------- ---------- ---------- Stockholders' equity: (4) Preferred equity - - 13,472 Common equity 745,637 598,731 522,405 ----------- ---------- ---------- Total stockholders' equity 745,637 598,731 535,877 ----------- ---------- ---------- Total liabilities and stockholders' equity $8,173,770 $7,201,102 $7,610,302 ----------- ---------- ---------- ----------- ---------- ---------- Net interest income $393,596 $354,568 $329,092 -------- -------- -------- -------- -------- -------- Net interest-rate spread 4.54% 4.68% 4.14% ------ ------ ------ ------ ------ ------ Net interest margin 5.20% 5.27% 4.61% ------ ------ ------ ------ ------ ------
- -------------------------------- (1) Tax-exempt income was not significant and thus has not been presented on a tax equivalent basis. Tax-exempt income of $201,000, $363,000 and $511,000 was recognized during the years ended December 31, 1997, 1996 and 1995, 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. 19 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) The following table presents the components of the changes in net interest income by volume and rate:
Year Ended Year Ended December 31, 1997 December 31, 1996 Versus Same Period in 1996 Versus Same Period in 1995 -------------------------------- -------------------------------- Increase (Decrease) Due to Increase (Decrease) Due to -------------------------------- -------------------------------- (In thousands) Volume(1) Rate(1) Total Volume(1) Rate(1) Total --------- ---------- --------- --------- ---------- --------- Securities available for sale $ 20,293 $ 105 $ 20,398 $ 71,219 $ 29 $ 71,248 --------- ---------- --------- --------- ---------- --------- Loans held for sale (1,191) (134) (1,325) 24 (1,197) (1,173) --------- ---------- --------- --------- ---------- --------- Mortgage-backed securities held to maturity - - - (91,037) - (91,037) --------- ---------- --------- --------- ---------- --------- Loans and leases: Residential real estate 19,946 (4,441) 15,505 (21,649) 1,869 (19,780) Commercial real estate (6,061) 919 (5,142) (5,084) 291 (4,793) Commercial business 4,210 (47) 4,163 (2,647) (1,016) (3,663) Consumer 27,655 (3,813) 23,842 25,231 712 25,943 Lease financing 8,401 1,143 9,544 5,748 836 6,584 --------- ---------- --------- --------- ---------- --------- Total loans and leases 54,151 (6,239) 47,912 1,599 2,692 4,291 --------- ---------- --------- --------- ---------- --------- Investments: Interest-bearing deposits with banks 551 760 1,311 (160) (128) (288) Federal funds sold 141 3 144 (336) (35) (371) U.S. Government and other marketable securities held to maturity 8 6 14 12 (13) (1) FHLB stock 486 21 507 (887) (96) (983) FRB stock 769 - 769 - - - --------- ---------- --------- --------- ---------- --------- Total investments 1,955 790 2,745 (1,371) (272) (1,643) --------- ---------- --------- --------- ---------- --------- Total interest income 75,208 (5,478) 69,730 (19,566) 1,252 (18,314) --------- ---------- --------- --------- ---------- --------- Deposits: Checking 457 105 562 (220) (815) (1,035) Passbook and statement 2,026 1,238 3,264 (1,266) (2,852) (4,118) Money market 847 430 1,277 (613) (2,009) (2,622) Certificates 21,705 (3,001) 18,704 (10,921) (3,173) 14,094) --------- ---------- --------- --------- ---------- --------- Total deposits 25,035 (1,228) 23,807 (13,020) (8,849) (21,869) --------- ---------- --------- --------- ---------- --------- Borrowings: Securities sold under repurchase agree- ments and federal funds purchased (9,155) 450 (8,705) (5,223) (2,275) (7,498) FHLB advances 8,251 2,614 10,865 (10,424) (3,028) (13,452) Discounted lease rentals 3,470 54 3,524 1,390 (98) 1,292 Subordinated debt 843 174 1,017 (1,657) (765) (2,422) Collateralized obligations (187) 40 (147) (51) (243) (294) Other borrowings 365 (24) 341 496 (43) 453 --------- ---------- --------- --------- ---------- --------- Total borrowings 3,587 3,308 6,895 (15,469) (6,452) (21,921) --------- ---------- --------- --------- ---------- --------- Total interest expense 28,622 2,080 30,702 (28,489) (15,301) (43,790) --------- ---------- --------- --------- ---------- --------- Net interest income $ 46,586 $ (7,558) $ 39,028 $ 8,923 $ 16,553 $ 25,476 --------- ---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
- ------------------------------- (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. 20 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) 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-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 $46.6 million due to volume changes and decreased $7.6 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. TCF's net interest margin for the fourth quarter of 1997 was 4.93%, compared with 5.24% for the third quarter of 1997 and 5.37% for the fourth quarter of 1996. As previously noted, TCF's net interest margin for 1997 was negatively impacted by the acquisition of Standard. Margin growth is dependent on TCF's ability to generate higher-yielding assets. TCF expects that the current interest rate environment and the resulting increase in prepayment activity will make it more difficult to generate, or increase the balance of, such higher-yielding assets. Interest income increased $69.7 million in 1997, reflecting an increase of $75.2 million due to volume, partially offset by a decrease of $5.5 million due to rate changes. Interest expense increased $30.7 million in 1997, primarily due to the acquisition of Standard, reflecting increases of $28.6 million due to volume and $2.1 million due to a higher cost of funds. The decrease in net interest income due to the unfavorable impact of rate changes reflects the acquisition of Standard, partially offset by TCF's changing asset/liability mix, with greater emphasis on higher-yielding consumer loans and lease financings. If variable index rates (e.g., prime) were to decline, TCF may experience 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 1996, TCF's net interest income, net interest margin and interest-rate spread increased primarily due to the growth of higher-yielding consumer loans and lease financings, the favorable impact of the 1995 merger-related restructuring activities, 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, with greater emphasis on higher-yielding consumer loans and lease financings and less emphasis on mortgage-backed securities. In 1995, TCF's net interest income, net interest margin and interest-rate spread increased primarily due to increased yields and growth of consumer loans and lease financings, the favorable impact of the Great Lakes merger-related restructuring activities, lower average levels of non-performing assets, and increased capital. Net interest income increased $43.6 million, or 15.3%, even though total average interest-earning assets decreased by $92.3 million, or 1.3%, from 1994 levels. TCF's net interest income improved by $15 million due to volume changes and by $28.7 million due to rate changes. The favorable impact of growth in higher-yielding consumer loans and lease financings was partially offset by the negative impact of a higher cost of funds and decreased volumes in mortgage-backed securities held to maturity and securities available for sale. Interest income increased $62.3 million in 1995, reflecting an increase of $53 million due to higher yields on interest-earning assets. Interest expense increased $18.7 million in 1995, reflecting a $24.3 million increase due to a higher cost of funds. The increase in net interest income due to the favorable impact of rate changes reflects in part the benefit from TCF's changing asset/liability mix. PROVISION FOR CREDIT LOSSES TCF provided $17.8 million for credit losses in 1997, compared with $21.2 million in 1996 and $16.1 million in 1995. Included in the 1995 provision for credit losses were $5 million of merger-related provisions. The merger-related provisions were established to conform Great Lakes' credit loss reserve practices and methods to those of TCF and to allow for the accelerated disposition of Great Lakes' remaining problem assets. The allowance for loan and lease losses and industrial revenue bond reserves totaled $84 million at December 31, 1997, compared with $73.5 million at December 31, 1996. See "Financial Condition - Allowance for Loan and Lease Losses and Industrial Revenue Bond Reserves." 21 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) NON-INTEREST INCOME Non-interest income is a significant source of revenues for TCF and an important factor in TCF's results of operations. Providing a wide range of retail banking services is an integral component of TCF's business philosophy and a major strategy for generating additional non-interest income. Excluding gains on sales of branches and loans, non-interest income increased $38.9 million, or 22.4%, during 1997 to $212.3 million. The increase was primarily due to increases in fee and service charge revenues, ATM network revenues, leasing revenues and gains on sales of securities available for sale. The following table presents the components of non-interest income:
Percentage Year Ended December 31, Increase (Decrease) ------------------------------------- ------------------------- (Dollars in thousands) 1997 1996 1995 1997/96 1996/95 ---- ---- ---- ------- ------- Fee and service charge revenues $101,329 $ 90,424 $ 81,862 12.1% 10.5% Leasing revenues 32,025 23,814 19,739 34.5 20.6 ATM network revenues 30,808 21,478 18,418 43.4 16.6 Title insurance revenues 13,730 13,492 11,509 1.8 17.2 Commissions on sales of annuities 7,894 9,134 8,557 (13.6) 6.7 Gain on sale of loans held for sale 4,777 5,038 3,735 (5.2) 34.9 Gain on sale of securities available for sale 8,509 86 158 N.M. (45.6) Gain on sale of loan servicing 1,622 - 1,535 100.0 (100.0) Other 11,642 9,956 7,284 16.9 36.7 Gain on sale of loans 145 5,443 - (97.3) 100.0 Gain on sale of branches 14,187 2,747 1,103 416.5 149.0 Merger-related charges: Loss on sale of mortgage- backed securities - - (21,037) - N.M. Loss on sale of securities available for sale - - (310) - N.M. -------- -------- -------- Total non-interest income $226,668 $181,612 $132,553 24.8 37.0 -------- -------- -------- -------- -------- --------
- ----------------------------- N.M. Not meaningful. Fee and service charge revenues increased $10.9 million in 1997 and $8.6 million in 1996 primarily as a result of expanded retail banking activities. Included in fee and service charge revenues are fees of $14.6 million, $15.3 million and $15.1 million received for the servicing of loans owned by others during 1997, 1996 and 1995, respectively. At December 31, 1997, 1996 and 1995, TCF was servicing real estate loans for others with aggregate unpaid principal balances of $4.4 billion, $4.5 billion and $4.5 billion, respectively. Leasing revenues increased $8.2 million, or 34.5%, in 1997 and $4.1 million, or 20.6%, in 1996. 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. ATM network revenues increased $9.3 million, or 43.4%, in 1997 and $3.1 million, or 16.6%, in 1996. These increases reflect TCF's efforts to provide banking services through its ATM network. TCF expanded its network to 1,156 ATMs at December 31, 1997, an increase of 239 ATMs during 1997. 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 1998. Title insurance revenues increased $238,000 in 1997 to $13.7 million, following an increase of $2 million in 1996 to $13.5 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 decreased $1.2 million to $7.9 million in 1997, following an increase of $577,000 to $9.1 million in 1996. Sales of annuities may fluctuate from period to period, and future sales levels will depend upon continued favorable tax treatment, the level of interest rates, general economic conditions and investor preferences. Sales of annuities may be negatively impacted by the current interest rate environment. Gains on sales of loans held for sale decreased $261,000 in 1997 following an increase of $1.3 million in 1996. Gains on sales of securities available for sale totaled $8.5 million in 1997, an increase of $8.4 million from the $86,000 recognized in 1996. Gains or losses on sales of loans held for sale and securities available for sale may fluctuate significantly from period to period due to changes in interest rates and volumes, and results in any period related to these transactions may not be indicative of results which will be obtained in future periods. Gains on sales of third-party loan servicing rights totaled $1.6 million in 1997 on the sale of $144.7 million of third-party loan servicing rights. Gains of $1.5 million were recognized in 1995 on the sale of $146.3 million of third-party loan servicing rights. TCF periodically sells loan servicing rights depending on market conditions. 22 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) Other non-interest income increased $1.7 million in 1997 to $11.6 million, and $2.7 million in 1996 to $10 million. The increases were primarily due to increased commission revenue earned on sales of insurance and mutual fund products. During 1997, TCF recognized gains of $14.2 million on the sales of eleven branches, compared with gains of $2.7 million on the sales of five branches during 1996. During 1997, TCF recognized a $145,000 gain on the sale of $2.8 million of loans related to the sale of a branch. During 1996, TCF recognized a $4.6 million gain on the sale of $39.6 million of credit card loans. The Company now provides credit card products on behalf of a third party through a marketing agreement. Also during 1996, TCF recognized a gain of $810,000 on the sale of $7.2 million of loans related to the sale of branches. During 1995, Great Lakes sold $232.2 million of collateralized mortgage obligations from its held-to-maturity portfolio at a pretax loss of $21 million. Also in 1995, Great Lakes sold $17.3 million of securities available for sale at a pretax loss of $310,000. These merger-related asset sales were completed as part of TCF's strategy to reduce Great Lakes' interest-rate and credit risk to levels consistent with TCF's existing interest-rate risk position and credit risk policy. TCF's non-interest income in future periods may be negatively impacted by pending state and federal legislative proposals, which, if enacted, could limit loan, deposit or other fees and service charges. See "Financial Condition - Forward-Looking Information" and "Financial Condition - Legislative and Regulatory Developments." NON-INTEREST EXPENSE Non-interest expense increased $8 million, or 2.3%, in 1997, and $26.6 million, or 8.1%, in 1996, 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) 1997 1996 1995 1997/96 1996/95 ---- ---- ---- ------- ------- Compensation and employee benefits $180,482 $157,554 $143,822 14.6% 9.5% Occupancy and equipment 58,352 51,958 50,953 12.3 2.0 Advertising and promotions 19,157 17,014 16,807 12.6 1.2 Federal deposit insurance premiums and assessments 4,689 12,019 13,540 (61.0) (11.2) Amortization of goodwill and other intangibles 15,757 3,540 3,163 345.1 11.9 Other 83,125 76,638 72,461 8.5 5.8 FDIC special assessment - 34,803 - (100.0) 100.0 Merger-related charges: Merger-related expenses - - 21,733 - (100.0) Cancellation cost on early termination of interest- rate exchange contracts - - 4,423 - (100.0) -------- -------- -------- Total non-interest expense $361,562 $353,526 $326,902 2.3 8.1 -------- -------- -------- -------- -------- --------
Compensation and employee benefits, representing 49.9% and 44.6% of total non-interest expense in 1997 and 1996, respectively, increased $22.9 million, or 14.6%, in 1997, and $13.7 million, or 9.5%, in 1996. The 1997 increase was primarily due to costs associated with expanded retail banking activities, including the impact of the acquisitions of Standard and BOC. The 1996 increase was primarily due to the expansion of consumer lending operations and other retail banking activities. Occupancy and equipment expenses increased $6.4 million in 1997 and $1 million in 1996. The 1997 increase reflects the costs associated with expanded retail banking activities, including the addition of 25 bank branch offices. The increase in 1996 reflected the opening of 12 bank branch offices. Advertising and promotion expenses increased $2.1 million in 1997 and $207,000 in 1996. The increases reflect the increase in direct mail and other marketing expenses relating to the promotion of TCF's consumer lending, deposit and leasing products. Federal deposit insurance premiums and assessments decreased $7.3 million in 1997 and $1.5 million in 1996. The decrease in 1997 reflects 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 due to the acquisition of Standard. The decrease in 1996 was primarily due to lower deposit levels and a decrease in the 1996 fourth quarter deposit insurance premium rates as a result of the recapitalization of the SAIF. Amortization of goodwill and other intangibles increased $12.2 million in 1997 and $377,000 in 1996. The increase in 1997 was due to the previously mentioned accelerated amortization of $8.7 million of deposit base intangibles and the amortization of goodwill and deposit base intangibles resulting from the acquisitions of Standard and BOC. Other non-interest expense increased $6.5 million, or 8.5%, in 1997 and $4.2 million, or 5.8%, in 1996. The increase for 1997 reflects 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. The increase in 1997 also reflects costs 23 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) associated with expanded retail banking activities, including the impact of the acquisitions of Standard and BOC. The increase in 1996 was primarily due to costs associated with the relocation and consolidation of certain back-office operations, the expansion of TCF's consumer lending operations, and other retail banking activities. In addition, the increase reflects an increase in Michigan state business taxes due to improved profitability. 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." Merger-related expenses for 1995 included $13.9 million of equipment charges associated with the integration of Great Lakes' data processing system into TCF's, $4.7 million of employment contract, severance and employment benefit costs reflecting the consolidation of certain Great Lakes functions, and $2.2 million of professional fees and $864,000 of other expenses which were incurred by Great Lakes as a direct result of the merger. During 1995, Great Lakes prepaid $112.3 million of Federal Home Loan Bank ("FHLB") advances at a pretax loss of $1.5 million. This amount, net of a $578,000 income tax benefit, was recorded as an extraordinary item. Interest-rate exchange contracts with notional principal amounts totaling $544.5 million were terminated by Great Lakes during 1995 at a pretax loss of $4.4 million. These actions were taken in order to reduce Great Lakes' level of higher-cost wholesale borrowings and to reduce interest-rate risk. TCF, like most owners of computer software, will be required to ascertain that its computer systems will function properly in the year 2000. TCF has established a year 2000 task force and has evaluated its data processing and other systems to determine whether they are year 2000 compliant. Remediation of certain software applications has already begun, and TCF expects substantially all remediation work to be complete by the end of 1998, leaving 1999 for testing. Many of TCF's data processing applications are supplied by third party software vendors. TCF is also evaluating whether such vendor supplied applications are or will be year 2000 compliant. TCF estimates the total additional costs to be incurred prior to 2000 to range from approximately $5 million to $6 million. In addition, a significant amount of existing internal resources will be allocated to this project. Maintenance or modification costs will be expensed as incurred, while the costs of new software will be capitalized and amortized over the software's useful life. TCF's year 2000 compliance initiatives are subject to certain uncertainties which may delay or increase the cost of achieving compliance. To some extent, TCF's operations will be dependent on the year 2000 compliance achieved by outside vendors, borrowers and government agencies or instrumentalities such as the Federal Reserve System, and also on the cooperation of such parties in testing the effectiveness of compliance initiatives. See "Financial Condition - Forward-Looking Information." INCOME TAXES TCF recorded income tax expense of $95.8 million in 1997, compared with $61 million in 1996 and $45.5 million in 1995. Income tax expense represented 39.8% of income before income tax expense and extraordinary item during 1997, compared with 37.8% and 38.3% in 1996 and 1995, respectively. The higher tax rate in 1997 reflects the impact of relatively higher non-deductible expenses, including goodwill amortization resulting from the acquisitions of Standard and BOC, and higher state tax rates due to business expansion. TCF expects that its effective tax rate will increase in 1998, principally due to increased amortization of goodwill. Further detail on income taxes is provided in Note 13 of Notes to Consolidated Financial Statements. FINANCIAL CONDITION INVESTMENTS Total investments decreased $326.6 million in 1997 to $129.6 million at December 31, 1997. The decrease is primarily due to a decrease of $365.7 million in interest-bearing deposits with banks, partially offset by an increase of $15.9 million in FHLB stock, and the purchase of $23 million of Federal Reserve Bank ("FRB") stock in connection with the conversion of TCF's savings bank subsidiaries to national banks. See "Legislative and Regulatory Developments." 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, 1997. 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 a separate component of stockholders' equity. Securities available for sale increased $426.5 million during 1997 to $1.4 billion at December 31, 1997. The increase reflects the acquisition of $866.8 million and $83.1 million of securities available for sale as part of the Standard and BOC transactions, respectively, and purchases of $507 million, partially offset by sales of $467.7 million and payment and prepayment activity. At December 31, 1997, TCF's securities available-for-sale portfolio included $930.1 million and $496 million of fixed-rate and adjustable-rate mortgage-backed securities, respectively. Securities available for sale totaled $999.6 million at December 31, 1996. 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 decreased $11 million and residential real estate loans held for sale increased $51.7 million from year-end 1996, and totaled $135.3 million and $109.3 million, respectively, at December 31, 1997. 24 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) 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, ---------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (In thousands) Residential real estate $3,619,527 $2,261,237 $2,618,725 $2,662,707 $2,305,844 Consumer 2,039,221 1,801,066 1,593,439 1,299,458 1,080,499 Commercial real estate 862,164 861,056 970,763 997,632 1,091,084 Commercial business 239,728 156,712 167,663 190,975 214,774 Lease financing 414,270 341,721 281,122 227,578 184,043 Deferred costs (fees) and unearned discounts and finance charges, net (105,722) (128,872) (115,364) (65,590) (51,075) ---------- ---------- ---------- ---------- ---------- Total loans and leases $7,069,188 $5,292,920 $5,516,348 $5,312,760 $4,825,169 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Residential real estate loans increased $1.4 billion from year-end 1996 to $3.6 billion at December 31, 1997, principally due to the acquisition of Standard. At December 31, 1997, TCF's residential real estate loan portfolio was comprised of $1.4 billion of fixed-rate loans and $2.2 billion of adjustable-rate loans. Consumer loans, comprised of bank originated and consumer finance originated loans, increased $238.2 million from year-end 1996 to $2 billion at December 31, 1997, reflecting increases of $225.8 million and $28.4 million in home equity loans and automobile loans, respectively. These increases reflect the acquisition of $24.2 million of home equity loans and $64.2 million of automobile loans due to the Standard transaction. The growth in home equity loans reflects TCF's expanded consumer lending and consumer finance operations. Consumer loan growth in recent years reflects TCF's emphasis on expanding its portfolio of these higher-yielding, shorter-term loans, including home equity loans. TCF had 60 consumer finance offices in 16 states as of December 31, 1997. TCF's consumer finance loan portfolio totaled $521.5 million at December 31, 1997, compared with $496.3 million at December 31, 1996. The Company is seeking to increase the outstanding loan balances and improve the profitability of its consumer finance subsidiaries. See "Forward-Looking Information." TCF's consumer finance subsidiaries primarily originate automobile and home equity loans and purchase automobile loans. The average individual balance of consumer finance automobile loans and home equity loans were $8,000 and $31,000, respectively, at December 31, 1997. At December 31, 1997 and 1996, automobile loans comprised $292.6 million, or 56.1%, and $299.6 million, or 60.4%, respectively, of total consumer finance loans outstanding. At December 31, 1997 and 1996, home equity loans comprised $218.8 million, or 42%, and $185.2 million, or 37.3%, respectively, of total consumer finance loans. TCF's consumer finance subsidiaries are seeking to increase the percentage of home equity loans to total consumer finance loans over time. Home equity loans originated by the Company's consumer finance subsidiaries are generally closed-end. Through their purchases of automobile loans, TCF's consumer finance subsidiaries provide indirect financing. Included in the consumer finance loans at December 31, 1997 are $241.3 million of sub-prime automobile loans which carry a higher level of credit risk and higher interest rates. The term sub-prime refers to the Company's assessment of credit risk and bears no relationship to the prime rate of interest or persons who are able to borrow at that rate. There can be no assurances that the Company's sub-prime lending criteria are the same as those utilized by other lenders. Loans classified as sub-prime are owed by borrowers who are unable to obtain credit from traditional sources because of significant past credit problems or limited credit histories. Although competition in the sub-prime lending market has increased, the Company believes that sub-prime borrowers represent a substantial market and their demand for financing has not been adequately served by traditional lending sources. The underwriting criteria for loans originated by TCF's consumer finance subsidiaries generally have been less stringent than those historically adhered to by TCF's bank subsidiaries and, as a result, these loans carry a higher level of credit risk and higher interest rates. The consumer finance portfolio also carries an increased risk of loss in the event of adverse economic developments such as a recession. TCF believes that important determinants of success in sub-prime automobile financing include the ability to control borrower and dealer misrepresentations at the point of origination; the evaluation of the creditworthiness of sub-prime borrowers; and the maintenance of an active program to monitor performance and collect payments. 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. Many of the consumer finance offices are relatively new and are outside TCF's traditional market areas. The geographic location of consumer finance loans may change significantly in future periods. See Note 6 of Notes to Consolidated Financial Statements for additional information concerning the geographic locations of TCF's consumer finance loan portfolio. TCF's bank and consumer finance subsidiaries have also initiated the origination of home equity loans with loan-to-value ratios in excess of 80%, and on a limited basis up to 100%, that carry no private mortgage insurance. These loans carry a higher level of credit risk and are made at higher interest rates. 25 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) The following table summarizes TCF's commercial real estate loan portfolio by property type:
At December 31, ------------------------------------------------------------- 1997 1996 ------------------------------ ----------------------------- Number Number (Dollars in thousands) Balance (1) of Loans Balance (1) of Loans ----------- -------- ----------- -------- Apartments $304,866 675 $339,809 638 Office buildings 167,607 241 144,642 234 Retail services 148,985 232 127,312 187 Warehouse/industrial buildings 79,980 143 87,486 130 Hospitality facilities 60,544 29 78,746 37 Health care facilities 12,494 10 17,181 14 Other 87,688 393 65,880 308 -------- ----- -------- ------ $862,164 1,723 $861,056 1,548 -------- ----- -------- ------ -------- ----- -------- ------ Average balance $500 $556 ---- ---- ---- ----
- --------------------------- (1) Includes construction and development loans. Commercial real estate loans increased $1.1 million from year-end 1996 to $862.2 million at December 31, 1997. Commercial business loans increased $83 million in 1997 to $239.7 million at December 31, 1997. 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. These loans generally have larger individual balances and a greater inherent risk of loss. The risk of loss is difficult to quantify and in the case of commercial real estate loans, is subject to fluctuations in real estate values. At December 31, 1997, approximately 92% 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 $500,000 at December 31, 1997. Apartment loans comprised $304.9 million, or 35.4%, of total commercial real estate loans outstanding at December 31, 1997. The average individual balance of commercial business loans was $291,000 at December 31, 1997. Lease financings increased $72.5 million from year-end 1996 to $414.3 million at December 31, 1997, reflecting a $79.7 million increase in direct financing leases, partially offset by a $9.9 million decrease in sales-type leases. Winthrop provides a range of comprehensive lease finance products addressing the financing needs of diverse companies through four product groups. The Value Added Lease, which has been Winthrop's primary focus, generally has a term from two to five years and is entered into with large organizations (generally corporations with revenue of $50 million or more). Such leases typically range from $250,000 to $20 million and cover high-technology and other business-essential equipment. These leases are flexible in structure to accommodate equipment additions and upgrades to meet customers' changing needs. Small Ticket Leases are typically less than $250,000, have lease terms of between two and five years, and cover business-essential equipment. Winthrop developed the Small Ticket Lease in response to the expanding technological needs of increasing numbers of small, growing businesses. Leasing to small, growing businesses is inherently more risky than leasing to large, established corporations. The Enterprise Lease is designed to meet the needs of large corporations with influence over multiple business entities (for example, franchise operations). The Enterprise Lease integrates the Value Added Lease and the Small Ticket Lease for organizations in need of enterprise-wide equipment and systems solutions. Through the Wholesale Lease, Winthrop acts as a lease broker that, for a fee, arranges lease financing with other leasing companies for a variety of unaffiliated brokers and vendors. The Wholesale Lease is generally sold to an outside funding source and does not become part of Winthrop's lease portfolio. Winthrop enters into standard lease agreements with each customer. Winthrop's leases are noncancelable "net" leases which contain provisions under which the customer, upon acceptance of the equipment, must make all lease payments regardless of any defects in the equipment and which require the customer to maintain and service the equipment, insure the equipment against casualty loss and pay all property, sales and other taxes related to the equipment. Winthrop typically retains ownership of the equipment it leases and, in the event of default by the customer, Winthrop, or the financial institution that has provided non-recourse financing for a particular lease, may declare the customer in default, accelerate all lease payments due under the lease and pursue other available remedies, including repossession of the equipment. Upon completion of the initial term of the lease, the customer may return the equipment to Winthrop, renew the lease for an additional term, or in certain circumstances purchase the equipment. If the equipment is returned to Winthrop, it is either re-leased to another customer or sold into the secondary-user marketplace. 26 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) Winthrop's ability to arrange financing is important to its business. Winthrop may arrange permanent financing of Value Added Leases through non-recourse discounting of lease rentals with various other financial institutions at fixed interest rates. The proceeds from the assignment of the lease rentals are equal to the present value of the remaining lease payments due under the lease, discounted at the interest rate charged by the other financial institutions. Interest rates obtained under this type of financing are negotiated on a transaction-by-transaction basis and reflect the financial strength of the lease customer, the term of the lease and the prevailing interest rates. For a lease discounted on a non-recourse basis, the other financial institution has no recourse against Winthrop unless Winthrop is in default of the terms of the agreement under which the lease and the leased equipment are assigned to the other financial institution as collateral. The other financial institution may, however, take title to the collateral in the event the customer fails to make lease payments or certain other defaults by the lease customer occur under the terms of the lease. TCF is seeking to expand its leasing activity to achieve growth over time. TCF has started to internally fund certain Value Added Leases, and consequently retains the credit risk on such leases. TCF and Winthrop also internally fund Small Ticket Leases which, as previously mentioned, generally carry a higher level of credit risk and higher implicit interest rates. TCF believes that it has in place experienced personnel and acceptable standards for maintaining the credit quality of its lease portfolio, but no assurance can be given as to the level of future delinquencies and lease charge-offs. ALLOWANCE FOR LOAN AND LEASE LOSSES AND INDUSTRIAL REVENUE BOND RESERVES Credit risk is the risk of loss from a customer default. TCF has in place a process to identify and manage its credit risks. The process includes initial credit review and approval, periodic monitoring to measure compliance with credit agreements and internal credit policies, identification of problem loans and 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. See Note 1 of Notes to Consolidated Financial Statements for additional information concerning TCF's allowance for loan and lease losses. At December 31, 1997, the allowance for loan and lease losses and industrial revenue bond reserves totaled $84 million, compared with $73.5 million at December 31, 1996. The increase reflects the addition of $8.9 million and $1.7 million of allowances for loan losses as part of the Standard and BOC acquisitions, respectively. Net loan and lease and industrial revenue bond charge-offs were $17.9 million in 1997, compared with $16 million in 1996. TCF has experienced an increase in the level of net loan charge-offs related to its consumer finance portfolio. As a result, net loan charge-offs as a percentage of average loans outstanding for TCF's consumer finance portfolio increased to 3.02% for the year ended December 31, 1997, compared with 2.42% for 1996. In addition, the net loan charge-offs as a percentage of average loans outstanding for TCF's indirect consumer finance portfolio increased to 4.64% and 4.31% for the three months and year ended December 31, 1997, respectively, compared with 3.59% for the year ended December 31, 1996. The unallocated portion of TCF's allowance for loan and lease losses totaled $29.4 million at December 31, 1997, compared with $22.4 million at December 31, 1996. A summary of the allowance for loan and lease losses and industrial revenue bond reserves and selected statistics is presented in Note 7 of Notes to Consolidated Financial Statements. NON-PERFORMING ASSETS Non-performing assets (principally non-accrual loans and leases and other real estate owned) totaled $58.7 million at December 31, 1997, up $12.4 million from the December 31, 1996 total of $46.3 million. The increase in non-performing assets reflects increases of $4.5 million and $5.8 million in residential real estate and consumer finance non-accrual loans, respectively. The increase in residential non-accrual loans reflects the addition of $4.7 million due to the acquisition of Standard. Approximately 68% 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. 27 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) Non-performing assets are summarized in the following table:
At December 31, ---------------------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Non-accrual loans and leases (1): Consumer: Bank lending $ 3,495 $ 1,746 $ 1,799 $ 1,295 $ 1,264 Consumer finance lending 17,542 11,726 5,688 832 58 ------- ------- ------- ------- -------- 21,037 13,472 7,487 2,127 1,322 Residential real estate 8,451 3,996 7,045 7,211 9,705 Commercial real estate 3,818 7,604 22,255 18,452 52,463 Commercial business 3,370 1,149 7,541 5,972 24,770 Lease financing 117 176 - - - ------- ------- ------- ------- -------- 36,793 26,397 44,328 33,762 88,260 Other real estate owned and other assets 21,953 19,937 26,402 23,849 25,062 ------- ------- ------- ------- -------- Total non-performing assets $58,746 $46,334 $70,730 $57,611 $113,322 ------- ------- ------- ------- -------- ------- ------- ------- ------- -------- Non-performing assets as a percentage of net loans and leases .84% .89% 1.30% 1.10% 2.38% Non-performing assets as a percentage of total assets .60 .62 .94 .71 1.45
- --------------------- (1) Included in total loans and leases in the Consolidated Statements of Financial Condition. 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, ------------------------------------------------------- 1997 1996 ---------------------------- ------------------------- Percentage of Percentage of Principal Gross Loans Principal Gross Loans (Dollars in thousands) Balances and Leases Balances and Leases ---------- --------------- --------- -------------- Loans and leases delinquent for: 30-59 days $38,902 .54% $46,520 .87% 60-89 days 12,730 .18 8,263 .15 90 days or more - - - - ------- ------- ------- -------- Total $51,632 .72% $54,783 1.02% ------- ------- ------- -------- ------- ------- ------- --------
The over 30-day delinquency rate on TCF's loans and leases (excluding loans held for sale and non-accrual loans and leases) was .72% of gross loans and leases outstanding at December 31, 1997, compared with 1.02% at year-end 1996. 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, ---------------------------------------------------- 1997 1996 -------------------------- ------------------------- Percentage Percentage of Gross of Gross Principal Loans Principal Loans (Dollars in thousands) Balances and Leases Balances and Leases --------- ------------ ---------- ------------ Consumer: Bank lending $ 9,646 .66% $ 7,473 .61% Consumer finance lending 28,964 5.13 21,515 3.86 --------- --------- 38,610 1.91 28,988 1.62 Residential real estate 10,567 .29 8,330 .37 Commercial real estate 1,173 .14 5,114 .60 Commercial business 396 .17 9 .01 Lease financing 886 .21 12,342 3.61 --------- --------- Total $51,632 .72 $54,783 1.02 --------- --------- --------- ---------
28 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) TCF's over 30-day delinquency rate on gross consumer loans was 1.91% at December 31, 1997, up from 1.62% at year-end 1996. Management continues to monitor the consumer loan portfolio, which will generally have higher delinquencies, especially consumer finance loans. TCF's over 30-day delinquency rate on gross consumer finance loans was 5.13% at December 31, 1997, compared with 3.86% at December 31, 1996. TCF's over 30-day delinquency rate on gross automobile and home equity consumer finance loans was 6.81% and 2.40%, respectively, at December 31, 1997, compared with 4.24% and 3.09% at December 31, 1996. Consumer finance lending is generally considered to involve a higher level of credit risk. TCF believes that it has in place experienced personnel and acceptable standards for maintaining credit quality that are consistent with its goals for expanding its portfolio of these higher-yielding loans, but no assurance can be given as to the level of future delinquencies and loan charge-offs. In addition to the non-accrual loans and leases, there were commercial real estate and commercial business loans with an aggregate principal balance of $23.6 million outstanding at December 31, 1997 for which management has concerns regarding the ability of the borrowers to meet existing repayment terms. This amount consists of loans that were classified for regulatory purposes as substandard, doubtful or loss, or were to borrowers that currently are experiencing financial difficulties or that management believes may experience financial difficulties in the future. This compares with $16 million of such loans at December 31, 1996. Although these loans are secured by commercial real estate or other corporate assets, they may be subject to future modifications of their terms or may become non-performing. Management is monitoring the performance and classification of such loans and the financial condition of these borrowers. 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 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 affected by these factors and may continue to be affected in future periods. 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." 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 $100 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 at December 31, 1997 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 $6.9 billion at December 31, 1997, up $1.9 billion from December 31, 1996, and reflects the acquisition of $1.9 billion and $160.9 million due to the Standard and BOC transactions, respectively, partially offset by the previously described branch sales. Lower interest-cost checking, savings and money market deposits totaled $3.3 billion, up $673.9 million from year-end 1996, and comprised 47.8% of total deposits at December 31, 1997. Checking, savings and money market deposits are an important source of lower cost funds and fee income for TCF. The Company's weighted-average rate for deposits, including non-interest bearing deposits, increased to 3.42% at December 31, 1997, from 3.29% at December 31, 1996, reflecting a greater proportion of higher-rate certificates at December 31, 1997 than at December 31, 1996, primarily as a result of the Standard acquisition. BORROWINGS Borrowings are used primarily to fund the purchases of investments and securities available for sale. These borrowings totaled $1.7 billion at December 31, 1997, up $19 million from year-end 1996. The increase was primarily due to increases of $198.5 million in FHLB advances and $43 million in discounted lease rentals, partially offset by decreases of $181.5 million in securities sold under repurchase agreements and $38 million in collateralized obligations. The weighted-average rate on borrowings increased to 6.43% at December 31, 1997, from 6.19% at December 31, 1996. 29 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) STOCKHOLDERS' EQUITY Stockholders' equity at December 31, 1997 was $953.7 million, or 9.8% of total assets, up from $630.7 million, or 8.5% of total assets, at December 31, 1996. The increase in stockholders' equity is primarily due to a $185.8 million increase resulting from the issuance of 7,700,000 shares of TCF common stock in connection with the acquisition of Standard, net income of $145.1 million for the year ended December 31, 1997, the June 3, 1997 secondary offering of 1,400,000 shares of TCF common stock for net proceeds of $29.3 million, and the issuance of 839,000 shares of TCF common stock in connection with the conversion of the remaining $7.1 million of 7 1/4% convertible subordinated debentures due 2011, partially offset by the payment of $38.2 million in common stock dividends and the repurchase of 1,295,800 shares of TCF's common stock at a cost of $27.3 million. On April 23, 1997, TCF's shareholders approved an increase in the number of authorized shares of TCF common stock from 70,000,000 to 140,000,000. 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. On October 20, 1997, TCF's Board of Directors (the "Board") declared a two-for-one stock split in the form of a 100% common stock dividend payable November 28, 1997 to stockholders of record as of November 7, 1997. The stock split increased TCF's outstanding common shares from 46.4 million to 92.8 million shares. On January 19, 1998, the Board authorized the repurchase of up to 5% of TCF's common stock, or approximately 4.6 million shares. The repurchased shares will become treasury shares. On January 20, 1997, the Board authorized the repurchase of up to 5% of TCF's common stock, or approximately 3.5 million shares, but in February 1997, the Board formally rescinded this prior common stock repurchase program in connection with the Company's merger with Winthrop. On January 20, 1998, TCF declared a quarterly dividend of 12.5 cents per common share, payable on February 27, 1998 to stockholders of record as of February 6, 1998. RECENT ACCOUNTING DEVELOPMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." The statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The statement is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. Management believes the adoption of this statement will not significantly impact TCF's financial condition or results of operations. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The statement establishes standards for the way that public business enterprises report information about operating segments and certain other information in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The statement is effective for financial statements for periods beginning after December 15, 1997. Management believes the adoption of this statement will not significantly impact TCF's financial condition or results of operations. FORWARD-LOOKING INFORMATION There are a number of important factors which could cause future results to differ materially from historical performance. These include but are not limited to possible legislative changes; the possibility of adverse economic developments which may increase default and delinquency risks in TCF's loan portfolios; shifts in interest rates which may result in shrinking interest margins; deposit outflows; interest rates on competing investments; demand for financial services and loan products; increases generally in competitive pressure in the banking and financial services industry; changes in accounting policies or guidelines, or monetary and fiscal policies of the federal government; changes in the quality or composition of TCF's loan and investment portfolios; results of litigation or other significant uncertainties. TCF's recently completed acquisitions of Winthrop, Standard and the Jewel-Osco branches (and its commitment to construct additional Jewel-Osco branches in future periods) are subject to additional uncertainties, including the possible failure to fully realize or realize within the expected time frame expected cost savings or cost controls from the transactions; lower than expected income or revenue following the transactions; or higher than expected operating costs; business disruption relating to the transactions; greater than expected costs or difficulties related to the integration, retention and attraction of employees or management of the acquired business operations with those of TCF; litigation costs and delays caused by litigation; and other unanticipated occurrences which may increase the costs related to the transactions or decrease the expected financial benefits of the transactions. 30 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) 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 National Bank Minnesota, TCF 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 in interest rates. Decisions by management to purchase or sell assets, or retire debt could change the maturity/repricing and spread relationships. TCF's one-year interest-rate gap was a negative $184.7 million, or (2)% of total assets, at December 31, 1997, compared with a positive $114 million, or 2% of total assets, at December 31, 1996. 31 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) The following table summarizes TCF's interest-rate gap position at December 31, 1997:
Maturity/Rate Sensitivity ---------------------------------------------------------------------------------- 30 Days 6 Months Within to to (Dollars in thousands) 30 Days 6 Months 1 Year 1 to 3 Years 3+ Years Total ------------ ----------- ----------- ------------- ----------- ------------ Interest-earning assets: Loans held for sale $ 167,790 $ 72,876 $ 3,946 $ - $ - $ 244,612 Securities available for sale 67,687 304,968 257,718 354,707 441,051 1,426,131 Real estate loans (1) 322,508 614,920 766,464 1,515,805 1,264,064 4,483,761 Lease financings 12,909 26,963 116,292 153,497 58,860 368,521 Other loans (1) 1,461,062 143,909 126,930 280,209 204,796 2,216,906 Due from brokers 126,662 - - - - 126,662 Investments (2) 106,633 - - - 22,979 129,612 ------------ ----------- ----------- ------------- ----------- ------------ 2,265,251 1,163,636 1,271,350 2,304,218 1,991,750 8,996,205 ------------ ----------- ----------- ------------- ----------- ------------ Interest-bearing liabilities: Checking deposits (3) 90,821 11,833 - - 1,366,003 1,468,657 Passbook and savings deposits (3) 46,736 124,310 124,561 352,412 486,659 1,134,678 Money market deposits 698,312 - - - - 698,312 Certificate deposits 387,265 1,658,943 899,467 566,715 93,273 3,605,663 Federal Home Loan Bank advances 288,735 72,000 255,300 673,269 50,274 1,339,578 Discounted lease rentals 9,252 18,861 70,312 107,812 22,359 228,596 Other borrowings 53,488 6,469 68,240 731 30,050 158,978 ------------ ----------- ----------- ------------- ----------- ------------ 1,574,609 1,892,416 1,417,880 1,700,939 2,048,618 8,634,462 ------------ ----------- ----------- ------------- ----------- ------------ Interest-earning assets over (under) interest-bearing liabilities $ 690,642 $ (728,780) $ (146,530) $ 603,279 $ (56,868) $ 361,743 ------------ ----------- ----------- ------------- ----------- ------------ ------------ ----------- ----------- ------------- ----------- ------------ Cumulative gap $ 690,642 $ (38,138) $ (184,668) $ 418,611 $ 361,743 $ 361,743 ------------ ----------- ----------- ------------- ----------- ------------ ------------ ----------- ----------- ------------- ----------- ------------ Cumulative gap as a percentage of total assets: At December 31, 1997 7% - % (2)% 4% 4% 4% ------------ ----------- ----------- ------------- ----------- ------------ ------------ ----------- ----------- ------------- ----------- ------------ At December 31, 1996 1% (1)% 2 % 5% 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 interest-bearing deposits with banks, U.S. Government and other marketable securities held to maturity, FRB stock and FHLB stock. (3) Includes non-interest bearing deposits. 32 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Financial Review - (Continued) The following table provides information about TCF's financial instruments and derivative financial instruments that are held for purposes other than trading and are sensitive to changes in interest rates. For loans held for sale, securities available for sale, real estate loans, other 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 checking, passbook and statement and money market 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. The expected principal/notional maturity amounts at December 31, 1997 are as follows:
Year Ended December 31, ---------------------------------------------------------------------- (Dollars in thousands) 1998 1999 2000 2001 2002 ----------- -------- --------- --------- ---------- RATE SENSITIVE ASSETS: Fixed-rate loans held for sale $ 47,131 $ - $ - $ - $ - Average interest rate 7.31% - % - % - % - % Variable-rate loans held for sale 197,219 - - - - Average interest rate 7.17% - % - % - % - % Fixed-rate securities available for sale 185,051 190,019 126,549 73,863 60,620 Average interest rate 7.20% 7.20% 7.20% 7.20% 7.20% Variable-rate securities available for sale 128,275 94,775 70,064 51,839 38,398 Average interest rate 7.46% 7.46% 7.46% 7.46% 7.46% Fixed-rate real estate loans 367,312 276,493 223,184 233,867 114,806 Average interest rate 7.68% 7.62% 7.64% 7.82% 7.81% Variable-rate real estate loans 813,053 549,785 405,341 288,068 228,701 Average interest rate 7.90% 7.82% 7.87% 7.86% 7.95% Fixed-rate other loans 311,511 201,775 125,332 73,021 43,350 Average interest rate 15.63% 14.45% 13.07% 11.58% 10.35% Variable-rate other loans 183,975 134,264 122,117 79,821 87,326 Average interest rate 10.50% 10.82% 10.98% 11.12% 10.81% 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: Checking deposits 38,482 - - - - Average interest rate .45% - % - % - % - % Passbook and savings deposits 290,955 202,542 151,905 113,930 85,447 Average interest rate 2.04% 2.04% 2.04% 2.04% 2.04% Money market deposits 4,217 - - - - Average interest rate 3.07% - % - % - % - % Certificate deposits 2,931,999 400,893 177,899 68,895 18,778 Average interest rate 5.04% 5.46% 5.54% 5.78% 5.19% Fixed-rate Federal Home Loan Bank advances 347,300 375,510 297,758 25,132 - Average interest rate 5.92% 6.04% 6.16% 6.09% - % Variable-rate Federal Home Loan Bank advances 175,000 93,735 - - - Average interest rate 5.96% 5.69% - % - % - % Fixed-rate other borrowings 74,248 - - - - Average interest rate 7.17% - % - % - % - % Variable-rate other borrowings 53,441 - - - - Average interest rate 5.63% - % - % - % - % RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS: Forward mortgage loan sales commitments 81,937 - - - - Average interest rate 6.77% - % - % - % - % Commitments to extend credit (1) 158,452 - - - - Average interest rate 7.12% - % - % - % - %
Fair (Dollars in thousands) Thereafter Total 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 - 197,219 199,555 Average interest rate - % 7.17% Fixed-rate securities available for sale 293,968 930,070 930,070 Average interest rate 7.20% 7.20% Variable-rate securities available for sale 112,710 496,061 496,061 Average interest rate 7.46% 7.46% Fixed-rate real estate loans 306,691 1,522,353 1,531,548 Average interest rate 7.69% 7.70% Variable-rate real estate loans 674,390 2,959,338 3,021,938 Average interest rate 8.07% 7.92% Fixed-rate other loans 81,189 836,178 825,928 Average interest rate 10.10% 13.80% Variable-rate other loans 835,268 1,442,771 1,572,901 Average interest rate 11.17% 11.01% 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: Checking deposits 1,430,175 1,468,657 1,468,657 Average interest rate .45% .45% Passbook and savings deposits 289,899 1,134,678 1,134,678 Average interest rate 2.04% 2.04% Money market deposits 694,095 698,312 698,312 Average interest rate 3.07% 3.07% Certificate deposits 7,199 3,605,663 3,637,981 Average interest rate 5.40% 5.13% Fixed-rate Federal Home Loan Bank advances 25,143 1,070,843 1,068,279 Average interest rate 5.78% 6.03% Variable-rate Federal Home Loan Bank advances - 268,735 268,735 Average interest rate - % 5.86% Fixed-rate other borrowings 31,289 105,537 106,972 Average interest rate 9.24% 7.78% Variable-rate other borrowings - 53,441 53,441 Average interest rate - % 5.63% RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS: Forward mortgage loan sales commitments - 81,937 (326X2) Average interest rate - % 6.77% Commitments to extend credit (1) - 158,452 (209X2) 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. 33 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Financial Condition (Dollars in thousands, except per-share data)
ASSETS At December 31, ----------------------------- 1997 1996 ---- ---- Cash and due from banks $ 297,010 $ 236,446 Interest-bearing deposits with banks 20,572 386,224 U.S. Government and other marketable securities held to maturity (fair value of $4,061 and $3,910) 4,061 3,910 Federal Reserve Bank stock, at cost 22,977 - Federal Home Loan Bank stock, at cost 82,002 66,061 Securities available for sale (amortized cost of $1,411,979 and $995,384) 1,426,131 999,586 Loans held for sale 244,612 203,869 Loans and leases: Residential real estate 3,619,527 2,261,237 Commercial real estate 862,164 861,056 Commercial business 239,728 156,712 Consumer 2,039,221 1,801,066 Lease financing 414,270 341,721 Unearned discounts and deferred fees (105,722) (128,872) ----------- ----------- Total loans and leases 7,069,188 5,292,920 Allowance for loan and lease losses (82,583) (71,865) ----------- ----------- Net loans and leases 6,986,605 5,221,055 Premises and equipment 165,790 129,785 Other real estate owned 18,353 15,771 Accrued interest receivable 54,336 42,173 Due from brokers 126,662 - Goodwill 177,700 15,431 Deposit base intangibles 19,821 10,843 Mortgage servicing rights 19,512 17,360 Other assets 78,516 81,973 ----------- ----------- $9,744,660 $7,430,487 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Checking $1,468,657 $1,212,771 Passbook and statement 1,134,678 783,026 Money market 698,312 631,922 Certificates 3,605,663 2,349,911 ----------- ----------- Total deposits 6,907,310 4,977,630 ----------- ----------- Securities sold under repurchase agreements and federal funds purchased 112,444 293,732 Federal Home Loan Bank advances 1,339,578 1,141,040 Discounted lease rentals 228,596 185,604 Subordinated debt 34,998 42,147 Collateralized obligations 2,539 40,505 Other borrowings 8,997 5,144 ----------- ----------- Total borrowings 1,727,152 1,708,172 Accrued interest payable 23,510 20,666 Accrued expenses and other liabilities 133,008 93,332 ----------- ----------- Total liabilities 8,790,980 6,799,800 ----------- ----------- 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, 140,000,000 shares authorized; 92,821,529 and 85,242,232 shares issued 928 852 Additional paid-in capital 460,684 274,320 Unamortized deferred compensation (25,457) (7,693) Retained earnings, subject to certain restrictions 508,969 402,109 Loan to Executive Deferred Compensation Plan - (68) Unrealized gain on securities available for sale, net 8,556 2,376 Treasury stock, at cost, 2,370,036 shares in 1996 - (41,209) ----------- ----------- Total stockholders' equity 953,680 630,687 ----------- ----------- $9,744,660 $7,430,487 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 34 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per-share data)
Year Ended December 31, ---------------------------------------- 1997 1996 1995 ---- ---- ---- Interest income: Loans $524,508 $486,140 $488,433 Lease financing 39,458 29,914 23,330 Loans held for sale 15,755 17,080 18,253 Securities available for sale 95,701 75,303 4,055 Investments 7,192 4,447 6,090 Mortgage-backed securities held to maturity - - 91,037 -------- -------- -------- Total interest income 682,614 612,884 631,198 -------- -------- -------- Interest expense: Deposits 195,182 171,375 193,244 Borrowings 93,836 86,941 108,862 -------- -------- -------- Total interest expense 289,018 258,316 302,106 -------- -------- -------- Net interest income 393,596 354,568 329,092 Provision for credit losses 17,795 21,246 16,054 -------- -------- -------- Net interest income after provision for credit losses 375,801 333,322 313,038 -------- -------- -------- Non-interest income: Fee and service charge revenues 101,329 90,424 81,862 Leasing revenues 32,025 23,814 19,739 ATM network revenues 30,808 21,478 18,418 Title insurance revenues 13,730 13,492 11,509 Commissions on sales of annuities 7,894 9,134 8,557 Gain on sale of loans held for sale 4,777 5,038 3,735 Gain (loss) on sale of securities available for sale 8,509 86 (152) Gain on sale of loan servicing 1,622 - 1,535 Gain on sale of loans 145 5,443 - Loss on sale of mortgage-backed securities - - (21,037) Gain on sale of branches 14,187 2,747 1,103 Other 11,642 9,956 7,284 -------- -------- -------- Total non-interest income 226,668 181,612 132,553 -------- -------- -------- Non-interest expense: Compensation and employee benefits 180,482 157,554 143,822 Occupancy and equipment 58,352 51,958 50,953 Advertising and promotions 19,157 17,014 16,807 Federal deposit insurance premiums and assessments 4,689 12,019 13,540 Amortization of goodwill and other intangibles 15,757 3,540 3,163 FDIC special assessment - 34,803 - Merger-related expenses - - 21,733 Cancellation cost on early termination of interest-rate exchange contracts - - 4,423 Other 83,125 76,638 72,461 -------- -------- -------- Total non-interest expense 361,562 353,526 326,902 -------- -------- -------- Income before income tax expense and extraordinary item 240,907 161,408 118,689 Income tax expense 95,846 61,031 45,482 -------- -------- -------- Income before extraordinary item 145,061 100,377 73,207 Extraordinary item: Penalties on early repayment of FHLB advances, net of tax benefit of $578 - - (963) -------- -------- -------- Net income 145,061 100,377 72,244 Dividends on preferred stock - - 678 -------- -------- -------- Net income available to common shareholders $145,061 $100,377 $ 71,566 -------- -------- -------- -------- -------- -------- Basic earnings per common share: Income before extraordinary item $ 1.72 $ 1.23 $ .89 Extraordinary item - - (.01) -------- -------- -------- Net income $ 1.72 $ 1.23 $ .88 -------- -------- -------- -------- -------- -------- Diluted earnings per common share: Income before extraordinary item $ 1.69 $ 1.20 $ .87 Extraordinary item - - (.01) -------- -------- -------- Net income $ 1.69 $ 1.20 $ .86 -------- -------- -------- -------- -------- -------- Dividends declared per common share $ .46875 $.359375 $.296875 -------- -------- -------- -------- -------- --------
See accompanying notes to consolidated financial statements. 35 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
Year Ended December 31, ----------------------------------------- 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income $ 145,061 $ 100,377 $ 72,244 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 23,185 19,724 18,258 Amortization of goodwill and other intangibles 15,757 3,540 3,163 Amortization of fees, discounts and premiums 259 (529) (2,028) Proceeds from sales of loans held for sale 624,192 857,050 652,964 Principal collected on loans held for sale 9,174 10,225 12,100 Originations and purchases of loans held for sale (799,319) (802,777) (706,243) Net (increase) decrease in other assets and liabilities, and accrued interest (15,067) 29,231 16,002 Provision for credit losses 17,795 21,246 16,054 (Gain) loss on sale of securities available for sale (8,509) (86) 152 Gain on sale of loans (145) (5,443) - Loss on sale of mortgage-backed securities - - 21,037 Gain on sale of branches (14,187) (2,747) (1,103) Gain on sale of loan servicing (1,622) - (1,535) Penalties on early repayment of FHLB advances - - 1,541 Cancellation cost on early termination of interest-rate exchange contracts - - 4,423 Write-off of equipment 1,528 - 13,435 Other, net (6,149) 241 (3,869) ----------- ----------- ----------- Total adjustments (153,108) 129,675 44,351 ----------- ----------- ----------- Net cash provided (used) by operating activities (8,047) 230,052 116,595 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sales of mortgage-backed securities - - 211,117 Principal collected on mortgage-backed securities - - 180,112 Principal collected on loans and leases 1,952,057 1,868,774 1,417,079 Loan originations (1,952,261) (1,687,214) (1,585,233) Purchase of equipment for lease financing (179,165) (175,608) (130,360) Proceeds from sales of loans 15,910 61,302 - Net (increase) decrease in interest-bearing deposits with banks 453,895 (374,630) 190,490 Proceeds from sales of securities available for sale 476,218 16,636 90,572 Proceeds from maturities of and principal collected on securities available for sale 445,145 201,914 128,167 Purchases of securities available for sale (506,970) (32,993) (45,805) Proceeds from redemption of FHLB stock 15,880 19,055 24,119 Purchases of FHLB stock (10,080) (25,020) (4,848) Purchases of FRB stock (23,397) - - Net decrease in short-term federal funds sold 45,000 - 6,900 Proceeds from sales of loan servicing 2,288 - 1,750 Purchases of premises and equipment (32,837) (25,379) (19,718) Acquisitions of Standard Financial, Inc. and BOC Financial Corporation, net of cash acquired (218,896) - - Acquisitions of deposits, net of cash acquired - - 5,752 Sale of deposits, net of cash paid (184,917) (60,550) (57,007) Other, net 35,175 28,983 25,383 ----------- ----------- ----------- Net cash provided (used) by investing activities 333,045 (184,730) 438,470 ----------- ----------- ----------- 36 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows - (Continued) (In thousands) Cash flows from financing activities: Net increase (decrease) in deposits 79,819 (150,667) (155,401) Proceeds from securities sold under repurchase agreements and federal funds purchased 10,214,941 11,398,478 10,473,013 Payments on securities sold under repurchase agreements and federal funds purchased (10,396,229) (11,557,672) (10,451,056) Proceeds from FHLB advances 1,075,650 1,778,292 1,839,390 Payments on FHLB advances (1,313,023) (1,530,839) (2,302,007) Proceeds from discounted lease rentals 146,086 92,787 105,066 Proceeds from subordinated debt - 28,750 - Payments on subordinated debt - - (34,500) Payments for termination of interest-rate exchange contracts - - (4,581) Proceeds from other borrowings 613,368 335,460 83,185 Payments on collateralized obligations and other borrowings (647,652) (371,407) (48,878) Proceeds from exercise of stock warrants and stock options 1,506 1,698 15,309 Proceeds from issuance of common stock 29,266 13,726 - Repurchases of common stock (27,318) (42,108) (2,076) Payments for redemption of preferred stock - - (27,100) Payments for dividends on common stock (38,201) (26,487) (21,841) Other, net (2,647) (11,679) (13,590) ----------- ----------- ----------- Net cash used by financing activities (264,434) (41,668) (545,067) ----------- ----------- ----------- Net increase in cash and due from banks 60,564 3,654 9,998 Cash and due from banks at beginning of year 236,446 232,792 222,794 ----------- ----------- ----------- Cash and due from banks at end of year $ 297,010 $ 236,446 $ 232,792 ----------- ----------- ----------- ----------- ----------- ----------- Supplemental disclosures of cash flow information: Cash paid for: Interest on deposits and borrowings $ 285,722 $ 239,653 $ 291,868 ----------- ----------- ----------- ----------- ----------- ----------- Income taxes $ 97,319 $ 73,309 $ 28,285 ----------- ----------- ----------- ----------- ----------- ----------- Supplemental schedule of non-cash investing activities: Transfer of loans to other real estate owned and other assets $ 40,837 $ 37,417 $ 28,015 ----------- ----------- ----------- ----------- ----------- ----------- Transfer of mortgage-backed securities to securities available for sale $ - $ - $1,187,394 ----------- ----------- ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 37 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Dollars in thousands)
Number Unamor- of tized Common Pre- Additional Deferred Shares ferred Common Paid-in Compen- Retained Issued Stock Stock Capital sation Earnings ------ ------ ------ ---------- -------- -------- Balance, December 31, 1994, as originally stated 68,344,692 $ 27 $683 $250,833 $ (6,986) $ 244,779 Adjustments for pooling of interests 12,392,206 - 124 9,536 - 35,657 ----------- ------ ----- -------- -------- --------- Balance, December 31,1994, as restated 80,736,898 27 807 260,369 (6,986) 280,436 Net income - - - - - 72,244 Dividends on preferred stock - - - - - (678) Dividends on common stock - - - - - (21,917) Purchase of 64,800 shares to be held in treasury - - - - - - Issuance of 616,800 shares of restricted stock, of which 608,800 shares were from treasury 8,000 - - 5,166 (10,628) - Grant of 90,000 shares of restricted stock to outside directors - - - 369 (1,431) - Issuance of 747,520 shares from treasury to effect merger with Great Lakes (747,520) - (7) (6,367) - - Issuance of shares to Dividend Reinvestment Plan 1,200 - - 11 - - Redemption of preferred stock - (27) - (27,073) - - Repurchase and cancellation of shares (153,838) - (1) (167) - (1,084) Cancellation of shares of restricted stock (18,178) - - (175) 175 - Amortization of deferred compensation - - - - 7,675 - Exercise of stock options and stock warrants 3,314,584 - 33 17,401 - - Issuance of common stock on conversion of convertible debentures 311,636 - 3 2,653 - - Payments on Loan to Executive Deferred Compensation Plan and ESOP debt - - - - - - Change in unrealized gain (loss) on securities available for sale, net - - - - - - ----------- ------ ----- -------- -------- --------- Balance, December 31, 1995 83,452,782 - 835 252,187 (11,195) 329,001 Net income - - - - - 100,377 Dividends on common stock - - - - - (26,595) Purchase of 2,380,136 shares to be held in treasury - - - - - - Issuance of 72,800 shares of restricted stock, of which 6,000 shares were from treasury 66,800 - 1 4,519 (4,609) - Grant of 4,100 shares of restricted stock to outside directors from treasury - - - 295 (366) - Issuance of shares of common stock, net 1,164,900 - 12 13,714 - - Repurchase and cancellation of shares (66,942) - (1) (51) - (674) Cancellation of shares of restricted stock (46,400) - (1) (635) 574 - Amortization of deferred compensation - - - - 7,903 - Exercise of stock options 656,660 - 6 4,168 - - Issuance of common stock on conversion of convertible debentures 14,432 - - 123 - - Payments on loan to Executive Deferred Compensation Plan - - - - - - Change in unrealized gain (loss) on securities available for sale, net - - - - - - ----------- ------ ----- -------- -------- --------- Balance, December 31, 1996 85,242,232 - 852 274,320 (7,693) 402,109 Net income - - - - - 145,061 Dividends on common stock - - - - - (38,201) Issuance of 1,400,000 shares of common stock from treasury, net - - - 2,532 - - Issuance of 7,700,000 shares of common stock to effect purchase acquisition, of which 1,194,268 were from treasury 6,505,732 - 65 162,937 - - Purchase of 1,295,800 shares to be held in treasury - - - - - - Issuance of 929,200 shares of restricted stock, of which 869,200 shares were from treasury 60,000 - - 10,102 (25,270) - Grant of 23,984 shares of restricted stock to outside directors from treasury - - - 421 (840) - Cancellation of shares of restricted stock (2,000) - - (58) 15 - Issuance of 133,784 shares of treasury stock to employee benefit plans - - 1 374 - - Repurchase and cancellation of shares (86) - - (2) - - Amortization of deferred compensation - - - - 8,331 - Exercise of stock options, of which 44,600 were from treasury 176,585 - 2 2,917 - - Issuance of common stock on conversion of convertible debentures 839,066 - 8 7,141 - - Payments on Loan to Executive Deferred Compensation Plan - - - - - - Change in unrealized gain (loss) on securities available for sale, net - - - - - - ----------- ------ ----- -------- -------- --------- Balance, December 31, 1997 92,821,529 $ - $928 $460,684 $(25,457) $508,969 ----------- ------ ----- -------- -------- --------- ----------- ------ ----- -------- -------- ---------
See accompanying notes to consolidated financial statements. 38 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity - (Continued) (Dollars in thousands)
Loan to Unrealized Executive Gain Deferred (Loss) on Compen- Securities sation Available Plan and for Sale, Treasury ESOP Debt Net Stock Total ---------- ----------- -------- ------- Balance, December 31, 1994, as originally stated $(1,695) $ (1,160) $(11,012) $475,469 Adjustments for pooling of interests - - - 45,317 --------- -------- -------- -------- Balance, December 31,1994, as restated (1,695) (1,160) (11,012) 520,786 Net income - - - 72,244 Dividends on preferred stock - - - (678) Dividends on common stock - - - (21,917) Purchase of 64,800 shares to be held in treasury - - (824) (824) Issuance of 616,800 shares of restricted stock, of which 608,800 shares were from treasury - - 5,462 - Grant of 90,000 shares of restricted stock to outside directors - - - (1,062) Issuance of 747,520 shares from treasury to effect merger with Great Lakes - - 6,374 - Issuance of shares to Dividend Reinvestment Plan - - - 11 Redemption of preferred stock - - - (27,100) Repurchase and cancellation of shares - - - (1,252) Cancellation of shares of restricted stock - - - - Amortization of deferred compensation - - - 7,675 Exercise of stock options and stock warrants - - - 17,434 Issuance of common stock on conversion of convertible debentures - - - 2,656 Payments on Loan to Executive Deferred Compensation Plan and ESOP debt 1,564 - - 1,564 Change in unrealized gain (loss) on securities available for sale, net - 12,862 - 12,862 -------- ------- ------- -------- Balance, December 31, 1995 (131) 11,702 - 582,399 Net income - - - 100,377 Dividends on common stock - - - (26,595) Purchase of 2,380,136 shares to be held in treasury - - (41,382) (41,382) Issuance of 72,800 shares of restricted stock, of which 6,000 shares were from treasury - - 102 13 Grant of 4,100 shares of restricted stock to outside directors from treasury - - 71 - Issuance of shares of common stock, net - - - 13,726 Repurchase and cancellation of shares - - - (726) Cancellation of shares of restricted stock - - - (62) Amortization of deferred compensation - - - 7,903 Exercise of stock options - - - 4,174 Issuance of common stock on conversion of convertible debentures - - - 123 Payments on loan to Executive Deferred Compensation Plan 63 - - 63 Change in unrealized gain (loss) on securities available for sale, net - (9,326) - (9,326) -------- ------- ------- -------- Balance, December 31, 1996 (68) 2,376 (41,209) 630,687 Net income - - - 145,061 Dividends on common stock - - - (38,201) Issuance of 1,400,000 shares of common stock from treasury, net - - 26,734 29,266 Issuance of 7,700,000 shares of common stock to effect purchase acquisition, of which 1,194,268 were from treasury - - 22,805 185,807 Purchase of 1,295,800 shares to be held in treasury - - (27,316) (27,316) Issuance of 929,200 shares of restricted stock, of which 869,200 shares were from treasury - - 15,168 - Grant of 23,984 shares of restricted stock to outside directors from treasury - - 419 - Cancellation of shares of restricted stock - - - (43) Issuance of 133,784 shares of treasury stock to employee benefit plans - - 2,555 2,930 Repurchase and cancellation of shares - - - (2) Amortization of deferred compensation - - - 8,331 Exercise of stock options, of which 44,600 were from treasury - - 844 3,763 Issuance of common stock on conversion of convertible debentures - - - 7,149 Payments on Loan to Executive Deferred Compensation Plan 68 - - 68 Change in unrealized gain (loss) on securities available for sale, net - 6,180 - 6,180 -------- ------- ------- -------- Balance, December 31, 1997 $ - $ 8,556 $ - $953,680 -------- ------- ------- -------- -------- ------- ------- --------
See accompanying notes to consolidated financial statements. 39 TCF FINANCIAL CORPORATION AND SUBSIDIARIES 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 retail community banking, consumer finance lending 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 National Bank Colorado, and Great Lakes National Bank Michigan. The preparation of TCF 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. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. SFAS No. 128 supersedes the standards for computing EPS previously found in Accounting Principles Board ("APB") Opinion No. 15, "Earnings per Share." TCF adopted SFAS No. 128 effective December 31, 1997. In accordance with SFAS No. 128, all prior-period EPS data has been restated. The following table reconciles the weighted average shares outstanding and the income before extraordinary item available to common shareholders used for basic and diluted EPS:
Year Ended December 31, ------------------------------------------ (Dollars in thousands, except per-share data) 1997 1996 1995 ---------- ---------- ---------- Weighted average number of common shares outstanding used in basic earnings per common share calculation 84,477,536 81,903,690 81,115,264 Net dilutive effect of: Stock option plans and common stock warrants 468,275 537,900 1,057,861 Restricted stock plans 838,189 654,918 376,108 Assumed conversion of 71/4% convertible subordinated debentures 349,936 842,850 1,010,394 ---------- ---------- ---------- Weighted average number of shares outstanding adjusted for effect of dilutive securities 86,133,936 83,939,358 83,559,627 ---------- ---------- ---------- ---------- ---------- ---------- Income before extraordinary item $ 145,061 $ 100,377 $ 73,207 Less: Dividends on preferred stock - - (678) ---------- ---------- ---------- Income before extraordinary item available to common shareholders 145,061 100,377 72,529 Add: Interest expense on 71/4% convertible subordinated debentures, net of tax 132 328 382 ---------- ---------- ---------- Income before extraordinary item available to common shareholders including effect of dilutive securities $ 145,193 $ 100,705 $ 72,911 ---------- ---------- ---------- ---------- ---------- ---------- Basic earnings per common share before extraordinary item $ 1.72 $ 1.23 $ .89 ---------- ---------- ---------- ---------- ---------- ---------- Diluted earnings per common share before extraordinary item $ 1.69 $ 1.20 $ .87 ---------- ---------- ---------- ---------- ---------- ----------
40 CHANGE IN METHOD OF ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES Effective January 1, 1997, TCF adopted the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," not deferred by SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." The adoption of SFAS No. 125 did not impact TCF's financial condition or results of operations. ACCOUNTING FOR STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to retain the accounting under APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting under SFAS No. 123 had been applied. TCF has elected to retain the intrinsic value based method of accounting. See Note 18 for additional information concerning SFAS No. 123. 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 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 Residential real estate and education loans held for sale are carried at the lower of cost or market determined on an aggregate basis. Cost of loans sold is determined on a specific identification basis and gains or losses on sales of loans held for sale are recognized at settlement dates. Net fees and costs associated with originating and acquiring loans held for sale are deferred and are included in the basis for determining the gain or loss on sales of loans held for sale. LOANS 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/or costs, unearned discounts and finance charges, and unearned lease income, which are considered yield adjustments, 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 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, net charge-offs, geographic location and prevailing economic conditions. 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 41 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) 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 Real estate in judgment and real estate acquired through foreclosure are 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. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS TCF enters into sales of securities under repurchase agreements (reverse repurchase agreements). Such agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the Consolidated Statements of Financial Condition. The securities underlying the agreements remain in the asset accounts in the Consolidated Statements of Financial Condition. 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 16 for additional information concerning these derivative financial instruments. 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. 42 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (2) BUSINESS COMBINATIONS AND ACQUISITIONS 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 on the southwest side of Chicago and in the nearby southwestern and western suburbs, for a purchase price of $423.7 million, which consisted of $237.9 million in cash, including payments of $20.8 million to the holders of all of the outstanding employee and director options to purchase Standard common stock, 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 from September 4, 1997. The excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed of approximately $151 million has been recorded as goodwill and is being amortized over 25 years on a straight-line basis. In connection with the acquisition, Standard was merged into TCF's existing Illinois-based wholly owned national bank subsidiary, TCF Illinois. The following unaudited pro forma financial information presents the combined results of operations of TCF and Standard as if the acquisition had been effective January 1, 1995 after giving effect to certain adjustments, including amortization and accretion of discounts, premiums, goodwill and deposit base intangibles, foregone interest income resulting from the planned sale of securities available for sale, reduced occupancy and equipment expense resulting from the write-off of certain fixed assets and duplicative data processing hardware and software, increased interest expense on debt related to the acquisition, and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had TCF and Standard constituted a single entity during such periods. TCF expects that the acquisition of Standard will enhance future revenues through improved interest rate margins and fee income as a result of expanded product and service offerings to Standard customers. TCF also expects to achieve operating cost savings primarily through reductions in staff and the consolidation of certain functions such as data processing, investments and other back office operations at Standard. The revenue enhancements and operating cost savings are expected to be achieved in various amounts at various times during the years subsequent to the acquisition of Standard and not ratably over, or at the beginning or end of, such periods. No adjustment has been reflected in the following pro forma financial information for the revenue enhancements or anticipated cost savings.
(In thousands, except per-share data) Year Ended December 31, ---------------------------------- 1997 1996 1995 -------- -------- -------- (Unaudited) Interest income $788,214 $753,972 $746,763 -------- -------- -------- -------- -------- -------- Net interest income $431,653 $411,519 $382,788 -------- -------- -------- -------- -------- -------- Non-interest income $229,990 $190,492 $137,859 -------- -------- -------- -------- -------- -------- Net income $145,829 $100,713 $ 77,385 -------- -------- -------- -------- -------- -------- Basic earnings per common share $ 1.63 $ 1.12 $ .86 -------- -------- -------- -------- -------- -------- Diluted earnings per common share $ 1.60 $ 1.10 $ .84 -------- -------- -------- -------- -------- --------
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. TCF also assumed the obligation to issue common stock upon the exercise of the outstanding employee and director options to purchase Winthrop common stock. Winthrop is operated as a direct subsidiary of TCF Minnesota. 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. 43 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Certain operating financial data previously reported by TCF and Winthrop on a separate basis and the combined amounts presented in the accompanying consolidated financial statements are summarized as follows:
Three Months Ended Year Ended December 31, In thousands, except March 31, ----------------------- per-share data) 1997 1996 1995 -------- -------- -------- Interest income: (Unaudited) TCF $145,136 $582,861 $607,690 Winthrop 8,244 30,023 23,508 -------- -------- -------- Combined $153,380 $612,884 $631,198 -------- -------- -------- -------- -------- -------- Net interest income: TCF $ 86,018 $340,140 $319,198 Winthrop 4,073 14,428 9,894 -------- -------- -------- Combined $ 90,091 $354,568 $329,092 -------- -------- -------- -------- -------- -------- Non-interest income: TCF $ 40,381 $157,797 $112,776 Winthrop 6,374 23,815 19,777 -------- -------- -------- Combined $ 46,755 $181,612 $132,553 -------- -------- -------- -------- -------- -------- Net income: TCF $ 28,931 $ 85,663 $ 60,688 Winthrop 4,096 14,714 11,556 -------- -------- -------- Combined $ 33,027 $100,377 $ 72,244 -------- -------- -------- -------- -------- -------- Basic earnings per common share: TCF $ .43 $ 1.24 $ .87 -------- -------- -------- -------- -------- -------- Winthrop $ .24 $ .89 $ .73 -------- -------- -------- -------- -------- -------- Combined $ .41 $ 1.23 $ .88 -------- -------- -------- -------- -------- -------- Diluted earnings per common share: TCF $ .42 $ 1.21 $ .85 -------- -------- -------- -------- -------- -------- Winthrop $ .23 $ .87 $ .72 -------- -------- -------- -------- -------- -------- Combined $ .40 $ 1.20 $ .86 -------- -------- -------- -------- -------- --------
BOC FINANCIAL CORPORATION On January 16, 1997, TCF completed its purchase of BOC Financial Corporation ("BOC"), 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. GREAT LAKES BANCORP, A FEDERAL SAVINGS BANK On February 8, 1995, TCF completed its acquisition of Great Lakes Bancorp, A Federal Savings Bank ("Great Lakes"), a Michigan-based savings bank with $2.8 billion in assets and $1.6 billion in deposits. In connection with the acquisition, TCF issued approximately 19.4 million shares of its common stock for all of the outstanding common shares of Great Lakes. In addition, each outstanding share of Great Lakes preferred stock was exchanged for one share of TCF preferred stock with substantially identical terms. 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 Great Lakes for all periods presented, except for dividends declared per share. In connection with the acquisition, an after-tax merger-related charge of $32.8 million was incurred during the 1995 first quarter. The following table summarizes the major components of the merger-related charges (in thousands):
Loss on sale of mortgage-backed securities $21,037 Loss on sale of securities available for sale 310 Loss on prepayment of FHLB advances 1,541 (1) Interest-rate exchange contract termination costs 4,423 Provision for credit losses 5,000 Merger-related expenses: Equipment charges 13,933 Severance and employee benefits 4,721 Professional fees 2,215 Other 864 ------- Total merger-related expenses 21,733 ------- Total pretax merger-related charges $54,044 ------- -------
---------------------- (1) Reflected in the Consolidated Statements of Operations as an extraordinary item, net of tax benefit of $578. During 1995, Great Lakes sold $232.2 million of collateralized mortgage obligations from its held-to-maturity portfolio at a pretax loss of $21 million. Proceeds from the sale of collateralized mortgage obligations totaled $211.1 million. Gross losses of $21 million and gross gains of $8,000 were recognized in 1995. Also in 1995, Great Lakes sold $17.3 million of securities available for sale at a pretax loss of $310,000. These 44 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements -- (Continued) merger-related asset sales were completed as part of TCF's strategy to reduce Great Lakes' interest-rate and credit risk to levels consistent with TCF's existing interest-rate risk position and credit risk policy. In addition to these asset sales, Great Lakes prepaid $112.3 million of Federal Home Loan Bank ("FHLB") advances at a pretax loss of $1.5 million during 1995. This amount, net of a $578,000 income tax benefit, was recorded as an extraordinary item. Interest-rate exchange contracts with notional principal amounts totaling $544.5 million were terminated by Great Lakes at a pretax loss of $4.4 million. These actions were taken in order to reduce Great Lakes' level of higher-cost wholesale borrowings and to reduce interest-rate risk. Great Lakes recorded $5 million in provisions for credit losses in 1995 to conform its credit loss reserve practices and methods to those of TCF and to allow for the accelerated disposition of its remaining problem assets. In connection with its acquisition of Great Lakes, TCF committed to restructure certain existing business activities of Great Lakes and to integrate Great Lakes' data processing system into TCF's. These actions were also designed to reduce staff by consolidating certain functions such as data processing, investments and certain other back office operations. Subsequent to its merger with TCF, Great Lakes recognized a pretax charge of $21.7 million for these restructuring and merger-related expenses. ACQUISITION On January 30, 1998, TCF Illinois completed its acquisition of 76 branches in Jewel-Osco stores in the Chicago area previously operated by Bank of America. TCF Illinois converted existing deposits by offering TCF Illinois products to Bank of America customers and acquired the related fixed assets and 178 ATMs located in Jewel-Osco stores at no cost. TCF accounted for the acquisition using the purchase method of accounting. (3) INVESTMENTS Investments consist of the following:
At December 31, --------------------------------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 ----------------------------------------------- ----------------------------------------------- Gross Gross Gross Gross Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair Value Gains Losses Value Value Gains Losses Value -------- ---------- ---------- -------- -------- ---------- ---------- -------- Interest-bearing deposits with banks $ 20,572 $- $- $ 20,572 $386,224 $- $- $386,224 U.S. Government and other marketable securities held to maturity 4,061 - - 4,061 3,910 - - 3,910 Federal Reserve Bank stock, at cost 22,977 - - 22,977 - - - - Federal Home Loan Bank stock, at cost 82,002 - - 82,002 66,061 - - 66,061 -------- --- --- -------- -------- --- --- -------- $129,612 $- $- $129,612 $456,195 $- $- $456,195 -------- --- --- -------- -------- --- --- -------- -------- --- --- -------- -------- --- --- -------- Weighted-average yield 6.86% 5.50% ----- ----- ----- -----
The carrying value and fair value of investments at December 31, 1997, by contractual maturity, are shown below:
Carrying Fair (In thousands) Value Value -------- ----- Due in one year or less $ 24,633 $ 24,633 No stated maturity 104,979 104,979 -------- -------- $129,612 $129,612 -------- -------- -------- --------
Interest and dividend income on investments consist of the following:
Year Ended December 31, ------------------------------------- (In thousands) 1997 1996 1995 ---- ---- ---- Interest-bearing deposits with banks $1,593 $ 282 $ 570 Federal funds sold 279 135 506 U.S. Government and other marketable securities held to maturity 213 199 200 Federal Reserve Bank stock 769 - - Federal Home Loan Bank stock 4,338 3,831 4,814 ------ ------ ------ $7,192 $4,447 $6,090 ------ ------ ------ ------ ------ ------
Accrued interest receivable on investments totaled $3,000 and $18,000 at December 31, 1997 and 1996, respectively. There were no sales of U.S. Government and other marketable securities held to maturity during 1997, 1996 or 1995. 45 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements -- (Continued) (4) SECURITIES AVAILABLE FOR SALE Securities available for sale consist of the following:
At December 31, ---------------------------------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 ------------------------------------------------ ------------------------------------------------ Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value ---------- ---------- ---------- ---------- --------- ---------- -------- -------- U.S. Government and other marketable securities $ - $ - $ - $ - $ 32 $ - $ - $ 32 ---------- -------- -------- ---------- -------- ------- -------- -------- Mortgage-backed securities: FHLMC 701,195 10,280 (676) 710,799 318,441 2,710 (3,974) 317,177 FNMA 466,820 4,083 (1,003) 469,900 539,475 5,906 (3,234) 542,147 GNMA 43,079 932 (18) 43,993 112,732 3,766 (110) 116,388 Private issuer 199,738 1,381 (794) 200,325 23,272 28 (769) 22,531 Collateralized mortgage obligations 1,147 - (33) 1,114 1,432 - (121) 1,311 ---------- ------- -------- ---------- -------- ------- -------- -------- 1,411,979 16,676 (2,524) 1,426,131 995,352 12,410 (8,208) 999,554 ---------- ------- -------- ---------- -------- ------- -------- -------- $1,411,979 $16,676 $(2,524) $1,426,131 $995,384 $12,410 $(8,208) $999,586 ---------- ------- -------- ---------- -------- ------- -------- -------- ---------- ------- -------- ---------- -------- ------- -------- -------- Weighted-average yield 7.04% 7.15% ----- ----- ----- -----
Accrued interest receivable on securities available for sale was $9.5 million and $6.5 million at December 31, 1997 and 1996, respectively. Proceeds from sales of securities available for sale totaled $476.2 million, $16.6 million and $90.6 million during 1997, 1996 and 1995, respectively. Gross gains of $9.1 million, $102,000 and $442,000 and gross losses of $602,000, $16,000 and $594,000 were recognized during 1997, 1996 and 1995, respectively. In November 1995, the FASB issued a Special Report entitled "A Guide to Implementation of Statement No. 115 on Accounting for Certain Investments in Debt and Equity Securities." In conjunction with the issuance of the guide, the FASB provided entities with a one-time opportunity to reassess the classification of their held-to-maturity debt securities without calling into question the entities' intent to hold to maturity their remaining portfolio of such securities. During the 1995 fourth quarter, TCF reassessed the balance sheet classifications of its mortgage-backed securities. As a result, TCF reclassified its remaining $1.2 billion in mortgage-backed securities from "held to maturity" to "available for sale" effective December 31, 1995. This reclassification allowed for increased asset/liability management flexibility. (5) LOANS HELD FOR SALE Loans held for sale consist of the following:
At December 31, --------------------------- (In thousands) 1997 1996 ---- ---- Residential real estate $109,519 $ 57,657 Education 134,831 145,835 -------- -------- 244,350 203,492 Less: Deferred loan costs, net (407) (502) Unearned discounts, net 145 125 -------- -------- $244,612 $203,869 -------- -------- -------- --------
Accrued interest receivable on loans held for sale was $5.5 million and $5.7 million at December 31, 1997 and 1996, respectively. 46 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements -- (Continued) (6) LOANS AND LEASES Loans and leases consist of the following:
At December 31, ------------------------- (In thousands) 1997 1996 ---- ---- Residential real estate $3,619,527 $2,261,237 ---------- ---------- Commercial real estate: Apartments 294,231 336,038 Other permanent 481,759 466,624 Construction and development 86,174 58,394 ---------- ---------- 862,164 861,056 ---------- ---------- Total real estate 4,481,691 3,122,293 ---------- ---------- Commercial business 239,728 156,712 ---------- ---------- Consumer: Home equity 1,519,644 1,293,871 Automobile 444,903 416,535 Loans secured by deposits 10,112 8,230 Other secured 19,955 19,106 Unsecured 44,607 63,324 ---------- ---------- 2,039,221 1,801,066 ---------- ---------- Lease financing: Direct financing leases 344,889 265,161 Sales-type leases 40,592 50,532 Lease residuals 28,789 26,028 ---------- ---------- 414,270 341,721 ---------- ---------- 7,174,910 5,421,792 Less: Unearned (premiums) discounts on loans purchased (11,898) 2,441 Deferred loan fees, net 6,842 6,129 Unearned discounts and finance charges, net 65,029 75,539 Deferred lease costs (6,264) (6,705) Unearned lease income 47,255 46,971 Unearned lease residual income 4,758 4,497 ---------- ---------- $7,069,188 $5,292,920 ---------- ---------- ---------- ----------
Accrued interest receivable on loans was $39.3 million and $30 million at December 31, 1997 and 1996, respectively. At December 31, 1997, the recorded investment in loans that are 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, 1996, the recorded investment in loans that are considered to be impaired was $10.4 million for which the related allowance for loan losses was $2.8 million. The balance of impaired loans on non-accrual status was $8.8 million at December 31, 1996. The average recorded investment in impaired loans during the year ended December 31, 1996 was $22.1 million. For the year ended December 31, 1996, TCF recognized interest income on impaired loans of $926,000, of which $878,000 was recognized using the cash basis method of income recognition. At December 31, 1997, 1996 and 1995, loans and leases on non-accrual status totaled $36.8 million, $26.4 million and $44.3 million, respectively. Had the loans and leases performed in accordance with their original terms throughout 1997, TCF would have recorded gross interest income of $4.7 million for these loans and leases. Interest income of $2.9 million has been recorded on these loans and leases for the year ended December 31, 1997. Included in loans and leases at December 31, 1997 and 1996, are commercial real estate loans aggregating $1.3 million and $3 million, respectively, with terms that have been modified in troubled debt restructurings. Had the loans performed in accordance with their original terms throughout 1997, TCF would have recorded gross interest income of $197,000 for these loans. Interest income of $135,000 has been recorded on these loans for the year ended December 31, 1997. 47 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements -- (Continued) 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, 1997. Included in commercial real estate loans at December 31, 1997 and 1996, are $32.2 million and $35.8 million, respectively, of loans to facilitate the sale of real estate accounted for by the installment method. The installment method of accounting was applied because the borrower's initial and continuing investment was not adequate for full accrual profit recognition. TCF had 60 consumer finance offices in 16 states as of December 31, 1997. TCF's consumer finance loan portfolio totaled $521.5 million at December 31, 1997, compared with $496.3 million at December 31, 1996. The underwriting criteria for loans originated by TCF's consumer finance offices are generally less stringent than those historically adhered to by TCF and, as a result, these loans have a higher level of credit risk. The following table sets forth the geographic locations (based on the location of the office originating or purchasing the loan) of TCF's consumer finance loan portfolio:
At December 31, --------------------------------------------- 1997 1996 -------------------- ---------------------- Loan Loan (Dollars in thousands) Balance Percent Balance Percent ------- ------- ------- ------- Illinois $126,505 24.3% $132,474 26.7% Minnesota 98,701 18.9 99,279 20.0 Florida 41,808 8.0 33,458 6.7 Michigan 35,955 6.9 23,214 4.7 Georgia 35,506 6.8 32,270 6.5 Wisconsin 31,097 6.0 33,328 6.7 North Carolina 29,829 5.7 24,137 4.9 Missouri 27,258 5.2 26,185 5.3 Tennessee 19,218 3.7 17,313 3.5 Ohio 16,415 3.1 15,503 3.1 Mississippi 15,676 3.0 15,579 3.1 Other 43,561 8.4 43,596 8.8 -------- ----- -------- ----- Total consumer finance loans $521,529 100.0% $496,336 100.0% -------- ----- -------- ----- -------- ----- -------- -----
Future minimum lease payments for direct financing and sales-type leases as of December 31, 1997 are as follows:
Payments to Payments to be be Received Received by Other (In thousands) by TCF Financial Institutions Total ----------- ---------------------- -------- 1998 $ 36,161 $110,764 $146,925 1999 32,970 78,909 111,879 2000 19,318 42,604 61,922 2001 8,370 21,338 29,708 2002 3,309 4,041 7,350 -------- -------- -------- $100,128 $257,656 $357,784 -------- -------- -------- -------- -------- --------
At December 31, 1997, 1996 and 1995, TCF was servicing real estate loans for others with aggregate unpaid principal balances of approximately $4.4 billion, $4.5 billion and $4.5 billion, respectively. During 1997 and 1995, TCF sold servicing rights on $144.7 million and $146.3 million of loans serviced for others at net gains of $1.6 million and $1.5 million, respectively. There were no sales of servicing rights on loans serviced for others during 1996. 48 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements -- (Continued) (7) ALLOWANCE FOR LOAN AND LEASE LOSSES AND INDUSTRIAL REVENUE BOND RESERVES Following is a summary of the allowance for loan and lease losses, industrial revenue bond reserves and selected statistics:
Allowance Industrial for Loan Revenue and Lease Bond (In thousands) Losses Reserves Total --------- ----------- ----- Balance, December 31, 1994 $ 56,343 $2,759 $ 59,102 Provision for losses 16,973 (919) 16,054 Charge-offs (15,017) (158) (15,175) Recoveries 7,991 278 8,269 -------- ------ -------- Net charge-offs (7,026) 120 (6,906) -------- ------ -------- Balance, December 31, 1995 66,290 1,960 68,250 Provision for losses 21,446 (200) 21,246 Charge-offs (24,294) (100) (24,394) Recoveries 8,423 - 8,423 -------- ------ -------- Net charge-offs (15,871) (100) (15,971) -------- ------ -------- Balance, December 31, 1996 71,865 1,660 73,525 Acquired balance 10,592 - 10,592 Provision for losses 17,995 (200) 17,795 Charge-offs (26,813) - (26,813) Recoveries 8,944 - 8,944 -------- ------ -------- Net charge-offs (17,869) - (17,869) -------- ------ -------- Balance, December 31, 1997 $ 82,583 $1,460 $ 84,043 -------- ------ -------- -------- ------ --------
Year Ended December 31, -------------------------------- 1997 1996 1995 ---- ---- ---- Ratio of net loan and lease charge-offs to average loans and leases outstanding (1) .30% .29% .13% Allowance for loan and lease losses as a percentage of gross loan and lease balances at year-end (1) 1.15 1.33 1.18
- --------------------------------------------- (1) Excluding loans held for sale. TCF guarantees certain industrial development and housing revenue bonds issued by municipalities to finance commercial and multi-family real estate owned by third parties. The balance of such financial guarantees totaled $11.8 million and $12.2 million at December 31, 1997 and 1996, respectively. The provision for credit losses on industrial revenue bond financial guarantees reflects a reduction in the balance of the financial guarantees. Management has considered these guarantees in its review of the adequacy of the industrial revenue bond reserves, which are included in accrued expenses and other liabilities in the Consolidated Statements of Financial Condition. 49 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (8) PREMISES AND EQUIPMENT Premises and equipment are summarized as follows:
At December 31, ---------------------- (In thousands) 1997 1996 -------- -------- Land $ 32,664 $ 25,876 Office buildings 131,720 100,940 Leasehold improvements 23,266 18,345 Furniture and equipment 128,845 108,073 -------- -------- 316,495 253,234 Less accumulated depreciation and amortization 150,705 123,449 -------- -------- $165,790 $129,785 -------- -------- -------- --------
TCF leases certain premises and equipment under operating leases. Net lease expense was $15 million, $14.7 million and $13.9 million in 1997, 1996 and 1995, respectively. At December 31, 1997, the total annual minimum lease commitments for operating leases were as follows:
(In thousands) ------------------------------ 1998 $13,741 1999 11,575 2000 9,426 2001 6,258 2002 5,227 Thereafter 20,558 ------- $66,785 ------- -------
(9) OTHER REAL ESTATE OWNED Other real estate owned is summarized as follows:
At December 31, --------------------- (In thousands) 1997 1996 ------- ------- Real estate held for development $ - $ 213 Real estate in judgment, subject to redemption 9,760 10,862 Real estate acquired through foreclosure 8,593 4,696 ------- ------- $18,353 $15,771 ------- ------- ------- -------
(10) MORTGAGE SERVICING RIGHTS Mortgage servicing rights, net of valuation allowance, are summarized as follows:
Year Ended December 31, ------------------------------------ (In thousands) 1997 1996 1995 ------- ------- ------- Balance at beginning of year, net $17,360 $16,286 $12,247 Acquired balance 2,177 - - Mortgage servicing rights capitalized 5,229 5,822 7,904 Amortization (4,753) (4,648) (3,805) Sale of servicing (401) - (60) Valuation adjustments due to accelerated prepayments (100) (100) - ------- ------- ------- Balance at end of year, net $19,512 $17,360 $16,286 ------- ------- ------- ------- ------- -------
The valuation allowance for mortgage servicing rights is summarized as follows:
Year Ended December 31, ---------------------------------- (In thousands) 1997 1996 1995 ------ ------ ------ Balance at beginning of year $1,494 $1,394 $1,394 Provisions 100 100 - Charge-offs - - - ------ ------ ------ Balance at end of year $1,594 $1,494 $1,394 ------ ------ ------ ------ ------ ------
50 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements -- (Continued) (11) DEPOSITS Deposits are summarized as follows:
At December 31, ------------------------------------------------------------------ 1997 1996 ------------------------------- ------------------------------- Weighted- Weighted- Average % of Average % of (Dollars in thousands) Rate Amount Total Rate Amount Total --------- ------ ----- --------- ------ ----- Checking: Non-interest bearing 0.00% $ 840,714 12.2% 0.00% $ 694,824 14.0% Interest bearing 1.05 627,943 9.1 1.04 517,947 10.4 ---------- ----- ---------- ----- .45 1,468,657 21.3 .45 1,212,771 24.4 ---------- ----- ---------- ----- Passbook and statement 2.04 1,134,678 16.4 1.75 783,026 15.7 Money market 3.07 698,312 10.1 3.10 631,922 12.7 Certificates: 6 months and less 3.79 214,775 3.1 4.47 183,989 3.7 over 6 to 18 months 5.06 2,009,114 29.1 5.16 1,076,951 21.6 over 18 to 30 months 5.53 400,588 5.8 5.66 380,479 7.6 over 30 months 5.56 477,252 6.9 5.75 436,233 8.8 $100,000 minimum 5.25 503,934 7.3 5.46 272,259 5.5 ---------- ----- ---------- ----- 5.13 3,605,663 52.2 5.33 2,349,911 47.2 ---------- ----- ---------- ----- 3.42 $6,907,310 100.0% 3.29 $4,977,630 100.0% ---------- ----- ---------- ----- ---------- ----- ---------- -----
Certificates had the following remaining maturities:
(Dollars in At December 31, -------------------------------------------------------------------------------------------------------- millions) 1997 1996 ------------------------------------------------- -------------------------------------------------- Weighted- Weighted- $100,000 Average $100,000 Average Maturity Minimum Other Total Rate Minimum Other Total Rate - -------- -------- -------- -------- --------- -------- -------- -------- --------- 0-3 months $279.0 $ 834.0 $1,113.0 4.98% $149.5 $ 505.9 $ 655.4 5.17% 4-6 months 89.6 812.4 902.0 4.99 31.7 420.4 452.1 5.16 7-12 months 79.0 838.0 917.0 5.16 35.0 508.3 543.3 5.28 13-24 months 30.3 370.6 400.9 5.46 34.2 430.4 464.6 5.53 25-36 months 14.5 163.4 177.9 5.54 9.9 120.4 130.3 5.68 37-48 months 9.2 59.7 68.9 5.78 4.0 44.0 48.0 5.87 49-60 months 2.2 16.6 18.8 5.19 7.0 36.0 43.0 6.33 Over 60 months .1 7.1 7.2 5.40 1.0 12.2 13.2 5.63 ------ -------- -------- ------ -------- -------- $503.9 $3,101.8 $3,605.7 5.13 $272.3 $2,077.6 $2,349.9 5.33 ------ -------- -------- ------ -------- -------- ------ -------- -------- ------ -------- --------
Interest expense on deposits is summarized as follows:
Year Ended December 31, ------------------------------------ (In thousands) 1997 1996 1995 -------- -------- -------- Checking $ 6,133 $ 5,571 $ 6,606 Passbook and statement 17,653 14,389 18,507 Money market 20,533 19,256 21,878 Certificates 151,693 132,861 147,086 -------- -------- -------- 196,012 172,077 194,077 Less early withdrawal penalties 830 702 833 -------- -------- -------- $195,182 $171,375 $193,244 -------- -------- -------- -------- -------- --------
Accrued interest on deposits totaled $15.4 million and $11.3 million at December 31, 1997 and 1996, respectively. Mortgage-backed securities aggregating $61.6 million were pledged as collateral to secure certain deposits at December 31, 1997. At December 31, 1997, TCF was required by Federal Reserve Board regulations to maintain reserve balances of approximately $116.8 million in cash on hand or at various Federal Reserve Banks. 51 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (12) BORROWINGS Borrowings consist of the following:
At December 31, ---------------------------------------------------- (Dollars in thousands) 1997 1996 ------------------------ ------------------------ 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 1997 $ - - % $ 225,732 5.88% 1998 112,244 5.99 68,000 6.18 ---------- ---------- 112,244 5.99 293,732 5.95 Federal funds purchased 1998 200 6.84 - - ---------- ---------- 112,444 5.99 293,732 5.95 ---------- ---------- Federal Home Loan Bank advances 1997 - - 766,514 5.51 1998 522,300 5.93 310,300 5.88 1999 469,245 5.97 41,000 5.98 2000 297,758 6.16 8,074 7.24 2001 25,132 6.09 15,000 6.97 2003 25,000 5.78 - - 2008 143 6.15 152 6.17 ---------- ---------- 1,339,578 6.00 1,141,040 5.66 ---------- ---------- Discounted lease rentals 1997 - - 78,885 9.22 1998 95,142 8.57 58,406 8.70 1999 70,438 8.56 31,789 8.82 2000 38,922 8.55 13,883 8.90 2001 20,151 8.59 2,641 9.05 2002 3,943 8.43 - - ---------- ---------- 228,596 8.56 185,604 8.96 ---------- ---------- Subordinated debt: Convertible subordinated debentures 1997 - - 7,149 7.25 Senior subordinated debentures 2003 28,750 9.50 28,750 9.50 Senior subordinated debentures 2006 6,248 18.00 6,248 18.00 ---------- ---------- 34,998 11.02 42,147 10.38 ---------- ---------- Collateralized obligations: Collateralized notes 1997 - - 37,500 5.94 Less unamortized discount - - 28 - ---------- ---------- - - 37,472 5.94 ---------- ---------- Collateralized mortgage obligations 2008 894 6.50 1,555 6.50 2010 1,720 5.90 1,622 5.90 ---------- ---------- 2,614 6.11 3,177 6.19 Less unamortized discount 75 - 144 - ---------- ---------- 2,539 6.26 3,033 6.44 ---------- ---------- 2,539 6.26 40,505 5.98 ---------- ---------- Other borrowings: Treasury, tax and loan note 1997 - - 5,131 5.21 1998 8,997 5.26 - - Other 1997 - - 13 7.60 ---------- ---------- 8,997 5.26 5,144 5.21 ---------- ---------- $1,727,152 6.43 $1,708,172 6.19 ---------- ---------- ---------- ----------
52 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) At December 31, 1997, borrowings with a 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 $112,444 5.99% Federal Home Loan Bank advances 522,300 5.93 Discounted lease rentals 95,142 8.57 Treasury, tax and loan note 8,997 5.26 -------- $738,883 6.27 -------- --------
Accrued interest on borrowings totaled $8.1 million and $9.4 million at December 31, 1997 and 1996, respectively. At December 31, 1997, securities sold under repurchase agreements were collateralized by mortgage-backed securities and had the following maturities:
Repurchase Borrowing Collateral Securities -------------------- ----------------------- Interest Carrying Market (Dollars in thousands) Amount Rate Amount (1) Value (1) ------ -------- -------- ------ Maturity: January 1998 $ 44,244 5.70% $ 45,895 $ 45,895 August 1998 68,000 6.18 73,815 73,815 -------- -------- -------- $112,244 5.99 $119,710 $119,710 -------- -------- -------- -------- -------- --------
------------------------------ (1) Includes accrued interest. The securities underlying the repurchase agreements are book entry securities. During the period, book entry securities were delivered by appropriate entry into the counterparties' accounts through the Federal Reserve System. The dealers may sell, loan or otherwise dispose of such securities to other parties in the normal course of their operations, but have agreed to resell to TCF identical or substantially the same securities upon the maturities of the agreements. At December 31, 1997, all of the securities sold under repurchase agreements provided for the repurchase of identical securities. Securities sold under repurchase agreements averaged $341.1 million and $498.4 million during 1997 and 1996, respectively, and the maximum amount outstanding at any month-end during 1997 and 1996 was $469.7 million and $647.7 million, respectively. Great Lakes prepaid $112.3 million of FHLB advances at a pretax loss of $1.5 million during 1995. This amount, net of a $578,000 income tax benefit, was recorded as an extraordinary item in the Consolidated Statements of Operations. During 1997, TCF redeemed the 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 share. TCF issued approximately 839,000 shares of common stock in connection with the conversion of the remaining $7.1 million of Debentures. 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. The $6.2 million of 18% Senior Subordinated Debentures due 2006 (the "Senior Debentures") will be redeemable at par beginning March 1, 1998. TCF intends to exercise its right of redemption on the Senior Debentures in 1998. At December 31, 1997, mortgage-backed securities collateralizing TCF's collateralized mortgage obligations had a market value of $2.5 million. TCF has a $100 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 and term for the line of credit. The line of credit expires in October 1998. FHLB advances are collateralized by FHLB stock and residential real estate loans with an aggregate carrying value of $2.1 billion at December 31, 1997. Interest expense on borrowings is summarized as follows:
Year Ended December 31, ------------------------------- (In thousands) 1997 1996 1995 ---- ---- ---- FHLB advances $48,142 $37,277 $ 50,729 Securities sold under repurchase agreements and federal funds purchased 19,892 28,597 36,095 Discounted lease rentals 18,430 14,906 13,614 Subordinated debt 3,581 2,564 4,986 Collateralized obligations 2,439 2,586 2,880 Other borrowings 1,352 1,011 558 ------- ------- -------- $93,836 $86,941 $108,862 ------- ------- -------- ------- ------- --------
53 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (13) INCOME TAXES Income tax expense (benefit) consists of:
(In thousands) Current Deferred Total ------- -------- ----- 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 ------- ------ ------- ------- ------ ------- Year ended December 31, 1995: Federal $33,930 $4,997 $38,927 State 5,613 942 6,555 ------- ------ ------- $39,543 $5,939 $45,482 ------- ------ ------- ------- ------ -------
Total income tax expense of $95.8 million, $61 million and $45.5 million for the years ended December 31, 1997, 1996 and 1995, 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 $2.3 million, $2.5 million and $2.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, TCF has net operating loss ("NOL") carryforwards for federal income tax purposes of $3.8 million, which are available to offset future federal taxable income through 2008, as a result of the acquisition of BOC. 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 as a result of the acquisitions of BOC and Winthrop. 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 and extraordinary item as a result of the following:
Year Ended December 31, ----------------------------------- (In thousands) 1997 1996 1995 ------- ------- ------- Computed income tax expense $84,317 $56,493 $41,541 Increase (reduction) in income tax expense resulting from: ESOP dividend deduction (792) (649) (553) Amortization of goodwill 1,287 562 648 State income tax, net of federal income tax benefit 11,041 6,980 4,319 Other, net (7) (2,355) (473) ------- ------- ------- $95,846 $61,031 $45,482 ------- ------- ------- ------- ------- -------
54 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) 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) 1997 1996 ---- ---- Deferred tax assets: Allowance for loan and lease losses $24,434 $22,014 Discounts on loans arising from acquisitions - 825 Pension and other compensation plans 9,117 4,444 Insurance premiums 3,750 2,832 Net operating loss carryforward 1,326 - Alternative minimum tax credit carryforward 992 3,225 Other 1,044 993 ------- ------- Total deferred tax assets 40,663 34,333 ------- ------- Deferred tax liabilities: Securities available for sale 5,596 1,826 FHLB stock 4,711 4,027 Loan basis differences 1,536 2,166 Premises and equipment 2,632 3,379 Loan fees and discounts 6,715 6,314 Mortgage servicing rights 3,926 2,546 Lease financing 29,305 23,620 Intangible assets 2,316 - Other - 370 ------- ------- Total deferred tax liabilities 56,737 44,248 ------- ------- Net deferred tax liabilities $16,074 $ 9,915 ------- ------- ------- -------
(14) 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"). Based on their retained net profits as of December 31, 1997, TCF's subsidiary banks currently would be permitted to make additional capital distributions under OCC regulations of approximately $33.3 million. Additional limitations on dividends declared or paid on, or repurchases of, TCF's subsidiary banks' capital stock are tied to the national banks' level of compliance with their regulatory capital requirements. Undistributed earnings at December 31, 1997 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. In August 1996, federal legislation was enacted which repealed the favorable bad debt method for savings and loan associations. Subsequent to this repeal, TCF continues to be subject to this potential tax liability to the extent payments or distributions of these appropriated earnings occur. 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. STOCK SPLIT On October 20, 1997, the Board declared a two-for-one stock split in the form of a 100% common stock dividend payable November 28, 1997 to stockholders of record as of November 7, 1997. The stock split increased TCF's outstanding common shares from 46.4 million to 92.8 million shares. Stockholders' equity has been restated to give retroactive recognition to the stock split for all periods presented by reclassifying from additional paid-in capital to common 55 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) stock the par value of the additional shares arising from the stock split. In addition, all references in the Consolidated Financial Statements and Notes thereto to number of shares, per-share amounts, stock option data and market prices of the Company's common stock have been restated giving retroactive recognition to the stock split. 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 December 19, 1995, the Board authorized the repurchase of up to 5% of TCF common stock, or 3.6 million shares. 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. TCF purchased 1,295,800, 2,380,136 and 64,800 shares of common stock during the years ended December 31, 1997, 1996 and 1995, respectively. PREFERRED STOCK On July 3, 1995, TCF exercised its right of redemption on its 2.7 million shares of preferred stock at $10 per share. STOCK WARRANTS In connection with TCF's acquisition of Great Lakes, TCF assumed the obligation to issue common stock upon the exercise of the outstanding warrants to purchase Great Lakes common stock. The warrants to purchase common stock expired on July 1, 1995. (15) 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 the 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 for TCF at December 31, 1997 and 1996:
At December 31, ---------------------------------------------- 1997 1996 ----------------------- --------------------- (Dollars in thousands) Amount Percentage Amount Percentage ------ ---------- ------ ---------- Tier 1 leverage capital $752,091 7.80% $601,726 8.56% Tier 1 leverage capital requirement 289,132 3.00 210,772 3.00 -------- ----- -------- ----- Excess $462,959 4.80% $390,954 5.56% -------- ----- -------- ----- -------- ----- -------- ----- Tier 1 risk-based capital $752,091 11.97% $601,726 12.54% Tier 1 risk-based capital requirement 251,273 4.00 191,917 4.00 -------- ----- -------- ----- Excess $500,818 7.97% $409,809 8.54% -------- ----- -------- ----- -------- ----- -------- ----- Total risk-based capital $830,639 13.22% $675,229 14.07% Total risk-based capital requirement 502,547 8.00 383,834 8.00 -------- ----- -------- ----- Excess $328,092 5.22% $291,395 6.07% -------- ----- -------- ----- -------- ----- -------- -----
At December 31, 1997, TCF exceeded its regulatory capital requirements and believes it would be considered "well-capitalized" under guidelines established by the Federal Reserve Board. At December 31, 1997, TCF's bank subsidiaries exceeded their regulatory capital requirements and believe they would be considered "well-capitalized" under guidelines established pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. 56 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK TCF is a party to financial instruments with off-balance-sheet risk in the normal course of business, primarily to meet the financing needs of its customers. These financial instruments, which are issued or held by TCF for purposes other than trading, include commitments to extend credit, standby letters of credit, financial guarantees written, forward mortgage loan sales commitments, and financial guarantees on certain loans sold with recourse and on other contingent obligations. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract or notional amounts of those instruments reflect the extent of involvement TCF has in particular classes of financial instruments. TCF's exposure to credit loss in the event of non-performance by the counterparty to the financial instrument for commitments to extend credit, standby letters of credit, financial guarantees written and financial guarantees on certain loans sold with recourse is represented by the contractual amount of the commitments. TCF uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. For Veterans Administration ("VA") loans serviced with partial recourse 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. Unless noted otherwise, TCF does not require collateral or other security to support financial instruments with credit risk. The contract or notional amounts of these financial instruments are as follows:
At December 31, ------------------------ (In thousands) 1997 1996 ---- ---- Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $1,230,727 $1,058,890 Standby letters of credit 30,678 24,055 Financial guarantees written 11,830 12,165 Loans sold with recourse 16,696 23,311 Financial instruments whose credit risk is less than the notional or contract amount: VA loans serviced with partial recourse 335,850 383,806 Forward mortgage loan sales commitments 81,575 91,132
COMMITMENTS TO EXTEND CREDIT As part of its normal business operations, and in order to meet the ongoing credit needs of its customers, TCF has outstanding at any time a significant number of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. These commitments take the form of mortgage loan applications, approved loans, commercial business and consumer credit line products and lease applications. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. TCF evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by TCF upon extension of credit, is based on management's credit evaluation of the borrower. Collateral predominantly consists of residential and commercial real estate and personal property. Included in the total commitments to extend credit at December 31, 1997 were mortgage loan commitments and loans in process aggregating $908.8 million, including commercial and residential construction and development commitments totaling $84.4 million. Of the total mortgage loan commitments and loans in process at December 31, 1997, $221.4 million were for fixed-rate loans. Also included in the total commitments to extend credit at December 31, 1997 were various consumer credit line products aggregating $537.7 million, of which $46 million were unsecured and $483.9 million were mortgage loan commitments. 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 are primarily issued to support public and private borrowing arrangements including bond financing, and expire in various years through the year 2005. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in making commercial loans to customers. The amount of collateral TCF obtains to support 57 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) standby letters of credit is based on management's credit evaluation of the borrower. Collateral held primarily consists of commercial real estate mortgages. Since the conditions under which TCF is required to fund standby letters of credit may not materialize, the cash requirements are expected to be less than the total outstanding commitments. TCF's commitments to the beneficiaries under its outstanding standby letters of credit at December 31, 1997 were collateralized by $24.3 million of TCF's mortgage-backed securities. FINANCIAL GUARANTEES WRITTEN Financial guarantees written represent agreements whereby, for a fee, certain of TCF's mortgage-backed securities are pledged as collateral for Housing Revenue Bonds and Industrial Development Revenue Bonds which were issued by municipalities to finance commercial and multi-family real estate owned by third parties. In the event the third-party borrowers default on principal or interest payments on the bonds, TCF is required to either pay the amount in default or acquire the then outstanding bonds. TCF may foreclose on the underlying real estate to recover amounts in default. At December 31, 1997, the financial guarantees totaled $11.8 million and mortgage-backed securities aggregating approximately $22.1 million were held by the trustees as collateral for these financial guarantees. Further, in order to protect TCF's ability to recover losses in the event of default by the third-party borrowers, TCF may also be required to pay real estate taxes and other liabilities of the underlying collateral. The collateral agreements expire on various dates from 2004 through 2011. LOANS SOLD WITH RECOURSE AND VA LOANS SERVICED WITH PARTIAL RECOURSE During the normal course of business, TCF may sell certain loans with limited recourse provisions. In addition, TCF services VA loans on which it must cover any principal loss in excess of the VA's guarantee if the VA elects its "no-bid" option upon the foreclosure of a loan. A significant portion of the loans are partially supported by government-sponsored insurance, private mortgage insurance or the VA partial guarantee, and all of the loans are collateralized by residential real estate. FORWARD MORTGAGE LOAN SALES COMMITMENTS As part of its residential mortgage banking operation, TCF enters into forward mortgage loan sales commitments in order to manage the market exposure on its residential loans held for sale and its commitments to extend credit for residential loans. Because gains or losses to be realized on the sale of residential loans held for sale are dependent on interest rates, forward mortgage loan sales commitments are used to reduce the impact of changes in interest rates on TCF's mortgage banking operation. Forward mortgage loan sales commitments are contracts for the delivery of mortgage loans or pools of loans in which TCF agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of the counterparties to meet the terms of their contracts and from movements in mortgage loan values and interest rates. Included in the total at December 31, 1997 and 1996 were $15 million and $14 million, respectively, of standby forward mortgage loan sales commitments for which TCF has the option to deliver the mortgage loans. Premiums paid for standby forward mortgage loan sales commitments are amortized to gain on sale of loans held for sale over the terms of the agreements. The fair value of the forward mortgage loan sales commitments is not recognized in the financial statements. (17) FAIR VALUES OF FINANCIAL INSTRUMENTS TCF is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time TCF's entire holdings of a particular financial instrument. Because no market exists for a significant portion of TCF's financial instruments, fair value estimates are subjective in nature, involving uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, TCF has established customer relationships that contribute significant fee income annually. These customer relationships are not considered financial instruments, and their values have not been incorporated into the fair value estimates. Certain financial instruments, including lease financings and discounted lease rentals, and all non-financial instruments are excluded from fair value of financial instrument disclosure requirements. In addition, the tax effects of unrealized gains and losses have not been considered in the estimates, nor have costs necessary to execute a sale been considered. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of TCF, or the value TCF would realize in a negotiated sale of these instruments. 58 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Fair value estimates, methods and assumptions are set forth below for TCF's financial instruments. These financial instruments are issued or held by TCF for purposes other than trading. The carrying amounts disclosed below are included in the Consolidated Statements of Financial Condition under the indicated captions, except where noted otherwise. The estimated fair values of TCF's financial instruments are set forth in the following table and explained below:
At December 31, -------------------------------------------------------- (In thousands) 1997 1996 -------------------------- -------------------------- Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value ----------- --------- ------------ ----------- Financial instrument assets: Cash and due from banks $ 297,010 $ 297,010 $ 236,446 $ 236,446 Investments 129,612 129,612 456,195 456,195 Securities available for sale 1,426,131 1,426,131 999,586 999,586 Residential loans held for sale (1) 109,315 110,415 57,566 58,276 Education loans held for sale (1) 135,297 137,926 146,303 149,448 Loans: (1) Residential real estate 3,623,845 3,686,635 2,252,311 2,274,098 Commercial real estate 859,916 866,851 858,224 862,244 Commercial business 240,207 239,611 157,057 153,499 Consumer (2) 1,976,699 2,159,218 1,725,635 1,946,955 Allowance for loan losses (3) (79,166) - (70,749) - ---------- ---------- ---------- ---------- 6,621,501 6,952,315 4,922,478 5,236,796 Due from brokers 126,662 126,662 - - Accrued interest receivable 54,336 54,336 42,173 42,173 ---------- ---------- ---------- ---------- Total financial instrument assets $8,899,864 $9,234,407 $6,860,747 $7,178,920 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Financial instrument liabilities: Deposits with no stated maturity $3,301,647 $3,301,647 $2,627,719 $2,627,719 Certificates of deposit 3,605,663 3,637,981 2,349,911 2,379,526 Securities sold under repurchase agreements and federal funds purchased 112,444 112,535 293,732 293,823 Federal Home Loan Bank advances 1,339,578 1,337,014 1,141,040 1,140,394 Subordinated debt 34,998 36,270 42,147 53,807 Collateralized obligations 2,539 2,611 40,505 40,566 Other borrowings 8,997 8,997 5,144 5,144 Accrued interest payable 23,510 23,510 20,666 20,666 ---------- ---------- ---------- ---------- Total financial instrument liabilities $8,429,376 $8,460,565 $6,520,864 $6,561,645 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Financial instruments with off-balance-sheet risk: (4) Commitments to extend credit $ 3,463 $ (209) $ 4,860 $ (978) Standby letters of credit (17) (58) (56) (67) Forward mortgage loan sales commitments 56 (326) 53 154 Financial guarantees written (1,662) (1,662) (1,778) (1,778) ---------- ---------- ---------- ---------- Total off-balance-sheet financial instruments $ 1,840 $ (2,255) $ 3,079 $ (2,669) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------------ (1) Net of unearned discounts, premiums and deferred fees. (2) Excludes lease receivables not subject to fair value disclosure of $927,000 and $2.7 million at December 31, 1997 and 1996, respectively. (3) Excludes the allowance for lease losses. (4) Positive amounts represent assets, negative amounts represent liabilities. CASH AND DUE FROM BANKS The carrying amount of cash and due from banks approximates its fair value. INVESTMENTS The carrying amounts of short-term investments approximate their fair values since they mature in 90 days or less and do not present unanticipated credit concerns. The fair values of U.S. Government and other marketable securities held to maturity are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying amounts of FHLB stock and FRB stock approximate their fair values. SECURITIES AVAILABLE FOR SALE The fair values of U.S. Government and other marketable securities available for sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The fair values of mortgage-backed securities available for sale are based on quoted market prices. 59 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) LOANS HELD FOR SALE The fair value of residential mortgage loans held for sale is estimated based on quoted market prices. The fair value of education loans held for sale is estimated based on an existing forward sale agreement TCF has with the Student Loan Marketing Association, or on sales of comparable loans. The estimated fair value of capitalized mortgage servicing rights totaled $32.2 million at December 31, 1997, compared with a carrying amount of $19.5 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 loans are estimated for portfolios of loans with similar characteristics. Loans are segregated by type, and include residential, commercial real estate, commercial business and consumer, and by sub-type within these categories. Each of these categories is further segmented into fixed- and adjustable-rate interest terms, and by performing and non-performing status. For certain variable-rate loans that reprice frequently and that have experienced no significant change in credit risk, fair values are based on carrying values. For certain homogeneous categories of loans, such as certain residential and consumer loans, fair values are estimated using quoted market prices. The fair values of other performing loans are estimated by discounting contractual cash flows adjusted for prepayment estimates, using interest rates currently being offered for loans with similar terms to borrowers with similar credit risk characteristics. The fair values of significant non-performing loans are based on recent internal or external appraisals, or estimated cash flows discounted using rates commensurate with the risks associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. DEPOSITS The fair value of deposits with no stated maturity, such as checking, passbook and statement, and money market accounts, is deemed equal to the amount payable on demand. The fair value of certificates is estimated based on discounted cash flow analyses using interest rates offered by TCF at December 31, 1997 and 1996 for certificates of similar remaining maturities. The fair value estimates do not include the benefit that results from the lower-cost funding provided by deposits compared with the cost of wholesale borrowings. That benefit is commonly referred to as a deposit base intangible. BORROWINGS The carrying amounts of short-term borrowings approximate their fair values. The fair values of TCF's long-term borrowings are estimated based on quoted market prices or discounted cash flow analyses using interest rates offered at December 31, 1997 and 1996 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, standby letters of credit and financial guarantees written are estimated using fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments and standby letters of credit issued in conjunction with fixed-rate loan agreements, fair value also considers the difference between current levels of interest rates and the committed rates. For financial guarantees written, fair value also considers reserves established relating to TCF's potential obligation on the outstanding guarantees. The carrying amounts for commitments to extend credit and forward mortgage loan sales commitments are included in other assets in the Consolidated Statements of Financial Condition. The carrying amounts for standby letters of credit and financial guarantees written are included in accrued expenses and other liabilities in the Consolidated Statements of Financial Condition. In addition to the financial instruments with off-balance-sheet risk noted above, TCF had $16.7 million and $23.3 million of loans sold with recourse and serviced $335.9 million and $383.8 million of VA loans with partial recourse at December 31, 1997 and 1996, respectively. TCF has not incurred, and does not anticipate, significant losses as a result of the recourse provisions associated with these financial instruments. As a result, the carrying amounts and related estimated fair values of these financial instruments were not material at December 31, 1997 and 1996. 60 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (18) 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 1997 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. As disclosed in Note 1, TCF has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option and restricted stock grants. 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 $8.3 million, $7.9 million and $6.3 million in 1997, 1996 and 1995, respectively. 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, 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) 1997 1996 1995 -------- --------- --------- Net income: As reported $145,061 $100,377 $72,244 -------- --------- --------- -------- --------- --------- Pro forma $146,155 $100,553 $72,328 -------- --------- --------- -------- --------- --------- Basic earnings per common share: As reported $ 1.72 $ 1.23 $ .88 -------- --------- --------- -------- --------- --------- Pro forma $ 1.73 $ 1.23 $ .88 -------- --------- --------- -------- --------- --------- Diluted earnings per common share: As reported $ 1.69 $ 1.20 $ .86 -------- --------- --------- -------- --------- --------- Pro forma $ 1.70 $ 1.20 $ .86 -------- --------- --------- -------- --------- ---------
Since the pro forma disclosures of results under SFAS No. 123 are only required to consider grants awarded in 1995, 1996 and 1997, the pro forma effects of applying SFAS No. 123 during this initial phase-in 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 assumptions used for 1997, 1996 and 1995, respectively: risk-free interest rates of 5.95, 6.5, and 6.25%; dividend yield of 1.7, 2.1, and 1.0%; expected lives of 10, 5, and 5 years; and volatility of 26.4, 19.6, and 21.1%. The weighted-average grant-date fair value of options granted was $11.98, $3.32 and $2.93 in 1997, 1996 and 1995, respectively. The weighted-average grant-date fair value of restricted stock was $22.23, $16.75 and $10.14 in 1997, 1996 and 1995, respectively. Prior to being acquired by TCF, Winthrop had a separate stock option plan. TCF assumed the obligation to issue common stock upon the exercise of the outstanding employee and director options to purchase Winthrop common stock. Winthrop did not have compensatory stock option grants or 61 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) restricted stock transactions with employees. The following table reflects TCF's restricted stock transactions since December 31, 1994 and the pooled Winthrop and TCF stock option transactions since December 31, 1994 as if all Winthrop options were granted, exercised or cancelled as equivalent TCF shares:
Stock Options Restricted Stock ---------------------------------------------- --------------------------- Exercise Price -------------------------------- Shares Range Weighted-Average Shares Price Range ----------- ------------ ----------------- ----------- ---------------- Outstanding at December 31, 1994 2,316,835 $ 1.94 -9.28 $ 4.03 1,169,148 $ 2.22 -8.75 Granted 77,660 7.73-11.43 10.25 616,800 9.41-14.83 Exercised (846,868) 2.22 -7.74 3.99 - - Forfeited (15,008) 6.78 -7.74 7.57 (10,178) 9.89 Vested - - - (446,906) 2.22 -9.89 ---------- --------- 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 ---------- --------- ---------- --------- Exercisable at December 31, 1997 707,545 2.22-20.40 6.05 ---------- ----------
The following table summarizes information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable --------------------------------------------------- ---------------------------- Weighted-Average Weighted-Average Remaining Contractual Weighted-Average Exercise Price Range Shares Exercise Price Life in Years Shares Exercise Price - -------------------- ------- ---------------- --------------------- ------- ----------------- $2.22 to $5.00 370,064 $ 3.40 4.1 370,064 $ 3.40 $5.01 to $10.00 250,757 6.94 5.6 228,757 6.79 $10.01 to $15.00 77,660 11.33 7.9 77,660 11.33 $15.01 to $33.28 138,564 30.07 9.7 31,064 18.97 ------- ------- Total Options 837,045 9.61 5.8 707,545 6.05 ------- ------- ------- -------
At December 31, 1997, there were 3,148,561 shares reserved for issuance under the Program, including 837,045 shares for which options had been granted but had not yet been exercised. (19) EMPLOYEE BENEFIT PLANS PENSION PLANS The TCF Cash Balance Pension Plan (the "Plan") is a defined benefit qualified plan covering all "regular stated salary" employees who are at least 21 years old and have completed a year of eligibility service with TCF. Certain part-time employees and employees of Winthrop and Standard are also eligible beginning in 1998. TCF makes a monthly allocation to the participant's account based on a percentage of the participant's compensation. The percentage is based on the sum of the participant's age and years of employment with TCF. Participants are fully vested after five years of vesting service. The projected unit credit method is the actuarial cost method used to compute the pension cost. 62 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Net pension cost (credit) included the following components:
Year Ended December 31, -------------------------------------- (In thousands) 1997 1996 1995 --------- --------- -------- Service cost - benefits earned during the year $ 2,091 $ 2,107 $ 1,762 Interest cost on projected benefit obligation 1,207 945 762 Gain on plan assets (13,365) (5,325) (7,266) Net amortization and deferral 9,782 2,047 4,806 --------- --------- -------- Net pension cost (credit) $ (285) $ (226) $ 64 --------- --------- -------- --------- --------- --------
The following tables set forth the Plan's funded status at the dates indicated:
At October 1, ---------------------- (In thousands) 1997 1996 -------- -------- Actuarial present value of accumulated benefit obligations: Vested benefits $13,102 $10,489 Non-vested benefits 1,501 1,115 -------- -------- Total accumulated benefits $14,603 $11,604 -------- -------- -------- --------
At December 31, ---------------------- (In thousands) 1997 1996 -------- -------- Projected benefit obligation for service rendered to date $ 17,027 $13,551 Plan assets at fair value 53,374 38,657 -------- -------- Plan assets in excess of projected benefit obligation 36,347 25,106 Unrecognized prior service cost (4,782) (3,200) Unrecognized net gain (17,063) (7,689) -------- -------- Prepaid pension cost included in other assets $ 14,502 $14,217 -------- -------- -------- --------
The Plan's assets consist primarily of listed stocks and government bonds. At December 31, 1997 and 1996, the Plan's assets included TCF common stock with a market value of $12.2 million and $7.8 million, respectively. The weighted-average discount rate and rate of increase in future compensation used to measure the projected benefit obligation and the expected long-term rate of return on plan assets were as follows:
At December 31, ------------------------ 1997 1996 1995 ---- ---- ---- Weighted-average discount rate 7.75% 8.00% 7.75% 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
Great Lakes was a participant in the multi-employer Financial Institutions Retirement Fund ("FIRF"). Great Lakes withdrew from the FIRF effective December 31, 1995 and commenced participation in the Plan effective January 1, 1996. The FIRF does not segregate the assets, liabilities or costs by participating employer. As a result, disclosures required by SFAS No. 87, "Employers' Accounting for Pensions," cannot be made. Contributions for plan years beginning July 1, 1988 have not been required due to plan performance. As a result, Great Lakes did not record pension expense during 1995. POSTRETIREMENT PLANS In addition to providing retirement income benefits, TCF provides health care benefits for eligible retired employees, and in some cases life insurance benefits. 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. Employees of Winthrop and Standard will become eligible for TCF's postretirement benefit plan in 1998. 63 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) TCF's postretirement benefit plan is currently unfunded. The following table reconciles the status of the plan with the amounts recognized in TCF's Consolidated Statements of Financial Condition at the dates indicated:
At December 31, ---------------- (In thousands) 1997 1996 Accumulated postretirement benefit obligation: Retirees and beneficiaries $ (6,024) $ (6,005) Fully eligible active plan participants (955) (745) Other active plan participants (1,624) (1,121) --------- --------- Total accumulated postretirement benefit obligation (8,603) (7,871) Unrecognized prior service cost 988 1,097 Unrecognized net gain (1,495) (2,184) Unrecognized transition obligation 5,117 5,459 -------- --------- Accrued postretirement benefit cost included in other liabilities $ (3,993) $ (3,499) --------- --------- --------- ---------
Net periodic postretirement benefit cost included the following components:
(In thousands) Year Ended December 31, ------------------------- 1997 1996 1995 ---- ---- ---- Service cost - benefits earned during the year $ 236 $ 177 $ 285 Interest cost on accumulated postretirement benefit obligation 604 778 772 Amortization of unrecognized transition obligation 342 342 342 Amortization of unrecognized net (gain) loss (116) - 138 Amortization of unrecognized prior service cost 109 109 - ------- ------- ------ Net periodic postretirement benefit cost $1,175 $1,406 $1,537 ------- ------- ------ ------- ------- ------
In connection with TCF's acquisition of Great Lakes, a $329,000 curtailment loss and $168,000 in special termination benefits were recognized in 1995 associated with benefits provided under Great Lakes' postretirement benefit plan. These costs are included in merger-related expenses in the Consolidated Statements of Operations. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.75%, 8.0% and 7.75% at December 31, 1997, 1996 and 1995, respectively. For active participants, an 8.4% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998. This rate is assumed to decrease gradually to 6% for the year 2004 and remain at that level thereafter. For retired participants, other than certain Great Lakes' retirees, 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. The health care cost trend rate assumption does not have a significant effect on the amounts reported. 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 $2.2 million, $1.8 million and $1.4 million in 1997, 1996 and 1995, respectively. PROFIT SHARING 401(k) PLAN Prior to being acquired by TCF, Winthrop established a 401(k) profit sharing plan (the "Winthrop Plan"). The Winthrop Plan was a salary reduction cash or deferred profit sharing plan intended to meet the requirements of Sections 401(k) and 401(a) of the IRC. All employees who had completed at least one year of service and had attained the age of 21 were eligible to participate in the Winthrop Plan. The Winthrop Plan allowed eligible employees to contribute a certain percentage of their base compensation into the Winthrop Plan each year. Winthrop could make discretionary contributions to the Winthrop Plan on behalf of eligible participants at the discretion of its Board of Directors. Employee contributions vested immediately while Winthrop's contributions were subject to a graduated vesting schedule. Winthrop's contributions were expensed when made. Winthrop's contribution to the Winthrop Plan was $270,000, $184,000 and $120,000 in 1997, 1996 and 1995, respectively. The Winthrop Plan was terminated (subject to Internal Revenue Service approval) on January 1, 1998 and all of Winthrop's contributions vested on such date. Winthrop's employees became eligible for the TCF Employees Stock Purchase Plan on January 1, 1998. 64 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (20) PARENT COMPANY FINANCIAL INFORMATION TCF Financial Corporation's (parent company only) condensed statements of financial condition as of December 31, 1997 and 1996, and the condensed statements of operations and cash flows for the years ended December 31, 1997, 1996 and 1995 are as follows:
Condensed Statements of Financial Condition At December 31, ------------------- (In thousands) 1997 1996 ---- ---- Assets: Cash $ 16 $ 117 Interest-bearing deposits with banks 19,821 5,438 Investment in subsidiaries: Bank subsidiaries 895,527 608,787 Other subsidiaries - 1,544 Premises and equipment 6,330 4,471 Loan to unconsolidated subsidiary 1,709 2,014 Other assets 41,761 17,221 -------- -------- $965,164 $639,592 -------- -------- -------- -------- Liabilities and Stockholders' Equity: Notes payable to non-bank subsidiaries $ - $ 957 Other liabilities 11,484 7,948 ------- -------- Total liabilities 11,484 8,905 Stockholders' equity 953,680 630,687 -------- -------- $965,164 $639,592 -------- -------- -------- --------
Condensed Statements of Operations
Year Ended December 31, ----------------------------- (In thousands) 1997 1996 1995 ---- ---- ---- Interest income $ 1,099 $ 352 $ 1,412 Interest expense 758 923 3,680 -------- --------- -------- Net interest income (expense) 341 (571) (2,268) Provision for credit losses 679 - - -------- --------- -------- Net interest expense after provision for credit losses (338) (571) (2,268) -------- --------- -------- Cash dividends received from subsidiaries: Bank subsidiaries 109,791 103,500 27,500 Other subsidiaries 1,549 4,102 2,832 -------- --------- -------- Total cash dividends received from subsidiaries 111,340 107,602 30,332 -------- --------- -------- Other non-interest income: Affiliate service fee revenues 54,007 44,369 36,427 Other (4) 7 (4) -------- --------- -------- Total other non-interest income 54,003 44,376 36,423 -------- --------- -------- Non-interest expense: Compensation and employee benefits 42,828 34,174 27,189 Occupancy and equipment 12,217 10,958 8,435 Other 18,149 16,414 13,508 -------- --------- -------- Total non-interest expense 73,194 61,546 49,132 -------- --------- -------- Income before income tax benefit and equity in undistributed earnings of subsidiaries 91,811 89,861 15,355 Income tax benefit 7,518 6,879 5,991 -------- --------- -------- Income before equity in undistributed earnings of subsidiaries 99,329 96,740 21,346 Equity in undistributed earnings of subsidiaries 45,732 3,637 50,898 -------- --------- -------- Net income $145,061 $100,377 $72,244 -------- --------- -------- -------- --------- --------
All dividends were received from consolidated subsidiaries during the three-year period ended December 31, 1997. 65 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued)
Condensed Statements of Cash Flows Year Ended December 31, -------------------------- (In thousands) 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income $145,061 $100,377 $ 72,244 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (45,732) (3,637) (50,898) Net increase in other assets and liabilities (2,394) (3,702) (3,604) Other, net 11,019 9,501 8,849 --------- --------- --------- Total adjustments (37,107) 2,162 (45,653) --------- --------- --------- Net cash provided by operating activities 107,954 102,539 26,591 --------- --------- --------- Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits with banks (14,383) 6,273 24,467 Investments in and advances to subsidiaries, net (66,265) (117) (16,001) Loan originations, net 305 (1,049) 381 Purchases of premises and equipment, net (3,913) (2,678) (2,457) Other, net 964 63 64 --------- --------- --------- Net cash provided (used) by investing activities (83,292) 2,492 6,454 --------- --------- --------- Cash flows from financing activities: Dividends paid on preferred stock - - (678) Dividends paid on common stock (37,341) (25,279) (20,968) Proceeds from issuance of common stock, net 29,266 - - Proceeds from exercise of stock options and stock warrants 1,506 1,639 12,455 Proceeds from conversion of convertible debentures 7,149 123 2,656 Repurchases of common stock (27,318) (41,382) (876) Redemption of preferred stock - - (27,100) Proceeds from bank line of credit 69,100 52,275 40,000 Repayment of commercial bank note and bank line of credit (69,100) (92,275) (3,500) Repayment of subordinated capital notes - - (34,500) Issuance of treasury stock to employee benefit plans 2,930 - - Other, net (955) (85) (529) --------- --------- ---------- Net cash used by financing activities (24,763) (104,984) (33,040) --------- --------- ---------- Net increase (decrease) in cash (101) 47 5 Cash at beginning of year 117 70 65 --------- --------- ---------- Cash at end of year $ 16 $ 117 $ 70 --------- --------- ---------- --------- --------- ----------
66 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (21) BUSINESS SEGMENTS
The following summarizes financial data for TCF's business segments: Year Ended December 31, ------------------------------ (In thousands) 1997 1996 1995 ---- ---- ---- Revenues: Financial institution $720,225 $629,777 $632,837 Consumer finance 82,756 74,930 48,279 Mortgage banking operations 36,339 33,498 32,881 Leasing operations 72,610 53,838 43,285 Insurance operations 32,817 32,797 27,809 Real estate development 1,102 437 288 Eliminations (35,475) (30,350) (21,341) --------- --------- --------- $910,374 $794,927 $764,038 --------- --------- --------- --------- --------- --------- Earnings (loss) from continuing operations before income tax expense and extraordinary item: Financial institution $179,711 $115,448 $ 76,443 Consumer finance 5,515 (3,846) 2,368 Mortgage banking operations 9,833 10,427 7,585 Leasing operations 30,700 24,361 19,260 Insurance operations 13,825 14,398 12,448 Real estate development 1,065 303 169 Eliminations 258 317 416 -------- --------- -------- $240,907 $161,408 $118,689 -------- --------- -------- -------- --------- --------
At December 31, --------------------- (In thousands) 1997 1996 ---- ---- Identifiable assets: Financial institution $9,319,590 $7,045,604 Consumer finance 519,597 497,619 Mortgage banking operations 140,157 83,607 Leasing operations 376,675 350,110 Insurance operations 23,424 18,303 Real estate development 46 293 Eliminations (634,829) (565,049) ----------- ----------- $9,744,660 $7,430,487 ---------- ----------- ---------- -----------
Real estate development revenues in the Consolidated Statements of Operations are presented net of costs of operations of real estate and are included in other non-interest expense. 67 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (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 new 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. TCF is also from time to time involved in litigation relating to its retail banking, consumer credit and mortgage banking operations and related consumer financial services, including class action litigation. Management, after review with its legal counsel, believes that the ultimate disposition of its litigation will not have a material effect on TCF's financial condition. 68 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, 1997 and 1996, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Minneapolis, Minnesota January 20, 1998 69 TCF FINANCIAL CORPORATION AND SUBSIDIARIES Supplementary Information
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, At At At At At At At At except per-share data) Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, 1997 1997 1997 1997 1996 1996 1996 1996 SELECTED FINANCIAL CONDITION DATA: Total assets $9,744,660 $9,796,154 $7,403,760 $7,317,584 $7,430,487 $7,433,682 $7,340,539 $7,316,569 Investments (1) 129,612 130,261 82,098 60,458 456,195 402,328 157,414 63,136 Securities available for sale 1,426,131 1,628,126 1,181,126 1,242,457 999,586 998,001 1,049,219 1,117,476 Loans and leases 7,069,188 7,052,032 5,382,356 5,354,941 5,292,920 5,332,800 5,393,769 5,418,564 Deposits 6,907,310 6,976,687 5,243,574 5,291,894 4,977,630 5,018,672 5,052,557 5,150,023 Borrowings 1,727,152 1,754,445 1,349,369 1,273,411 1,708,172 1,671,598 1,584,493 1,453,895 Stockholders' equity 953,680 919,952 701,063 626,716 630,687 599,573 597,632 597,891 - -------------------------------------------------------------------------------------------------------------------------------- Three Months Ended - -------------------------------------------------------------------------------------------------------------------------------- Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, 1997 1997 1997 1997 1996 1996 1996 1996 - -------------------------------------------------------------------------------------------------------------------------------- SELECTED OPERATIONS DATA: Interest income $198,739 $173,253 $157,242 $153,380 $150,452 $153,049 $153,611 $ 155,772 Interest expense 87,725 73,399 64,605 63,289 62,288 63,551 64,419 68,058 -------- -------- -------- -------- -------- -------- -------- --------- Net interest income 111,014 99,854 92,637 90,091 88,164 89,498 89,192 87,714 Provision for credit losses 5,859 6,341 4,097 1,498 4,048 6,972 7,324 2,902 -------- -------- -------- -------- -------- -------- -------- --------- Net interest income after provision for credit losses 105,155 93,513 88,540 88,593 84,116 82,526 81,868 84,812 -------- -------- -------- -------- -------- -------- -------- --------- Non-interest income: Gain on sale of loans 145 - - - 810 4,633 - - Gain on sale of loan servicing - - - 1,622 - - - - Gain (loss) on sale of securities available for sale 3,179 2,852 1,093 1,385 2 - (1) 85 Gain on sale of branches 742 10,635 2,810 - 1,022 - 480 1,245 Other non-interest income 55,489 53,917 49,051 43,748 46,340 43,828 43,270 39,898 ------- ------- ------- ------- ------- -------- -------- --------- Total non-interest income 59,555 67,404 52,954 46,755 48,174 48,461 43,749 41,228 ------- ------- ------- ------- ------- --------- -------- --------- Non-interest expense: Amortization of goodwill and other intangibles 2,844 10,559 1,161 1,193 881 893 893 873 FDIC special assessment - - - - - 34,803 - - Other non-interest expense 95,082 87,794 82,982 79,947 80,590 81,097 75,317 78,179 ------- ------- ------- ------- ------- -------- ------- ------- Total non-interest expense 97,926 98,353 84,143 81,140 81,471 116,793 76,210 79,052 ------- ------- ------- ------- ------- -------- -------- --------- Income before income tax expense 66,784 62,564 57,351 54,208 50,819 14,194 49,407 46,988 Income tax expense 26,895 25,354 22,416 21,181 18,923 5,346 19,196 17,566 -------- -------- -------- -------- -------- -------- -------- --------- Net income $ 39,889 $ 37,210 $ 34,935 $ 33,027 $ 31,896 $ 8,848 $ 30,211 $ 29,422 -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- -------- -------- --------- Per common share: Basic earnings $ .44 $ .44 $ .43 $ .41 $ .39 $ .11 $ .37 $ .36 -------- -------- --------- -------- -------- -------- -------- --------- -------- -------- --------- -------- -------- -------- -------- --------- Diluted earnings $ .43 $ .43 $ .42 $ .40 $ .38 $ .11 $ .36 $ .35 -------- -------- --------- -------- -------- -------- -------- --------- -------- -------- --------- -------- -------- -------- -------- --------- Dividends declared $ .125 $ .125 $ .125 $ .09375 $ .09375 $ .09375 $ .09375 $ .078125 -------- -------- --------- -------- -------- -------- -------- --------- -------- -------- --------- -------- -------- -------- -------- --------- FINANCIAL RATIOS: Return on average assets (2) 1.63% 1.80% 1.90% 1.82% 1.81% .49% 1.67% 1.59% Return on average realized common equity (2) 17.28 19.37 21.35 21.26 20.81 5.82 20.35 20.21 Return on average common equity (2) 17.10 19.20 21.37 21.26 20.78 5.89 20.51 19.93 Average total equity to average assets 9.53 9.38 8.91 8.56 8.73 8.40 8.14 7.99 Net interest margin (2)(3) 4.93 5.24 5.41 5.31 5.37 5.36 5.27 5.07
_______________________________ (1) Includes interest-bearing deposits with banks, federal funds sold, U.S. Government and other marketable securities held to maturity, FRB stock and FHLB stock. (2) Annualized. (3) Net interest income divided by average interest-earning assets. 70-71 EX-21 16 EXHIBIT 21 TCF FINANCIAL CORPORATION EXHIBIT 21 SUBSIDIARIES OF REGISTRANT (AS OF MARCH 24, 1998) NAMES UNDER WHICH SUBSIDIARY SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS TCF Financial Insurance Illinois TCF Financial Insurance Agency Agency Illinois, Inc. Illinois, Inc. TCF Insurance TCF Financial Insurance Minnesota TCF Financial Insurance Agency Agency Wisconsin, Inc. Wisconsin, Inc. TCF Insurance TCF Financial Insurance Agency Minnesota TCF Financial Insurance Agency Michigan, Inc. Michigan, Inc. TCF Insurance GLB Agency TCF Financial Insurance Minnesota TCF Financial Insurance Agency, Inc. Agency, Inc. TCF Insurance GLB Financial Insurance Agency Ohio GLB Financial Insurance Agency Ohio, Inc. Ohio, Inc. (fka: WNL Insurance Agency of Ohio) TCF Securities, Inc. Minnesota TCF Securities, Inc. GLB Securities (MI) TCF Foundation Minnesota TCF Foundation TCF Minnesota Financial Minnesota TCF Minnesota Financial Services, Inc. Services, Inc. TCB Air, Inc. Minnesota TCB Air, Inc. Twin City/Burnet, Inc. TCF National Bank Minnesota United States TCF National Bank Minnesota TCF Consumer Financial Minnesota TCF Consumer Financial Services, Inc. Services, Inc. TCF Financial Services TCF Mortgage Corporation Minnesota TCF Mortgage Corporation TCFMC Holding Co. Minnesota TCFMC Holding Co. TCF Financial Services, Inc. Minnesota TCF Financial Services, Inc. TCF Management Corporation Minnesota TCF Management Corporation North Star Title, Inc. Minnesota North Star Title, Inc. NAMES UNDER WHICH SUBSIDIARY SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS North Star Real Estate Minnesota North Star Real Estate Services, Inc. Services, Inc. TCF Agency Minnesota, Inc. Minnesota TCF Agency Minnesota, Inc. TCF Agency Minnesota TCF Insurance Agency Minnesota, Inc. TCF Agency Mississippi, Mississippi TCF Agency Mississippi, Inc. Inc. TCF Agency Mississippi TCF Agency Insurance Minnesota TCF Agency Insurance Services, Services, Inc. Inc. TCF National Properties, Inc. Minnesota TCF National Properties, Inc. TCF New York Investment, Inc. Minnesota TCF New York Investments, Inc. TCF Qwik, Inc. New York TCF Qwik, Inc. TCF Wisk, Inc. New York TCF Wisk, Inc. TCF Bolt, Inc. New York TCF Bolt, Inc. TCF Jump, Inc. New York TCF Jump, Inc. TCF Sped, Inc. New York TCF Sped, Inc. TCF Real Estate Financial Minnesota TCF Real Estate Financial Services, Inc. Services, Inc. Winthrop Resources Corporation Minnesota Winthrop Resources Corporation Services, Inc. WINR Business Credit TCF Small Business Leasing TCF National Bank Wisconsin United States TCF National Bank Wisconsin Republic Capital Funding Corp. I Wisconsin Republic Capital Funding Corp. I TCF Agency Wisconsin, Inc. Wisconsin TCF Agency Wisconsin, Inc. TCF National Bank Illinois United States TCF National Bank Illinois Capitol Equities Corporation Illinois Capitol Equities Corporation SFB Insurance Agency, Inc. Illinois SFB Insurance Agency, Inc. Standard Financial Mortgage Illinois Standard Financial Mortgage Corporation Corporation TCF Agency Illinois, Inc. Illinois TCF Agency Illinois, Inc. NAMES UNDER WHICH SUBSIDIARY SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS Great Lakes National Bank United States Great Lakes National Bank Michigan Michigan GLB Properties, Inc. Michigan GLB Properties, Inc. Lakeland Group Insurance Michigan Lakeland Group Insurance Agency, Inc. Agency, Inc. 401 Service Corporation Michigan 401 Service Corporation TCF Colorado Corporation Colorado TCF Colorado Corporation TCF National Bank Colorado United States TCF National Bank Colorado TCF Agency Colorado, Inc. Colorado TCF Agency Colorado, Inc. EX-24 17 EXHIBIT 24 EXHIBIT 24 [LETTERHEAD] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors TCF Financial Corporation: We consent to incorporation by reference of our report dated January 20, 1998, relating to the consolidated statements of financial condition of TCF Financial Corporation and Subsidiaries as of December 31, 1997 and 1996, 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, 1997, which report appears in the Decmber 31, 1997 Form 10-K of TCF Financial Corporation, in the following Registration Statements of TCF Financial Corporation: Nos. 33-43030, 33-57633, 33-14203, 33-22375, 33-40403, 33-53986 and 33-63767 on Form S-8. /s/ KPMG PEAT MARWICK LLP Minneapolis, Minnesota March 27, 1998 EX-27.1 18 EXHIBIT 27.1
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 DEC-31-1997 297,010 20,572 0 0 1,426,131 4,061 4,061 7,069,188 82,583 9,744,660 6,907,310 738,883 156,518 988,269 0 0 928 952,752 9,744,660 563,966 102,893 15,755 682,614 195,182 289,018 393,596 17,995 8,509 361,562 240,907 240,907 0 0 145,061 1.72 1.69 5.20 36,793 0 1,335 23,552 71,865 26,813 8,944 82,583 53,219 0 29,364
EX-27.2 19 EXHIBIT 27.2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996 10-K AND THE 1ST, 2ND AND 3RD QUARTER 1996 10-Q, AS RESTATED FOR TCF FINANCIAL CORPORATION'S ADOPTION OF SFAS NO.128, EARNINGS PER SHARE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 236,446 216,922 220,245 206,506 386,224 4,385 97,783 334,661 0 0 5,000 5,000 0 0 0 0 999,586 1,117,476 1,049,219 998,001 3,910 3,789 3,821 3,856 3,910 3,789 3,821 3,856 5,292,920 5,418,564 5,393,769 5,332,800 71,865 67,474 70,207 72,809 7,430,487 7,316,569 7,340,539 7,433,682 4,977,630 5,150,023 5,052,557 5,018,672 1,113,734 939,963 1,114,507 1,123,169 113,998 114,760 105,857 143,839 594,438 513,932 469,986 548,429 0 0 0 0 0 0 0 0 426 420 426 426 630,261 597,471 597,206 599,147 7,430,487 7,316,569 7,340,539 7,433,682 516,054 129,688 258,565 387,922 79,750 21,510 41,708 61,049 17,080 4,574 9,110 13,461 612,884 155,772 309,383 462,432 171,375 44,696 87,670 129,760 258,316 68,058 132,477 196,028 354,568 87,714 176,906 266,404 21,446 3,102 10,426 17,398 86 85 84 84 353,526 79,052 155,262 272,055 161,408 46,988 96,395 110,589 100,377 29,422 59,633 68,481 0 0 0 0 0 0 0 0 100,377 29,422 59,633 68,481 1.23 .36 .73 .84 1.20 .35 .71 .82 5.27 5.07 5.17 5.23 26,397 39,144 37,838 32,994 0 369 166 48 3,028 1,603 1,592 3,042 15,981 48,101 36,229 32,415 66,290 66,290 66,290 66,290 24,294 3,586 10,694 17,231 8,423 1,668 4,185 6,352 71,865 67,474 70,207 72,809 49,480 49,720 48,307 48,710 0 0 0 0 22,385 17,454 21,900 24,099
EX-27.3 20 EXHIBIT 27.3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1ST, 2ND AND 3RD QUARTER 1997 10-Q, AS RESTATED FOR TCF FINANCIAL CORPORATION'S ADOPTION OF SFAS NO. 128, EARNINGS PER SHARE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 192,695 251,388 258,465 5,730 14,364 9,092 0 0 21,000 0 0 0 1,242,457 1,181,126 1,628,126 3,918 3,962 4,000 3,918 3,962 4,000 5,354,941 5,382,356 7,052,032 72,873 72,466 82,039 7,317,584 7,403,760 9,796,154 5,291,894 5,243,574 6,976,687 659,285 826,010 746,960 125,563 109,754 145,070 614,126 523,359 1,007,485 0 0 0 0 0 0 426 430 463 626,290 700,633 919,489 7,317,584 7,403,760 9,796,154 127,282 257,674 400,840 22,585 45,756 71,697 3,513 7,192 11,338 153,380 310,622 483,875 42,158 85,356 135,549 63,289 127,894 201,293 90,091 182,728 282,582 1,548 5,695 12,086 1,385 2,478 5,330 81,140 165,283 263,636 54,208 111,559 174,123 33,027 67,962 174,123 0 0 0 0 0 0 33,027 67,962 105,172 .41 .84 1.28 .40 .82 1.25 5.31 5.36 5.31 26,134 22,598 39,227 167 0 4,146 2,964 2,948 2,938 17,176 16,586 28,659 71,865 71,865 71,865 5,320 11,946 19,236 3,127 5,199 6,732 72,873 72,466 82,039 49,259 48,558 52,881 0 0 0 23,614 23,908 29,158
EX-27.4 21 EX-27-4
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1995 10-K, AS RESTATED FOR TCF FINANCIAL CORPORATION'S ADOPTION OF SFAS NO. 128, EARNINGS PER SHARE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 DEC-31-1995 232,792 11,594 0 0 1,201,525 3,716 3,716 5,516,348 66,290 7,507,856 5,191,552 1,078,801 114,004 541,100 0 0 417 581,982 7,507,856 511,763 101,182 18,253 631,198 193,244 302,106 329,092 16,973 (21,189) 326,902 118,689 73,207 (963) 0 72,244 .89 .87 4.61 44,328 678 1,612 56,495 56,343 15,017 7,991 66,290 48,462 0 17,828
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