In 1985, William Cooper left Michigan National Corp. to try to salvage a Minneapolis thrift suffering under the burden of non-performing loans and high-cost debt.

A decade later, the problems that nearly choked TCF Financial Corp. into receivership have been sold or written off. Market capitalization is up to more than $750 million, and the stock of the $7.4 billion-asset thrift was trading recently at a nearly 70% premium over book value.

In February, TCF closed its $195 million acquisition of Great Lakes Bancorp, an Ann Arbor, Mich.-based thrift with $2.8 billion of assets.

"Michigan is our kind of market," said Mr. Cooper, TCF's chairman. "It looks like our marketing program works better there than it does in Minnesota."

In fact, Mr. Cooper said he expects the acquisition, which added more than 50% to TCF's asset base, will be the company's "engine" for future growth.

It helps that TCF has had experience recovering from the kind of problems that plagued Great Lakes. Like TCF, the Michigan thrift had what Steven Schroll, a bank analyst with Piper, Jaffray Inc. in Minneapolis, described as "horrendous credit problems." It also had an investment portfolio consisting of interest rate swaps, caps, and collateralized mortgage obligations.

"With Great Lakes, they bought an institution with the same problems that TCF had, just not as severe," said Mr. Schroll.

In fact, the problems at TCF were so bad when Mr. Cooper came on board that the thrift was about six months away from a regulatory takeover, Mr. Schroll said.

In both cases, the company had to take large writeoffs to get rid of mortgage-backed securities, to cancel swap positions, increase loan loss reserves, accelerate the decrease in nonperforming assets, and pay down borrowings.

"It was an expensive proposition to shrink the bank and get out of something I never thought was a good business in the first place," said Mr. Cooper. "We had to do two things at the same time: clean up the bank, and make the franchise do something."

Still, he said things were much better this time around. Besides having a proven recovery plan, management at Great Lakes had already started the recovery process, making TCF's task much easier.

"It's not like going into foreign territory," said Mr. Schroll. "They probably know that market as well as they do the Wisconsin and Minnesotamarkets."

Nonetheless, TCF had to take a $52 million charge against first-quarter earnings to get rid of the remainder of Great Lakes' problems. By comparison, TCF shed nearly $1.3 billion in assets through writeoffs and asset sales between 1985 and 1990. This included the writeoff of some $175 million in goodwill.

What TCF took from its own turnaround experience was further applied to the Great Lakes acquisition. "The lesson we've learned in doing these things is you have to get the systems stuff done first and quickly," Mr. Cooper said. "You have to get things into shape in the back room before your sales people can get running."

This meant setting up an automated teller network designed to serve the free checking and low-cost savings accounts that would replace higher-cost certificates of deposit used by TCF's previous management. As a result, the company's weighted average cost of funds was 3.98% during the first quarter, and these lower-cost funds now account for 48.9% of total deposits, compared with just 36% in 1988.

Like TCF, Great Lakes has had to quickly replace high-cost borrowings with low-cost deposits. In the first three months of 1995, Great Lakes opened 7,500 new checking accounts, nearly double the 4,000 opened in all of last year. And the company has signed a contract with Target Stores to put ATMs in all 25 of its Michigan locations.

On the asset side, the problems facing TCF when Mr. Cooper came in included a $1 billion commercial real estate portfolio. He set out to shed half of this portfolio and replace it with consumer and residential mortgage loans geared toward the company's blue-collar market.

Already, TCF is implementing this lending strategy in Michigan, where the company intends to open offices for its consumer finance subsidiary, TCF Finance. The unit supplies auto and second mortgage financings to borrowers with subpar credit. Currently, the subsidiary has about $250 million in total outstandings, with nearly half of this business coming from TCF Bank referrals.

So far, this product mix is winning favor, not only with higher lending volume, but also with a lower-than-expected loss ratio. Over the past 18 months, Mr. Cooper said, the company has charged off an average of 18 basis points of its loan portfolio.

"The concept that middle-income people, particularly in the Midwest, don't pay their loans is not true. Mom and Pop pay their bills if they can," he said. "It's a big proportion of the population that needs this kind of financing."

Piper Jaffray's Mr. Schroll estimates these efforts will generate $24.6 million in net income during 1995, including the $52 million charge in the first quarter. For next year, he estimates the thrift will have profits of $93.4 million.

Despite the outlet TCF provides for its middle class customers, Mr. Cooper said the market strategy needs to make sense financially. "It's not because we're good-hearted. It is simply a group that we don't think has been adequately served," he added.

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