TCF Financial Corporation
Annual Report 2000

Plain-text annual report

TCF Financial Corporation 200 Lake Street East Wayzata, MN 55391-1693 www.tcfexpress.com E In an effort to help save our natural resources, the cover and inside pages of this annual report are printed on paper stock made from 30% post-consumer waste and a total 50% recycled fiber content. This report is printed with vegetable-based inks. 2690-AR-01 Power Assets . Power Liabilities® . Top-Line Revenue Growth . Earnings Growth . Totally Free Checking . Home Equity Loans . Innovations . Student Banking . Campus Banking . Small Busines Banking . Check Card . Express Phone C Supermarket Banking Online Banking . Online Banking . Service . TCF Financial Corporation . Express TellerSM ATMs . Telephone Banking . A National Financial Holding Company . De Novo Expansio . Power Assets . Convenient Banking . Power Liabilities . Top-Line Revenue Growth Earnings per Share Growth . Totally Free Checking . Home Equity Loans . Leasing . Student Banking . Campus Banking . Small Business Banking . Express Phone Card . Online Banking . Supermarket Banking . Express Banking . Convenient Banking . Service . Express Teller ATMs . Telephone Banking . De Novo Expansion . Power Assets® . Power Liabilities . Top Line Revenue Growth . Earnings per Share Growth . Totally Free Checking . Home Equity Loans . Leasing . Check Card . TCF Express Phone Card . Small Business Bank Campus Banking . Student Banking . 2000 Annual Report . Super market Banking . Online Banking . Service . Convenient Banking. Service Liabilities Earnings per Share Growth . Leasing and Equipment Finance . Totally Express Teller ATMs . De Novo Expansion . Telephone Banking . Power Assets . Powe TCFIR9304 Free Checking . Home Equity Loans . Leasing . Student Banking . Campus ABOUT THE COVER Our cover is not just a list of banking terms; rather it is a composite of the ideas and ideals that have molded TCF Bank over the years. Beginning in the late 1980's, with the introduction of ŒTotally Free Checking• and home equity loans, TCF has defined itself as a bank of customer convenience. TCF banks everyone; our primary focus is lower- and middle-income customers and small to medium-sized businesses in our markets. Over the last 15 years we have introduced such convenient banking services as supermarket banking, ATMs, phone bank- ing and debit cards. In June of this year, we launched our online banking service. When we combine this suite of ser- vices with the fact that we are open 12 hours a day, holidays, seven days a week and 360 + days a year, we believe we are the most convenient bank in Minnesota, Illinois, Michigan, Wisconsin and Colorado. Our de novo expansion strategy of opening new branches and introducing new products and services is working. We have opened 164 branches over the last three years, and plan to continue with 30 to 40 branches in 2001. TCF's intro- duction of the TCF Express Phone Card was very successful, leading the way to an 18% increase in fee income. Our online banking service has already attracted over 25,000 customers. TCF's ongoing belief in the products and services listed on our cover is producing results. We are now listed among the top performing banks in the nation and have some of the highest performance ratios in the industry. TCF has posted record operating earnings for the last 10 years, and enjoyed a 79% increase in our stock price in 2000. T O T A L R E T U R N T O S H A R E H O L D E R S $1,800 TCF Financial Corporation SNL All Bank & Thrift Index S&P 500 1,500 1,200 900 600 300 0 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 Assumes $100 invested December 31, 1989 with dividends reinvested. Last Review December 1999 Last Rating Action Last Review November 1999 Outlook TCF Financial Corporation: Long-term counterparty Short-term counterparty TCF National Bank: Issuer: long-term Issuer: short-term Last Review December 2000 Credit Ratings Last Rating Action TCF Financial Corporation: Outlook Issuer TCF National Bank: Long-term deposits Other long-term senior debt Issuer Last Rating Action Outlook Individual ratings TCF Financial Corporation: Long-term senior Short-term TCF National Bank Long-term deposits Short-term obligations TCF Financial Corporation is a Wayzata, Minnesota based national financial holding com- pany with $11.2 billion in assets. TCF has more than 350 banking offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana. Other TCF affiliates provide leas- ing, mortgage banking, and annuity, insurance and mutual fund sales. T A B L E O F C O N T E N T S 1 Financial Highlights 2 Letter to Our Shareholders 12 Bank and Leasing Profiles 20 Philosophy of Banking 21 Financial Review 38 Consolidated Financial Statements 43 Notes to Consolidated Financial Statements 66 Independent Auditors' Report 67 Other Financial Data 72 Corporate Information 74 Shareholder Information F I N A N C I A L H I G H L I G H T S ( D o l l a r s i n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) 2000 1999 % Change At or For the Year Ended December 31, Operating Results: Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees and other revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . Top-line revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (pre-tax) . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Per Common Share Information: Basic earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted cash earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock price: High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tangible book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price to book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price to tangible book value . . . . . . . . . . . . . . . . . . . . . . . Financial Ratios: Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . Return on average realized common equity . . . . . . . . . . . . Cash return on average assets . . . . . . . . . . . . . . . . . . . . . . Cash return on average realized common equity . . . . . . . . Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average total equity to average assets . . . . . . . . . . . . . . . . . Total equity to total assets at year end . . . . . . . . . . . . . . . . Tangible equity to total assets at year end . . . . . . . . . . . . . . Realized tangible equity to total assets at year end . . . . . . . . $ $ $ 438,536 328,789 767,325 14,772 462,528 290,025 12,813 116,593 186,245 2.37 2.35 2.44 .825 45.56 18.00 44.56 11.34 9.29 393% 480 1.72% 21.53 1.79 22.40 4.35 7.58 8.13 6.66 6.75 $ $ $ 424,213 279,226 703,439 16,923 452,798 233,718 39,373 107,052 166,039 2.01 2.00 2.10 .725 30.69 21.69 24.88 9.87 7.78 252% 320 1.61% 19.83 1.69 20.79 4.47 7.93 7.59 5.98 6.42 3.4% 17.8 9.1 (12.7) 2.1 24.1 (67.5) 8.9 12.2 17.9 17.5 16.2 13.8 79.1 14.9 19.4 56.0 50.0 6.8 8.6 5.9 7.7 (2.7) (4.4) 7.1 11.4 5.1 (1) Excludes title insurance revenues, a business sold in 1999, and gains on sales of branches, subsidiaries, securities and loan servicing. ( D o l l a r s i n t h o u s a n d s ) 2000 1999 % Change At December 31, Balance Sheet Data: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . Other loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under repurchase agreements and federal funds purchased . . . . . . . . . . . . . . . . . . . . Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tangible equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Realized tangible equity . . . . . . . . . . . . . . . . . . . . . . . . . . Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . $11,197,462 134,059 1,403,888 3,673,831 4,872,868 153,239 11,183 6,891,824 1,085,320 1,891,037 207,888 910,220 745,798 755,666 80,289,033 $ $10,661,716 148,154 1,521,661 3,919,678 3,976,065 158,468 13,262 6,584,835 1,010,000 1,759,787 314,101 808,982 637,252 684,634 81,944,188 $ 5.0% (9.5) (7.7) (6.3) 22.6 (3.3) (15.7) 4.7 7.5 7.5 (33.8) 12.5 17.0 10.4 (2.0) 1 TCF c1 ar 3/5/01 12:32 PM Page 2 c1 ar 3/5/01 12:32 PM Page 2 c1 ar 3/5/01 12:32 PM Page 2 shares of stock at an average cost of $22.76 per share commercial and leasing credits), increased POWER in 2000). The stock price appreciation we experi- LIABILITIES® (core deposits) and flat non-interest enced in 2000 can be attributed to our superior expenses. I believe that TCF's philosophy of conve- performance, in addition to the market's accep- nient banking for customers from all economic lev- tance of our unique strategy of convenience bank- els, along with de novo expansion, new product ing and de novo expansion. Our price-to-earnings development, and our focus on core banking activ- ratio moved from 12.4x at year-end 1999 to 19x at ities, is a proven strategy that has worked well for year-end 2000, lifting TCF from a discount price- us in the past and will work well for us in the future. to-earnings ratio (as compared with our peers) to Top-Line Revenue TCF is one of the few banks that letter to our shareholders 2000 was another good year for TCF. We earned a of 1.79 percent and a return on average realized record $186.2 million in 2000, our 10th consec- common equity of 22.40 percent. utive year of record operating earnings. Our diluted Our stock closed at $44.56 per share at earnings per share increased 17.5 percent to $2.35. December 31, 2000, up from $24.88 per share at Return on average assets (ROA) was 1.72 percent, year-end 1999, an increase of 79 percent. Our and our return on average realized common equity annualized total return to investors over the past (RORE) was 21.53 percent. On a cash basis (per- ten years was over 40 percent. Our stock hit a low haps a better measure of performance), TCF earned of $18 in March of 2000, a buying opportunity that $2.44 per common share, a return on average assets we took advantage of (TCF purchased 3.2 million 2 TCF a premium ratio. We now rank ninth in the top 50 banks in price-to-earnings ratio. Year 2000's financial results were highlighted by solid top-line revenue growth, improved credit quality, increased POWER ASSETS has shown consistent top-line revenue growth. Top- line revenue, which consists of net interest income and fee income, was up $63.9 million for 2000, an increase of 9 percent. This is an important number ® (consumer, B R A N C H D E P O S I T S 1S U P E R M A R K E T Our 213 supermarket branches topped $1 billion in retail deposits in 2000. The bulk of these deposits are in low- cost checking accounts, contributing directly to our Power Liabilities and top-line revenue growth. We will continue to grow this high performance deposit base as we add to our supermarket branch network in 2001. b i l l i o n d o l l a r s 3 TCF c1 ar 3/5/01 12:32 PM Page 4 c1 ar 3/5/01 12:32 PM Page 4 c1 ar 3/5/01 12:32 PM Page 4 for us. It demonstrates that we are growing our core businesses, not just cutting expenses as many of our competitors are doing. We believe that growing busi- nesses generate premium price-to-earnings ratios. Growth in top-line revenue results from increas- ing Power Assets and Power Liabilities. Net interest income growth is driven by a changed balance sheet. Fee income growth is fueled by expanding the num- ber of fee income producing products and services while growing the overall customer base. TCF added nearly 100,000 new checking accounts in 2000, bringing our total to 1,131,000. We now have 1.1 mil- lion debit cards outstanding (the 16th largest Visa debit card issuer in the United States). TCF believes in attracting a large number of cus- Checking accounts are the cornerstone of our success, and the foundation upon which our customer relationships are built. With from the wealthiest 20 percent of the customer base. to our profitability. Unlike many of our competi- At TCF, a big number multiplied by a little num- tors, we do not believe in the old 80/20 rule which tomers from all economic levels. We believe that suggests that banks earn 80 percent of their profits each of these customers contributes incrementally Commercial lending, consumer lending, and leas- 1m i l l i o n + market account, our money market balances Through the introduction of a new, tiered money increased our checking account balances by over ing all produced at high levels for 2000. We Power Assets and Power Liabilities We enjoyed record the year, a 23 percent increase from year-end 1999. growth in our Power Assets, up $896.8 million for TCF's very profitable and growing deposit function De Novo Branch Expansion TCF believes in a de novo $290 million for the year, an increase of 15 percent. allows us to operate our loan portfolio with relatively more than 1 million checking account relationships, our opportu- nities to cross sell additional products and services are significant. C H E C K I N G A C C O U N T S style of expansion. Most successful retailers such as ber is a big number. low credit risk. increased by nearly $130 million. Wal-Mart®, Target®, etc. grow through de novo expan- Credit Quality Our credit quality is stronger now than sion. We have opened 164 branches in the last three it has been in the 15 years since I have been with TCF. years, bringing our overall branch network to 352. Net charge-offs were only $3.9 million in 2000, Many of these new branches are now becoming prof- compared with $26.4 million in 1999. We provided itable. The increasing profits from de novo expan- $14.8 million for credit losses in 2000 and increased sion generate revenue for future income, which funds our loan loss reserves by $10.9 million. Delinquencies continued expansion. By building our own branches, and non-performings are at very low levels. Good we have the opportunity to build in areas that pro- credit quality is related not only to the type of loans vide the most convenience for our targeted customers. on the balance sheet, but also the type of funding. 4 TCF 5 TCF c1 ar 3/5/01 1:04 PM Page 6 c1 ar 3/5/01 1:04 PM Page 6 c1 ar 3/5/01 1:04 PM Page 6 most successful. Over the last two years we have Supermarket Banking TCF now has the fourth largest introduced TCFExpress.com, our online banking ser- supermarket branch system in the United States, with vice, and TCF Leasing, Inc., among others. 213 supermarket branches. In 2000, supermarket In the first quarter of the year we introduced the deposits passed the $1 billion mark and ended the TCF Express Phone Card. This card works in con- year at $1.1 billion, an increase of 30 percent. Our junction with our already successful debit card. Our average interest rate on deposits in supermarket customers receive free long distance telephone min- branches is 2.73 percent. We continue to attract cus- utes for using the debit card. We awarded 38.6 mil- tomers through these convenient, full-service lion minutes to customers in 2000. This helped branches (most are open seven days a week, 12 hours the debit card earn $28.7 million in fees for the a day). Our supermarket branches opened over year 2000. In 2001 we will introduce TCF Express 76,000 net new checking accounts during 2000. As funds than paying the premiums of acquisition. The profitability (approximately two years for super- income statement faster than the dilution created internal rate of return on de novo expansion is one enough that de novo expansion is a better use of our market and three years for brick and mortar) fast through acquisition, but is ultimately more prof- itable. We believe we can grow these branches to t h In addition to our Innovative Products and Services assisted investing services. novo expansion beyond that. services continue to add to our success. Since our de novo banking strategy, innovative products and current management took over in 1985, we have is best for us. We plan to open another 30 to 40 Trade to provide our customers online and broker- branches in 2001, and have plans for additional de 4The cost of this expansion flows through the L A R G E S T I N S U P E R M A R K E T B A N K I N G our business strategy. Totally Free Checking, home provided our customers many new conveniences. Many of these innovations we invented. Others were existing products we modified and enhanced to fit equity loans, debit cards, annuity sales and, of course, supermarket branch banking have been our of the Œhurdle rates• we use to measure acquisitions. future, but currently we think the de novo strategy That is not to say we will not do an acquisition in the 6 TCF the de novo supermarket branches mature, we are selling customers other products as well. Fee income With 213 supermarket branches, TCF has the fourth largest super- market branch network in the United States. Customers find these branches to be a most conve- nient way to bank with us, simply by combining their shopping and financial needs into one stop. We plan to continue our supermarket branch expansion through the addition of more than 25 super- market branches in 2001. 7 TCF ar 2/28/01 2:16 PM Page 8 ar 2/28/01 2:16 PM Page 8 in these branches totaled $112 million for the year, TCF competes against much larger financial Our leasing and equipment finance companies experienced significant growth during 2000. New business for Winthrop Resources Corporation, TCF Leasing, Inc. and TCF Express Leasing increased 101 percent. or 10 percent of deposits. We have put consumer lenders in many of our supermarket branches and have proven to many doubters that you can make loans in these branches. We now have over $233 million in consumer loans that were originated in super- market branches, up 21 percent from 1999. We also sell our annuity and investment products in those branches where we have agents. It is clear to us that our supermarket banking strategy is working and is a significant factor in mak- ing TCF the most convenient bank in our markets. We plan to open 25 to 30 new supermarket branches in 2001 and more in the future. G R O W T H I N N E W B U S I N E S S institutions that have far greater resources. This is We are competing in an industry that in many both good news and bad news. The acquisition binge a strategy that, over time, has proven to slow down huge, lumbering organizations that cannot grow cases is still in a consolidation cost-take-out mode, that have recently realized the value of top-line rev- and compete. On the other hand, when you walk with elephants, you sometimes get stepped on. enue growth and low-cost deposits. They may in the banking industry has in many cases created revenue growth. Of greater concern are the banks We will see the results of the continued expansion of our sales force in 2001. to succeed we must move faster, create, design and 011p e r c e n t services. We must invest for the future, find and implement innovative and customized products and nurture good management and staff, and grow by taking reasonable and measured risks in the process. become more competitive in the future. In order allowed to offer. It is reasonable, then, to believe that the banking industry may have a down quarter or two with increased charge-offs. We believe that we are more insulated from this risk than most of the industry, but we are likely not immune. We continue to have a mutuality of interest with our shareholders. Our senior management and board of directors own approximately 6.4 million shares of TCF stock. In addition, 70.4 percent of our eli- gible employees participate in TCF's stock owner- ship plan, which at year end held 4.4 million shares. I believe I am still the largest individual shareholder, TCF has been very successful over the past 10 years of extensive change in the banking industry and in a strong U.S. economy. There are now signs of an economic slowdown, and recent legislation has changed the products and services banks are 8 TCF 9 TCF ar 2/28/01 2:23 PM Page 10 ar 2/28/01 2:23 PM Page 10 with just over 2 million shares. Our incentive plans investment opportunity. We consider the return are mostly stock based and continue to be based on from repurchasing TCF stock as another hurdle rate long-term growth in earnings per share. We remain for acquisitions. very optimistic about TCF's future prospects. Again this year we give special thanks to our hard- TCF repurchased 3.2 million shares (4 percent) working, responsive and dedicated Board of of its stock in 2000, and a total of 14.9 million Directors. Our Board consists largely of entrepre- shares (16 percent) since the beginning of 1998's neurial business people who also own TCF stock. stock repurchase program. While the number of We appreciate their continued guidance and sup- shares we buy remains subject to the availability of port. After nine years of dedicated service, Senator capital, we plan to continue repurchasing shares as Rudy Boschwitz retired from our Board in 2000. long as TCF stock remains our most attractive We appreciate his special abilities and leadership; he has contributed greatly to TCF's growth and we expect their insight and guidance to assist TCF strength over time. We regret that Robert Delonis, in our continued growth and success. retired TCF Board member and former chairman We also thank our outstanding team of employ- of Great Lakes National Bank Michigan, died on ees for their continued hard work and dedication. February 7, 2001. His contributions to TCF and to We are truly a bank of ordinary people achieving the local and national business community were extraordinary results. considerable. He will be missed. Thank you for your continued support and During 2000, we welcomed to our Board two investment in TCF. exceptional businessmen from Minneapolis, Richard F. (Pinky) McNamara, Chief Executive Officer of Activar, Inc., and Rodney P. Burwell, Chairman of Xerxes Corporation. Their entrepre- William A. Cooper neurial drive and spirit closely matches ours, and Chairman of the Board and Chief Executive Officer 10 TCF 11 TCF ar 2/28/01 2:26 PM Page 12 ar 2/28/01 2:26 PM Page 12 ar 2/28/01 2:26 PM Page 12 T H E I N N O V A T I V E S P I R I T In no vate, verb, 1. To introduce something new; make changes; to innovate on another's creation; 2. To introduce (something new); 3. To alter, to renew. Random House Webster's College Dictionary TCF believes that innovation and continuous improvement are key to an organization's success. In 2000 we created a process to boost the recognition of innovators at TCF. The central aim is to create a corporate culture that supports innovation and to provide an envi- ronment that fosters the values of freedom, tolerance, and individual initiative in a business setting. It is our hope that as these val- ues permeate the organization, new ideas and products will be produced. Ideas deemed most worthy of implementation will be selected and champions designated to move them forward. Some of TCF's most recent innovations include the very successful TCF Leasing, Inc. and the TCF Express Phone Card. LEASING TCF Leasing, one of TCF's newest de novo businesses, became profitable in less than one year. TCF first entered the leasing business with its acquisition of Winthrop Resources Corporation (Winthrop) in 1997. Winthrop specializes in leasing high-tech and business-essential equipment to large and middle-market companies throughout the United States. TCF Leasing was launched in September 1999 and focuses on general equipment financing for middle-market companies, trucks and trailers, specialty trucks, lease discounting, leveraged leasing and small ticket leasing. For this de novo start-up, we were fortunate to assemble an excel- lent team of experienced managers. From the back room processors to the leasing sales representatives on the street, TCF recruited knowl- edgeable, seasoned veterans from the leasing industry. Total assets since TCF Leasing's inception in September 1999 have grown to $506.1 million at December 31, 2000. Total unin- stalled backlog (where the transaction has been credit-approved but not yet accepted by the customer) over that same period has also grown tremendously, from $54.4 million at December 31, 1999 to $94 million at December 31, 2000. Fueled by these successes, TCF Leasing became profitable during its second full quarter of operation. TCF Leasing has quickly become a strong driver of prof- itability for TCF and has set an impressive pattern of growth. We attribute our success to the team of dedicated innovators who took an existing business model and molded it to fit TCF's strategies. Phone Cards issued I N N O V A T I O N S1m i l l i o n + The TCF Express Phone Card is the first of its kind to reward debit card use with telephone minutes … something of value that almost any customer can use. Customers accumulate free long distance time with every TCF Check Card purchase of $10 or more. In 2000, customers greatly increased their TCF Check Card usage and we awarded them more than 38 million free long-distance phone minutes. PHONE CARD The February launch of the TCF Express Phone Card customer loyalty program was another successful innovation. The TCF Express Phone Card rewards our checking account customers for using their TCF Check Cards to make merchant purchases. Each purchase earns free long distance minutes, which accumulate and can be used to make long-distance calls, courtesy of TCF. The TCF Express Phone Card was one of the first loyalty programs for debit card customers and one of the first in the nation to offer long dis- tance minutes. TCF selected phone minutes as a reward vehicle because of the appeal to a broad customer base. The TCF Express Phone Card is credited with accelerating Check Card use and increasing Check Card revenue. For 2000, TCF's Check Card revenue totaled $28.7 million, an increase of $9.1 million over the 1999 total. TCF is now the 16th largest issuer of Visa debit cards in the United States and our activation rate is higher than most of our competitors. Additionally, the Check Card has proven itself to be closely linked to customer retention. Continuing to offer customers rewards like the Express Phone Card for using the Check Card should have a long-term positive impact on the value of our customer relationships. TCF plans to refresh and enhance this suc- cessful program over time. TCF continues to foster a culture of innovation. In 2001 we'll introduce TCF Express Trade, our discount brokerage service. Additional ideas for new business opportunities will be generated, submitted and evaluated, and some will be implemented. In this way, TCF will continue to lead by encouraging, recognizing, and rewarding the innovative spirit. 12 TCF 13 TCF c1 ar 3/5/01 12:33 PM Page 14 c1 ar 3/5/01 12:33 PM Page 14 c1 ar 3/5/01 12:33 PM Page 14 P O W E R A S S E T S ® & P O W E R L I A B I L I T I E S ® At TCF, Power Assets and Power Liabilities, which we call Power Businesses, drive the earnings for the Company. We have for some time realized that the ability to generate and retain low interest-cost deposits; checking, savings, money market accounts and certificates, has a significant influence on our net income. Our 352-branch system was successful in producing a net increase of 99,000 checking accounts in 2000, which brought our total number of checking accounts to 1.1 million. This is truly the strength of the TCF franchise. When we introduced our Check Card in 1997 we were able to get over one million cards in circulation in a short period of time. These Check Cards produced $28.7 million of fee income in 2000. Once the checking account is opened, we have the ability to sell these new customers all of our other convenience products. This has resulted in $2.2 billion in checking accounts, $1 billion in savings, $837 mil- lion in money markets and $2.8 billion in certificates of deposit. Our Power Liabilities totaled $6.9 billion at year-end 2000, up $307 million from 1999. The additional benefit of having a growing base of low-cost, profitable deposits is that when we underwrite our Power Assets, we do not have to take unadvisable credit risks as we approve and close our loans. Our consumer lending, commercial lending and leasing and equipment finance divisions all produced at very high levels in 2000. Consumer loans „ our largest Power Asset category at $2.2 billion „ had originations of $1.1 billion dollars during 2000 and outstand- ings increased $175.6 million. The introduction of tiered pricing has allowed us to increase our loan-to-value ratios and lower our pric- ing on home equity loans, while keeping our overall consumer loan charge-offs (12 basis points of average outstandings for 2000) and delinquencies to a level below the national average for banks. Our commercial division also had a great year. Commercial loans, which consist of corporate loans and commercial real estate loans, had $768 million in originations and increased outstanding balances by $357.4 million during 2000. This was led by our com- mercial real estate group, which increased their outstandings by $298.4 million. We were able to team up with some excellent large commercial developers on projects that met our underwriting stan- dards. Our commercial business team also increased in outstand- ings. More importantly, they were able to exit some deteriorating, non-profitable credits this year without taking a loss. It has been four years since we had a quarter where we took a net loss in com- mercial lending. P O W E R L I A B I L I T I E S A N D P O W E R A S S E T S2dollars in home b i l l i o n equity outstandings We now have more than $2 bil- lion in home equity loans throughout the areas we serve. Our lending program in our supermarket branches is proving to be very successful … more than $233 million of these loans have been originated in our supermarket branches alone. Our newest entrant to Power Assets, leasing and equipment finance, had a strong year. Winthrop, our high-tech and business essen- tial equipment leasing arm, continued to produce excellent results. TCF Leasing, which consists of truck and trailer, specialty trucks, middle market, lease discounting, leveraged leasing and small ticket leases, had an exceptional year of production and increased their outstandings by $424.4 million. Leasing has slightly higher charge-off and delinquency rates than our other Power Asset businesses. We continue to closely mon- itor our quickly growing portfolio. Our charge-offs of 33 basis points of average outstandings for 2000 and delinquencies of 1.83 percent at year-end 2000 are well within industry averages. Power Assets and Power Liabilities currently make up 52.5 per- cent of our balance sheet, but produce 94.4 percent of our net income and 98.6 percent of our fees. To the extent that we can con- tinue to replace residential mortgages and mortgage-backed secu- rities with Power Assets, and borrowings with Power Liabilities, our operating earnings should continue to improve. 14 TCF 15 TCF ar 2/28/01 2:34 PM Page 16 ar 2/28/01 2:34 PM Page 16 ar 2/28/01 2:34 PM Page 16 D E N O V O E X P A N S I O N C O N V E N I E N C E We believe that de novo expansion is less expensive and more profitable in the long run compared with acquisitions. Over the past We believe TCF is ŒThe Most Convenient Bank• in the markets we serve. 10 years our consistent de novo strategy has paid off; TCF has 352 branches in six states. We plan to open 30 to 40 additional branches Providing convenient banking services to customers means delivering a full range of banking products and services whenever, wher- in 2001. Despite industry trends to the contrary, TCF has focused on providing customers with convenient branch locations and extended ever, and in whatever way best suits their unique needs. During 2000 TCF added to its convenience offerings by introducing hours. This has helped us expand our customer base significantly. We have added 359,000 checking customers since January 1, 1998. TCFExpress.com, our online banking service. At TCFExpress.com customers can access account information, transfer funds between Our largest and most recent expansion effort has been in partnership with Jewel-Osco® in the ŒLakeshore Region• spanning the Chicago accounts and pay bills online. In 2001 we will greatly expand our traditional online service capabilities with the introduction of TCF to Milwaukee corridor. Over 75 percent of Chicago households shop at Jewel a minimum of once per month. Jewel has consistently main- Express Trade, our discount brokerage service. tained an estimated 38 percent market share of the more than 8,000,000 plus Chicagoland household population. Jewel's presence Also in 2000, TCF installed a new, state-of-the-art automated phone system. TCF customers appreciate the easy, convenient way provided us with immediate brand recognition for TCF and access to their over 2,000,000 Jewel Preferred customer households. they can obtain account information, transfer funds and order checks over the phone. In fact, our customers called a total of 31 mil- One key to making supermarket banking a success is partnering with a grocery store group that understands the value of having lion times last year. Our new system positions us to continue to expand the services we provide via the telephone. a bank in their stores. Both of our largest supermarket partners, Jewel-Osco and Cub® Foods, have demonstrated a strong commit- TCF's Check Card enjoyed continued outstanding success in 2000. TCF customers used their cards 51 million times to make pur- ment to our partnerships. chases at merchant locations. With the introduction of the TCF Express Phone Card loyalty program, our customers are using their cards Another key to successful supermarket banking is providing customers with the innovative products and services they need in a even more frequently. timely, convenient way. Having the right product mix enhances TCF's strong sales efforts and maximizes the percent of market share TCF continues to provide customers convenient banking services at our network of 1,384 Express Teller ATMs. The size of our off- we can attract. Once a customer has opened one TCF account, we have had excellent results selling additional products and services. site ATM network compares favorably with those of banks three to four times our size. TCF customers are able to deposit, transfer and A third key to successful expansion in supermarket or brick and mortar branches is understanding the infrastructure required to obtain cash without service charges simply by using one of our easy-to-spot Express Teller ATMs. support the branches and provide convenient customer service. We are available for our customers seven days a week, 12 hours a day, A hallmark of TCF's ongoing commitment to customer convenience is the way we operate our branches, both brick and mortar and 360+ days a year. We encourage our customers to come in and see our representatives whether it is to make a deposit, open a new supermarket branches. Doing business at a branch is both convenient and important for many of our customers. In our supermarket account or resolve a question. branches, we are open seven days a week, 360+ days per year with extended hours not offered by our competitors. Like retailers, we're Within the next few years we anticipate that our de novo supermarket branch expansion will slow down and that our expansion open most holidays, when we find many of our customers want to bank. strategy will move more towards traditional brick and mortar branches. We believe there are excellent opportunities for this type of Convenience is truly a customer-by-customer defined service, whether it's over the phone, at an ATM, online, or visiting a teller. TCF will continue de novo expansion in all of our states during 2001. We are committed to being the most convenient bank in each expansion in all of our states. of our markets. n d D E N O V O E X P A N S I O N 2With 168 branches open at year-end 2000, TCF had the second largest bank branch network in the Chicagoland area. largest network 16 TCF At TCF, we will continue to listen to our customers and provide the banking services they want and need. C O N V E N I E N C E online banking services like TCFExpress.com, a day, seven days week and most holidays. From of convenience. That's why we're open 12 hours Everything we do at TCF revolves around the idea way our customers want it.7days a week branch network, TCF provides convenience the to our Express Teller ATMs and our extensive 17 TCF ar 2/28/01 2:38 PM Page 18 ar 2/28/01 2:38 PM Page 18 ar 2/28/01 2:38 PM Page 18 G E O G R A P H I C S T R U C T U R E T C F = T H E C U S T O M E R F I R S T We have always held the belief that the best decisions for local issues are made by local executives. These managers are held respon- TCF is a results oriented company. Our strategy for growth through de novo expansion and new business development in key markets sible for local business decisions, business development initiatives, customer relations and community involvement. continues to be successful. Equally important to us is our focus on delivering great service to customers and consistent returns to In Minnesota we continue to emphasize growth in our higher-yielding commercial and consumer loans, and to increase and cul- our shareholders. tivate our low interest-cost checking account base. This mature franchise has been open since 1923. Our plan is to add new branches TCF recognizes the importance and value of continually exceeding our customers' expectations. We also know the value to our in growing population areas and to hire and nurture commercial and consumer lenders. employees of being recognized and rewarded for delivering great service to our customers. Employee and customer satisfaction go The Lakeshore Region in Illinois, Wisconsin and Indiana is looking forward to its first full year under our new management struc- hand-in-hand. It is no wonder that companies that continually achieve high levels of customer satisfaction and shareholder ture. This structure combines the Power Liabilities generating force in Illinois with the asset producing capabilities of Wisconsin. returns are also those companies that have high employee satisfaction. The Lakeshore Region has the most branches and the largest population of any of our markets and has the potential to become the Two keys to successful customer service programs are to set clear, understandable expectations and to communicate them con- largest part of our franchise. We have installed our most experienced management team to tap that potential and bring TCF's prod- stantly. TCF's program includes publishing service expectations and reinforcing them on a day-to-day basis. Our service standards ucts and services to this region. are simple and straightforward, reflecting exactly what our customers expect: Our Michigan management team has an asset production background. They will work to continue the growth in both commercial and consumer lending while looking for locations for new branches to expand our current footprint. There are many areas in the greater Detroit metropolitan area in which we do not have a presence. Detroit represents one of our best opportunities for expansion in the future. The Colorado franchise is building new brick and mortar branches to complement their supermarket branch system. One new brick and mortar branch was added in late 2000. We look at the Denver and Colorado Springs areas as excellent prospects for future growth. Give each customer undivided attention. Follow up on all customer requests … and quickly. Resolve customer issues promptly. Maintain a positive attitude and positive behavior. Thank the customer for their business. With the results we have seen, it is clear that TCF's system of offering convenient services and products will work in these cities. We plan At TCF, we encourage employees to always achieve and exceed customer expectations. With the right culture, training and com- munications in place to reinforce our message, we will see continued improvement in our service levels. to open two additional brick and mortar branches in 2001 and open supermarket branches as opportunities become available. G E O G R A P H I C A L M A N A G E M E N T S T R U C T U R E6s t a t e s TCF has seasoned local management teams in each region that we serve. local level, and we prove it time and again in our daily decision making. customer relations and community involvement are made best at the We believe that decisions regarding local business, business development, 18 TCF At TCF, The Customer truly is First. T H E C U S T O M E R F I R S T Our customers come first at TCF. products and excellent customer service.1s t are built on the foundation of outstanding mind. Long-term customer relationships designed with our customers' lifestyles in ATMs, branch hours, locations … are all Everything we offer … our products, 19 TCF C O R P O R A T E P H I L O S O P H Y F I N A N C I A L R E V I E W • TCF’s primary focus is lower- and middle-income customers and • TCF is currently growing primarily through de novo expansion The financial review presents management’s discussion and analy- network. See “Financial Condition – Deposits.” TCF entered the sis of the consolidated financial condition and results of operations leasing business through its 1997 acquisition of Winthrop Resources of TCF Financial Corporation (“TCF” or the “Company”). This Corporation (“Winthrop”), a leasing company that leases com- small to medium-sized businesses in our markets. We empha- rather than acquisition. We are growing by starting new busi- review should be read in conjunction with the consolidated finan- puters and other business-essential equipment to companies size convenience in banking, by being open 12 hours a day, hol- nesses, opening new branches and offering new products and idays and seven days a week. We provide customers targeted, services. innovative products through multiple banking channels. These include: traditional and supermarket branches, ATMs, debit cards, and computer and phone banking. • TCF operates like a partnership, organized geographically and by function, with profit center goals and objectives, empha- sizing return on average assets, return on average equity, and earnings per share growth. We know which products are prof- • TCF believes interest-rate risk should be minimized. Interest rate speculation does not generate consistent profits and is high risk. • TCF is primarily a secured lender and emphasizes credit qual- ity over asset growth. The costs of poor credit far outweigh the benefits of unwise asset growth. itable and contribute to these goals. Local geographic man- • TCF places a high priority on the development of technology agers are responsible for local business decisions, business to enhance productivity, customer service, and new products. development initiatives, customer relations, and community Properly applied technology increases revenue, reduces costs, involvement. Managers are incented to achieve these goals. and enhances service. We centralize paper processing and • TCF focuses on growing its large number of low interest-cost decentralize the banking process. checking accounts by offering convenient products, such as • TCF encourages open employee communication. TCF promotes cial statements and other financial data beginning on page 38. nationwide. The Company expanded its leasing operations in C O R P O R A T E P R O F I L E TCF is the national financial holding company of two federally chartered banks, TCF National Bank headquartered in Minnesota and TCF National Bank Colorado. The Company has 352 bank- ing offices in Minnesota, Illinois, Michigan, Wisconsin, Colorado and Indiana. Other affiliates provide leasing, mortgage banking, and annuity, insurance and mutual fund sales. TCF provides convenient financial services through multiple channels to customers located primarily in the Midwest. TCF has developed products and services designed to meet the needs of all consumers with a primary focus on middle- and lower-income individuals. The Company focuses on attracting and retaining cus- tomers through service and convenience, including branches that are open seven days a week and on most holidays, extensive full- service supermarket branch and automated teller machine (“ATM”) networks, and telephone and Internet banking. TCF’s philoso- phy is to generate top-line revenue growth (net interest income and fees and other revenues) through business lines that empha- size higher yielding assets and lower interest-cost deposits. The September 1999 through TCF Leasing, Inc. (“TCF Leasing”), a de novo general equipment leasing business with a focus on mid- dle-market companies, truck and trailer leasing and financing and lease discounting. See “Financial Condition – Loans and Leases.” These businesses are among TCF’s fastest growing operations. The Company’s VISA debit card program has also grown significantly since its inception in 1996. TCF is the 16th largest VISA debit card issuer in the United States according to VISA, with over 1 million cards outstanding. TCF’s strategic initiatives are businesses that complement the Company’s core and emerging businesses. TCF’s new products have been significant contributors to the growth in fees and other revenues generated by checking accounts and loan products. Currently, TCF’s strategic initiatives include several new card prod- ucts designed to provide additional convenience to deposit and loan customers and to further leverage its ATM network. The Company is also planning to launch a discount brokerage busi- ness and additional insurance products in 2001. R E S U L T S O F O P E R A T I O N S Company’s growth strategies include de novo branch expansion and the development of new products and services designed to build Performance Summary – TCF reported net income of $186.2 million for 2000, up from $166 million for 1999 and $156.2 mil- the Totally Free Checking account product. TCF uses this from within whenever possible and places the highest priority on its core businesses and expand into complementary products lion for 1998. Diluted earnings per common share was $2.35 for account as its core deposit account to build additional cus- on honesty, integrity, and ethical behavior. tomer relationships. • TCF believes in community participation, both financially and • TCF earns most of its profits from the deposit side of the bank. through volunteerism. We feel a responsibility to help those We accumulate a large number of low interest-cost accounts less fortunate. • TCF does not discriminate against anyone in employment or the and services through emerging businesses and strategic initiatives. 2000, compared with $2.00 for 1999 and $1.76 for 1998. Return TCF’s core businesses are comprised of traditional bank on average assets was 1.72% in 2000, compared with 1.61% in branches, ATMs, and commercial, consumer and mortgage lend- 1999 and 1.62% in 1998. Return on average realized common ing. TCF emphasizes the “Totally Free” checking account as its equity was 21.53% in 2000, compared with 19.83% in 1999 and anchor account, which provides opportunities to cross sell other 17.51% in 1998. Diluted cash earnings per common share, which account relationships and generate additional fee income. TCF’s excludes amortization and reduction of goodwill net of applica- strategy is to originate high credit quality, primarily secured loans ble income tax benefits, was $2.44 for 2000, compared with $2.10 and earn profits through lower interest-cost deposits. Commercial for 1999 and $1.88 for 1998. On the same basis, cash return on loans are generally made on local properties or to local customers, average assets was 1.79% for 2000, compared with 1.69% for 1999 through convenient services and products targeted to a broad range of customers. As a result of the profits we earn on the deposit business, we can minimize credit risk on the asset side. • TCF encourages stock ownership by our officers, directors and employees. We have a mutuality of interest with our share- holders, and our goal is to earn above-average returns for our shareholders. 20 TCF extension of credit. As a result of TCF’s community banking phi- and are virtually all secured. TCF’s largest core lending business and 1.74% for 1998, and cash return on average realized common losophy, we market to all of the customers in our communities. is its consumer home equity loan portfolio, comprised of fixed- equity was 22.40% for 2000, compared with 20.79% for 1999 and variable-rate closed-end loans and lines of credit. and 18.74% for 1998. TCF’s emerging businesses and products are comprised of TCF has significantly expanded its banking franchise in recent supermarket bank branches, including supermarket consumer periods and had 352 banking branches at December 31, 2000. In lending, and leasing and equipment finance, debit cards, and the past three years, TCF opened 164 new branches, of which 154 Internet and college campus banking. TCF’s most significant de were supermarket branches. This expansion includes TCF’s January novo strategy has been its supermarket branch expansion. The 1998 acquisition of 76 branches and 178 ATMs in Jewel-Osco Company opened its first supermarket branch in 1988, and now stores in the Chicago area. TCF anticipates opening between 30 has 213 supermarket branches, with more than $1 billion in and 40 new branches during 2001, including 25 to 30 super- deposits. TCF has the nation’s fourth largest supermarket branch market branches and 5 to 10 traditional branches. 21 TCF In December 1998, TCF restructured its consumer finance up 35% from $28.5 million in 1999. Non-interest expense The following table presents TCF’s average balance sheets, interest and dividends earned or paid, and the related yields and rates on major company operations, including the discontinuation of indirect (excluding the amortization of goodwill) totaled $25.8 million in categories of TCF’s interest-earning assets and interest-bearing liabilities: automobile lending, the consolidation of offices and a renewed 2000, up 35.4% from $19.1 million in 1999. These increases focus on home equity lending. During 1999, $139.4 million of reflect the $363.8 million, or 73.8%, increase in TCF’s leasing consumer finance automobile loans and $14.8 million of related and equipment finance portfolio during 2000. As previously reserves were transferred to loans held for sale in connection with noted, TCF expanded its leasing operations in September 1999 the sales of these loans. Losses of $1.4 million were recognized in through TCF Leasing, a de novo leasing business. connection with these sales, which are included in gain on sales of loans held for sale. Operating Segment Results – Banking, leasing and equip- ment finance and mortgage banking comprise TCF’s reportable Mortgage Banking Mortgage banking activities include the origination and purchase of residential mortgage loans, generally for sale to third parties with servicing retained. This operating segment reported net operating segments. The following summarizes the 2000 and 1999 income of $1.2 million for 2000, compared with a net loss of $1.1 results for these segments. Banking Banking, comprised of deposits and investment products, com- mercial lending, consumer lending, residential lending and trea- sury services, reported net income of $164.3 million for 2000, up 8.4% from $151.5 million in 1999. Net interest income for 2000 was $397.9 million, essentially flat with 1999. The provi- sion for credit losses totaled $9.6 million in 2000, down from $15.1 million in 1999. The decrease reflects a reduction in pro- visions recognized in connection with TCF’s discontinued con- sumer finance automobile lending activity. Non-interest income (excluding title insurance revenues, a business TCF sold in 1999, and gains on asset sales) totaled $274.4 million, up 17.8% from $233 million in 1999. This improvement was primarily due to increased fees and service charges and electronic funds transfer revenues, reflecting TCF’s expanded retail banking operations and customer base. Non-interest expense (excluding the amortization of goodwill and deposit base intangibles) totaled $398.9 million, up 1.2% from $394.3 million in 1999. The increase was primar- ily due to the costs associated with TCF’s continued retail bank- ing expansion, including de novo supermarket branches, offset by cost savings from discontinued businesses and sales of underper- forming branches. Leasing and Equipment Finance Leasing and equipment finance, an operating segment comprised of TCF’s wholly owned subsidiaries Winthrop and TCF Leasing, provides a broad range of comprehensive lease and equipment finance products. This operating segment reported net income of $23 million for 2000, up 19.1% from $19.4 million in 1999. Net interest income for 2000 was $30.4 million, up 20.6% from $25.2 million in 1999. Leasing and equipment finance’s provi- sion for credit losses totaled $5.2 million in 2000, up from $1.9 million in 1999, primarily as a result of the significant growth in the portfolio. Non-interest income totaled $38.5 million in 2000, million for 1999. Non-interest income (excluding gains on sales of loan servicing) totaled $25.5 million, up 16.8% from $21.8 million in 1999. This increase is primarily due to a $5.6 million increase in service fees on mortgage loans. During 2000, TCF purchased the bulk servicing rights on $933 million of residen- tial mortgage loans. In addition, the inter-segment residential loan service fee charged to the banking segment was increased to a market rate in 2000. Non-interest expense totaled $29.2 mil- lion, down 10.3% from $32.6 million in 1999. During 2000, TCF’s mortgage banking operation consolidated and streamlined its operations in various states. TCF’s mortgage banking opera- tion periodically purchases and sells loan servicing rights depend- ing on market conditions. C O N S O L I D A T E D I N C O M E S T A T E M E N T A N A L Y S I S Net Interest Income – Net interest income, which is the dif- ference between interest earned on loans and leases, securities available for sale, investments and other interest-earning assets (interest income), and interest paid on deposits and borrowings (interest expense), represented 56.2% of TCF’s revenue in 2000. Net interest income 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, loan pricing strategies and competitive condi- tions, the volume and the mix of interest-earning assets and inter- est-bearing liabilities, and the level of non-performing assets. Net interest income was $438.5 million for the year ended December 31, 2000, compared with $424.2 million in 1999 and $425.7 million in 1998. This represents an increase of 3.4% in 2000, compared with a decrease of .4% in 1999 and an increase of 8.2% in 1998. Total average interest-earning assets increased 6.1% in 2000, following increases of 7.9% in 1999 and 16.2% in 1998. The net interest margin for 2000 was 4.35%, compared with 4.47% in 1999 and 4.84% in 1998. 22 TCF Year Ended December 31, 2000 Year Ended December 31, 1999 Year Ended December 31, 1998 Average Balance Yields and Interest(1) Rates Average Balance Interest(1) Yields and Rates Average Balance Interest(1) Yields and Rates $ 139,840 $ 10,041 7.18% $ 142,494 $ 9,411 6.60% $ 161,239 $ 10,356 6.42% 1,500,225 220,560 99,185 17,130 6.61 7.77 3,860,025 1,195,985 367,072 2,139,135 275,124 103,181 33,483 218,577 7.13 8.63 9.12 10.22 1,689,257 199,073 3,808,062 933,227 341,378 1,971,069 111,032 13,367 266,653 78,033 27,425 199,103 6.57 6.71 7.00 8.36 8.03 10.10 1,359,698 197,969 3,687,579 831,287 263,257 1,922,943 93,124 14,072 267,916 73,546 22,169 218,837 6.85 7.11 7.27 8.85 8.42 11.38 650,616 69,960 10.75 410,245 47,077 11.48 378,824 48,874 12.90 8,212,833 700,325 8.53 7,463,981 618,291 10,073,458 773,799 $ 10,847,257 826,681 8.21 752,101 9,494,805 798,494 $10,293,299 $ 1,328,932 $ 1,177,723 739,429 1,036,861 758,240 2,824,456 4,391 11,571 25,139 155,993 5,358,986 6,687,918 197,094 197,094 925,004 1,888,892 163,758 121,048 3,098,702 58,652 109,385 14,004 9,010 191,051 .59 1.12 3.32 5.52 3.68 2.95 6.34 5.79 8.55 7.44 6.17 711,440 1,111,104 728,522 2,888,968 5,440,034 6,617,757 4,043 12,435 19,074 139,943 175,495 175,495 529,359 1,821,172 171,997 151,430 2,673,958 28,610 100,454 13,830 9,499 152,393 8,457,688 388,145 4.59 8,113,992 327,888 9,786,620 238,047 10,024,667 822,590 $ 10,847,257 388,145 3.97 327,888 9,291,715 185,393 9,477,108 816,191 $10,293,299 8.28 7.92 .57 1.12 2.62 4.84 3.23 2.65 5.40 5.52 8.04 6.27 5.70 4.04 3.53 7,083,890 631,342 8,802,796 826,741 $9,629,537 $1,017,245 666,956 1,130,067 700,400 3,249,742 5,747,165 6,764,410 748,894 6,207 18,305 20,496 167,484 212,492 212,492 140,414 1,367,104 205,393 92,467 1,805,378 7,863 79,237 16,744 6,824 110,668 7,552,543 323,160 323,160 8,569,788 159,292 8,729,080 900,457 $9,629,537 8.91 8.51 .93 1.62 2.93 5.15 3.70 3.14 5.60 5.80 8.15 7.38 6.13 4.28 3.77 $ 438,536 $424,213 $425,734 4.35% 4.47% 4.84% ( D o l l a r s i n t h o u s a n d s ) Assets: Investments . . . . . . . . . . . Securities available for sale (2) . . . . . . . . . . Loans held for sale . . . . . . Loans and leases: Residential real estate . . Commercial real estate . Commercial business . . Consumer . . . . . . . . . Leasing and equipment finance . . . . . . . . . Total loans and leases (3) Total interest- . . . . . . earning assets Other assets (4) . . . . . . . . . Total assets . . . . . . . . . Liabilities and Stockholders’ Equity: Non-interest bearing deposits . . . . . . . . . . . Interest-bearing deposits: Checking . . . . . . . . . . Passbook and statement . Money market . . . . . . . Certificates . . . . . . . . . Total interest- bearing deposits . Total deposits . . . Borrowings: Securities sold under repurchase agree- ments and federal funds purchased . . . FHLB advances . . . . . . Discounted lease rentals . Other borrowings . . . . Total borrowings . . Total interest- bearing liabilities . . . Total deposits and borrowings . . . . Other liabilities (4) . . . . . . Total liabilities . . . . . . Stockholders’ equity (4) . . . Total liabilities and stockholders’ equity . Net interest income . . . . . Net interest margin . . . . . (1) Tax-exempt income was not significant and thus has not been presented on a tax equivalent basis. Tax-exempt income of $181,000, $189,000 and $147,000 was recognized during the years ended December 31, 2000, 1999 and 1998, respectively. (2) Average balance and yield of securities available for sale are based upon the historical amortized cost. (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. 23 TCF The following table presents the components of the changes in net interest income by volume and rate: and rates was partially offset by decreased consumer finance auto- mercial business loan and lease financing volumes, decreased vol- Year Ended December 31, 2000 Versus Same Period in 1999 Increase (Decrease) Due to Year Ended December 31, 1999 Versus Same Period in 1998 Increase (Decrease) Due to ( I n t h o u s a n d s ) Volume(1) Rate(1) Volume(1) Rate(1) Total $ (1,229) $ 284 $ (945) Investments . . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . Loans and leases: Residential real estate . . . . . . . . . . Commercial real estate . . . . . . . . . Commercial business . . . . . . . . . . Consumer direct . . . . . . . . . . . . . Consumer finance automobile . . . Leasing and equipment finance . . . Total loans and leases . . . . . . . . Total interest income . . . . . Deposits: Checking . . . . . . . . . . . . . . . . . . . Passbook and statement . . . . . . . . . Money market . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . Borrowings: Securities sold under repurchase agreements and federal funds purchased . . . . . . FHLB advances . . . . . . . . . . . . . . . Discounted lease rentals . . . . . . . . Other borrowings . . . . . . . . . . . . . Total borrowings . . . . . . . . . . . Total interest expense . . . . . Net interest income . . . . . . . . . . . . . . $ (179) $ (12,518) 1,528 3,588 22,560 2,161 28,524 809 671 2,235 4,883 2,588 3,897 7,606 Total 630 $ (11,847) 3,763 8,471 25,148 6,058 36,130 (16,512) (144) (16,656) 26,046 66,367 55,198 184 (864) 804 (3,187) (3,063) 24,367 3,857 (680) (2,089) 25,455 22,392 (3,163) 15,667 19,382 164 – 5,261 19,237 24,662 5,675 5,074 854 1,600 13,203 37,865 22,883 82,034 74,580 348 (864) 6,065 16,050 21,599 30,042 8,931 174 (489) 38,658 60,257 21,839 79 8,728 8,704 6,323 20,619 (23,019) 3,851 25,206 45,895 388 (303) 803 (17,858) (16,970) 21,038 25,209 (2,691) 3,825 47,381 30,411 (3,931) (784) (9,991) (4,217) (1,067) (13,067) (4,267) (5,648) (38,257) (42,688) (2,552) (5,567) (2,225) (9,683) (20,027) (291) (3,992) (223) (1,150) (5,656) (25,683) $ (17,005) 17,908 (705) (1,263) 4,487 5,256 7,552 (27,286) (1,797) (13,051) 3,207 (2,164) (5,870) (1,422) (27,541) (36,997) 20,747 21,217 (2,914) 2,675 41,725 4,728 $ (1,521) $ 32,806 $ (18,483) $ 14,323 $ 15,484 (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. Changes in net interest income are dependent upon the move- of lower cost funds for TCF, is intense. TCF may also experience ment of interest rates, the volume and mix of interest-earning compression in its net interest margin if the rates paid on deposits assets and interest-bearing liabilities, and the level of non-per- increase, or as a result of new pricing strategies and lower rates forming assets. Achieving net interest margin growth is dependent offered on loan products in order to respond to competitive con- on TCF’s ability to generate higher-yielding assets and lower- ditions. See “Financial Condition – Market Risk – Interest-Rate interest cost retail deposits. If variable index rates (e.g., prime) Risk” and “Financial Condition – Deposits.” were to decline, TCF may experience additional compression of In 2000, TCF’s net interest income increased $14.3 million, its net interest margin depending on the timing and amount of or 3.4%, and total average interest-earning assets increased by any reductions, as it is possible that interest rates paid on retail $578.7 million, or 6.1%, compared with 1999 levels. TCF’s net deposits will not decline as quickly, or to the same extent, as the interest income improved by $32.8 million due to volume changes decline in the yield on interest-rate-sensitive assets such as vari- and decreased $18.5 million due to rate changes. The favorable able-rate home equity and commercial loans. Competition for impact of the growth in consumer volumes and rates, leasing and checking, savings and money market deposits, important sources equipment finance volumes, and commercial real estate volumes mobile and securities available for sale volumes and increased secu- umes of securities sold under repurchase agreements and federal rities sold under repurchase agreement volumes. Interest income funds purchased and decreased rates paid on interest-bearing lia- increased $74.6 million in 2000, reflecting increases of $55.2 bilities was partially offset by decreased yields on securities avail- million due to volume and $19.4 million due to rate changes. able for sale and consumer and residential real estate loans, and Interest expense increased $60.3 million in 2000, reflecting increased certificate of deposit and Federal Home Loan Bank increases of $37.9 million due to a higher cost of funds and $22.4 (“FHLB”) advance volumes. TCF’s net interest margin for 1998 million due to volume. The increase in net interest income due was negatively impacted by Standard’s lower net interest margin, to volume changes reflects the increase in total average interest- loan prepayments and purchases of mortgage-backed securities. earning assets and an increase in the balance of non-interest bear- Interest income increased $66.3 million in 1998, reflecting an ing deposits. The decrease in net interest income due to rate increase of $92.4 million due to volume, partially offset by a changes reflects a higher cost of funds. decrease of $26.1 million due to rate changes. Interest expense In 1999, TCF’s net interest income decreased $1.5 million, or increased $34.1 million in 1998, reflecting an increase of $44.8 .4%, and total average interest-earning assets increased by $692 million due to volume, partially offset by a decrease of $10.6 mil- million, or 7.9%, compared with 1998 levels. TCF’s net interest lion due to a lower cost of funds. income improved by $15.5 million due to volume changes. The increase in net interest income due to volume reflects the increase in total average interest-earning assets. Net interest income decreased $17 million due to rate changes in 1999, reflecting loan prepayments and the discontinuation of TCF’s higher-yielding consumer finance business. TCF’s 1999 net interest income and net interest margin were negatively impacted, as compared with 1998, by $17.4 million or 11 basis points due to the discontinua- tion and sale of TCF’s higher-yielding consumer finance auto- mobile business. The unfavorable impact of the discontinuation of TCF’s consumer finance automobile business, decreased yields on loans and leases resulting, in part, from the implementation Provision for Credit Losses – TCF provided $14.8 million for credit losses in 2000, compared with $16.9 million in 1999 and $23.3 million in 1998. The 1998 provision reflects significant pro- visions recognized related to TCF’s discontinued consumer finance automobile lending activity. The allowance for loan and lease losses totaled $66.7 million at December 31, 2000, compared with $55.8 million at December 31, 1999, and was 189% of non-accrual loans and leases. See “Financial Condition – Allowance for Loan and Lease Losses.” Non-Interest Income – Non-interest income is a significant source of revenues for TCF, representing 43.8% of total revenues of new tiered pricing for home equity loans in early 1999, and in 2000, and is an important factor in TCF’s results of opera- increased borrowing volumes was partially offset by increased secu- tions. Providing a wide range of retail banking services is an inte- rities available for sale and loan and lease volumes, decreased rates gral component of TCF’s business philosophy and a major strategy paid on interest-bearing liabilities and decreased certificate of for generating additional non-interest income. Excluding gains deposit volumes. Interest income increased $3.2 million in 1999, on sales of securities available for sale, loan servicing, branches, reflecting an increase of $45.9 million due to volume, partially subsidiaries, a joint venture interest and title insurance revenues, offset by a decrease of $42.7 million due to rate changes. Interest non-interest income increased $49.6 million, or 17.8%, during expense increased $4.7 million in 1999, reflecting an increase of 2000 to $328.8 million. The increase was primarily due to $30.4 million due to volume, partially offset by a decrease of $25.7 increased fees and service charges and electronic funds transfer million due to a lower cost of funds. and leasing revenues, reflecting TCF’s expanded retail banking In 1998, TCF’s net interest income increased $32.1 million, and leasing operations and customer base. The increases in fees or 8.2%, primarily due to the 1997 acquisition of Standard and service charges and electronic funds transfer revenues reflect Financial, Inc. (“Standard”), a community-oriented thrift insti- the increase in the number of retail checking accounts, which tution located in Chicago, Illinois, and to the growth of lower totaled 1,131,000 accounts at December 31, 2000, up from interest-cost retail deposits. Total average interest-earning assets 1,032,000 at December 31, 1999. The average annual fee revenue increased by $1.2 billion, or 16.2%, from 1997 levels. TCF’s net per retail checking account was $190 for 2000, compared with interest income improved by $47.6 million due to volume changes $168 for 1999. and decreased $15.5 million due to rate changes. The favorable impact of the growth in residential real estate, consumer and com- 24 TCF 25 TCF The following table presents the components of non-interest income: Year Ended December 31, Percentage Increase (Decrease) 1998 2000/1999 1999/1998 ( D o l l a r s i n t h o u s a n d s ) Fees and service charges . . . . . . . . . . . . . . . . . . . . . . . Electronic funds transfer revenues . . . . . . . . . . . . . . . Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments and insurance . . . . . . . . . . . . . . . . . . . . . Gain on sales of loans held for sale . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees and other revenues . . . . . . . . . . . . . . . . . . . . Gain on sales of securities available for sale . . . . . . . . . Gain on sales of loan servicing . . . . . . . . . . . . . . . . . . Gain on sales of branches . . . . . . . . . . . . . . . . . . . . . . Gain on sale of subsidiaries . . . . . . . . . . . . . . . . . . . . Gain on sale of joint venture interest . . . . . . . . . . . . . Title insurance revenues (1) . . . . . . . . . . . . . . . . . . . . . Other non-interest income . . . . . . . . . . . . . . . . . . Total non-interest income . . . . . . . . . . . . . . . . (1) Title insurance business was sold in 1999. 2000 $ 179,563 78,101 38,442 12,266 4,012 16,405 1999 $151,972 67,144 28,505 14,849 4,747 12,009 $127,952 50,556 31,344 13,926 7,575 11,156 328,789 279,226 242,509 – – 12,813 – – – 12,813 $ 341,602 3,194 3,076 12,160 5,522 – 15,421 39,373 2,246 2,414 18,585 – 5,580 20,161 48,986 $318,599 $291,495 18.2% 16.3 34.9 (17.4) (15.5) 36.6 17.8 (100.0) (100.0) 5.4 (100.0) – (100.0) (67.5) 7.2 18.8% 32.8 (9.1) 6.6 (37.3) 7.6 15.1 42.2 27.4 (34.6) 100.0 (100.0) (23.5) (19.6) 9.3 Fees and service charges increased $27.6 million, or 18.2%, in increased to 74.8% during 2000, from 71.6% during 1999. The 2000 and $24 million, or 18.8%, in 1999, primarily as a result percentage of these customers who were active debit card users of expanded retail banking activities. These increases reflect the increased to 49.3% during 2000, from 44.6% during 1999. The increase in the number of retail checking accounts and per account average number of transactions per month on active debit cards revenues noted above. Included in fees and service charges are fees increased to 9.99 during 2000, from 9.01 during 1999. TCF had of $10.3 million, $10.3 million and $13.7 million received for 1,384 ATMs in its network at December 31, 2000, compared with the servicing of mortgage loans owned by others during 2000, 1,406 ATMs at December 31, 1999. Electronic funds transfer rev- 1999 and 1998, respectively. At December 31, 2000, 1999 and enues in future periods may be negatively impacted by pending 1998, TCF was servicing mortgage loans for others with aggregate legislative proposals which, if enacted and not judicially restrained, unpaid principal balances of $4 billion, $2.9 billion and $3.7 bil- could limit ATM fees. to $14.8 million in 1999. Annuity and mutual fund sales volumes Sales of securities available for sale produced gains of $3.2 mil- totaled $170.2 million for the year ended December 31, 2000, com- lion and $2.2 million in 1999 and 1998, respectively. There were pared with $230.5 million during 1999. The decreased volumes no sales of securities available for sale in 2000. Gains of $3.1 mil- during 2000 reflect the impact of lower yields offered by insurance lion and $2.4 million were recognized on the sales of $344.6 mil- companies on annuity products, and the volatility of the stock mar- lion and $200.4 million of third-party loan servicing rights in ket. Sales of annuities and mutual funds may fluctuate from period 1999 and 1998, respectively. No similar activity occurred during to period, and future sales levels will depend upon general economic 2000. TCF may, from time to time, sell securities available for conditions and investor preferences. Sales of annuities will also sale and loan servicing rights depending on market conditions. depend upon continued favorable tax treatment and may be nega- During the 1999 fourth quarter, TCF sold its title insurance and tively impacted by the level of interest rates. appraisal operations and recognized a gain of $5.5 million, and will Gains on sales of loans held for sale decreased $735,000 in recognize a deferred gain of up to $15 million over the ensuing five 2000, following a decrease of $2.8 million in 1999. Residential years based upon TCF’s use of services. During 2000, $4.5 mil- mortgage loan sales volumes totaled $512.4 million for the year ended lion of this deferred gain was earned and recognized in other non- December 31, 2000, compared with $360.3 million for the same interest income. Title insurance revenues are no longer recognized period of 1999. Education loan sales volumes totaled $100.9 mil- by TCF as a result of its sale of these operations. Title insurance rev- lion for the year ended December 31, 2000, compared with $97.1 enues totaled $15.4 million in 1999 and $20.2 million in 1998. million for the same period of 1999. During 1999, TCF recognized During 2000, TCF recognized gains of $12.8 million on the losses of $1.4 million on sales of $139.4 million of its consumer sales of six branches with $95.7 million in deposits, compared with finance automobile loan portfolio. See “Financial Condition – Loans gains of $12.2 million on the sales of eight branches with $116.7 Held for Sale” and “Financial Condition – Loans and Leases.” Gains million in deposits during 1999. TCF recognized gains of $18.6 or losses on sales of loans held for sale may fluctuate significantly million on the sales of 14 branches with $234 million in deposits from period to period due to changes in interest rates and volumes, and $5.6 million on the sale of its joint venture interest in Burnet and results in any period related to these transactions may not be Home Loans during 1998. TCF periodically sells branches that it indicative of results which will be obtained in future periods. considers to be underperforming, or have limited growth poten- tial, and may continue to do so in the future, including one planned branch sale during the first quarter of 2001. Non-Interest Expense – Non-interest expense increased $9.7 million, or 2.1%, in 2000, and $24.1 million, or 5.6%, in 1999, com- pared with the respective prior years. The following table presents the components of non-interest expense: lion, respectively. These mortgage loans had a weighted-average Leasing revenues increased $9.9 million in 2000 to $38.4 mil- ( D o l l a r s i n t h o u s a n d s ) coupon rate of 7.42% at December 31, 2000. As previously noted, lion, following a decrease of $2.8 million in 1999 to $28.5 mil- TCF purchased the bulk servicing rights on $933 million of res- lion. The volume and type of new lease transactions and the resulting idential loans during 2000. revenues may fluctuate from period to period based upon factors Electronic funds transfer revenues increased $11 million, or not within the control of TCF, such as economic conditions. The 16.3%, in 2000 and $16.6 million, or 32.8%, in 1999. These increase in total leasing revenues for 2000 is primarily due to increases reflect TCF’s efforts to provide banking services through increased revenue of $6.8 million from sales-type lease transac- its ATM network and debit cards. Included in electronic funds tions and an increase of $1.7 million in operating lease transac- Compensation and employee benefits . . . . . . . . . . . . . Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . Advertising and promotions . . . . . . . . . . . . . . . . . . . . Amortization of goodwill and other intangibles . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest expense . . . . . . . . . . . . . . . . . . Year Ended December 31, Percentage Increase (Decrease) 2000 $ 239,544 74,938 19,181 10,001 118,864 $ 462,528 1999 $239,053 73,613 16,981 10,689 112,462 $452,798 1998 2000/1999 1999/1998 $217,401 71,323 19,544 11,399 109,033 $428,700 .2% 1.8 13.0 (6.4) 5.7 2.1 10.0% 3.2 (13.1) (6.2) 3.1 5.6 transfer revenues are debit card interchange fees of $28.7 million, tions. The decrease in total leasing revenues for 1999 is primarily Compensation and employee benefits, representing 51.8% and to TCF’s expanded retail banking and leasing activities, offset by $19.5 million and $11.1 million for 2000, 1999 and 1998, respec- due to decreased revenue of $4 million from sales-type lease trans- 52.8% of total non-interest expense in 2000 and 1999, respec- branch sales. tively. The significant increase in these fees reflects an increase in actions. TCF’s ability to grow its lease portfolio is dependent upon tively, increased $491,000, or .2%, in 2000, and $21.7 million, Advertising and promotion expenses increased $2.2 million the distribution of debit cards, and an increase in utilization result- its ability to place new equipment in service. In an adverse economic or 10%, in 1999. The increases were primarily due to costs asso- in 2000 following a decrease of $2.6 million in 1999. The increase ing from TCF’s phone card promotion which rewards customers environment, there may be a decline in the demand for some types ciated with expanded retail banking and leasing activities, includ- in 2000 was primarily due to promotional expenses associated with long distance minutes based on usage. TCF had 1.2 million of equipment which TCF leases, resulting in a decline in the ing the opening of a total of 164 new branches in the past three with the TCF Express Phone Card, where customers earn free long ATM cards outstanding at December 31, 2000, of which 1.1 mil- amount of new equipment being placed into service. years, offset by cost savings from discontinued businesses. distance minutes for use of their debit cards. During 2000, TCF lion were debit cards. At December 31, 1999, TCF had 1.1 mil- Investments and insurance income, consisting principally of Occupancy and equipment expenses increased $1.3 million in awarded over 38.6 million minutes under this promotion. The lion ATM cards outstanding of which 929,000 were debit cards. commissions on sales of annuities and mutual funds, decreased $2.6 2000 and $2.3 million in 1999. The increases were primarily due decrease in 1999 reflected a decrease in direct mail expenses relat- The percentage of TCF’s checking account base with debit cards million to $12.3 million in 2000, following an increase of $923,000 ing to the promotion of consumer finance loan products. 27 TCF 26 TCF Amortization of goodwill and other intangibles decreased securities (junk bonds) and there were no open trading account Loans and leases increased $651 million from year-end 1999 folio will continue to decline, which will provide funding for antic- $688,000 in 2000 and $710,000 in 1999. The decrease in 2000 or investment option positions as of December 31, 2000. TCF is to $8.5 billion at December 31, 2000, reflecting increases of ipated growth in other loan categories. was primarily due to reduced amortization of deposit base intan- required to invest in FHLB stock in proportion to its level of bor- $363.8 million, $298.4 million and $175.6 million in leasing and Consumer loans increased $175.6 million from year-end 1999 gibles. The write-off of goodwill associated with branch sales, which rowings from the FHLB. is reported as a component of gain on sales of branches, totaled $464,000 in 1999 and $3.3 million in 1998. No such write-offs occurred during 2000. Other non-interest expense increased $6.4 million, or 5.7%, in 2000 and $3.4 million, or 3.1%, in 1999. The increases pri- marily reflect costs associated with expanded retail banking and leasing activities, including increases in deposit account losses. A summary of other expense is presented in Note 19 of Notes to Consolidated Financial Statements. Income Taxes – TCF recorded income tax expense of $116.6 million in 2000, compared with $107.1 million in 1999 and Securities Available for Sale – Securities available for sale are carried at fair value with the unrealized gains or losses, net of deferred income taxes, reported as accumulated other compre- hensive income (loss), which is a separate component of stock- holders’ equity. Securities available for sale decreased $117.8 million during 2000 to $1.4 billion at December 31, 2000. The decrease reflects payment and prepayment activity, partially offset by pur- chases of $314,000 of securities available for sale. At December 31, 2000, TCF’s securities available-for-sale portfolio included $1.3 billion and $85.8 million of fixed-rate and adjustable-rate mortgage-backed securities, respectively. Securities available for $109.1 million in 1998. Income tax expense represented 38.5% sale totaled $1.5 billion at December 31, 1999. Net unrealized pre- of income before income tax expense during 2000, compared tax losses on securities available for sale totaled $15.6 million at with 39.2% and 41.1% in 1999 and 1998, respectively. The lower December 31, 2000, compared with net unrealized pre-tax losses tax rates in 2000 and 1999 reflect lower state income taxes, and of $75.3 million at December 31, 1999. TCF has no plans to sell the impact of relatively lower non-deductible expenses. these securities and it is not anticipated that these unrealized losses Further detail on income taxes is provided in Note 11 of Notes will be realized. to Consolidated Financial Statements. C O N S O L I D A T E D F I N A N C I A L C O N D I T I O N A N A L Y S I S Investments – Total investments, which include interest-bear- ing deposits with banks, federal funds sold, FHLB stock, Federal Reserve Bank stock and other investments, decreased $14.1 mil- lion in 2000 to $134.1 million at December 31, 2000. The decrease primarily reflects a decrease of $20 million in interest- bearing deposits with banks, partially offset by an increase of $5.8 million in FHLB stock. TCF had no non-investment grade debt Loans Held for Sale – Residential real estate and education loans held for sale are carried at the lower of cost or market. Education loans held for sale increased $9.3 million and resi- dential real estate loans held for sale increased $19.5 million from year-end 1999, and totaled $153.2 million and $74.5 million, respectively, at December 31, 2000. As previously noted, $139.4 million of consumer finance automobile loans and $14.8 million of related allowances were transferred to loans held for sale dur- ing 1999 and were subsequently sold during 1999. There were no consumer finance automobile loans classified as held for sale at December 31, 2000. See “Loans and Leases.” 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, ( I n t h o u s a n d s ) Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . . Total loans and leases . . . . . . . . . . . . . . . . . . . . 2000 1999 $ 3,673,831 $3,919,678 2,234,134 1,371,841 410,422 856,471 2,058,584 1,073,472 351,353 492,656 1998 $3,765,280 1,876,554 811,428 289,104 398,812 1997 $ 3,623,845 1,976,699 859,916 240,207 368,521 1996 $2,252,312 1,728,368 858,225 157,057 296,958 $ 8,546,699 $7,895,743 $7,141,178 $ 7,069,188 $5,292,920 equipment finance, and commercial real estate and consumer to $2.2 billion at December 31, 2000, reflecting an increase of loans, respectively, partially offset by a decrease of $245.8 million $193.9 million in home equity loans, partially offset by a decrease in residential real estate loans. At December 31, 2000, TCF’s res- of $17.1 million in automobile loans. Approximately 68% of the idential real estate loan portfolio was comprised of $1.6 billion of home equity loan portfolio at December 31, 2000 consists of fixed-rate loans and $2.1 billion of adjustable-rate loans. closed-end loans. In addition, 47% of this portfolio carries a vari- Management expects that the balance in the residential loan port- able interest rate. In December 1998, TCF restructured its consumer finance company operations, including the discontinuation of indirect automobile lending and a renewed focus on home equity lending. In response to intensifying price competition, in early 1999 TCF implemented a tiered pricing structure for its home equity loans. As a result of the new programs, TCF experienced an increase in the loan-to-value ratios on new home equity loans. Many of these loans are secured by a first lien on the home and include an advance to pay off an existing first lien mortgage loan. These loans may have balances exceeding $100,000. These loans may carry a higher level of credit risk than loans with a lower loan-to- value ratio. Higher loan-to-value ratio loans are made to more creditworthy customers based on credit scoring models. The following table sets forth additional information about the loan-to-value ratios for TCF’s home equity loan portfolio: ( D o l l a r s i n t h o u s a n d s ) Loan-to-Value Ratios (1) At December 31, 2000 Balance Percent of Total 1999 Balance Over 100% (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 90% to 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 80% to 90% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80% or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,633 2.1% $ 56,530 486,536 648,218 988,440 22.4 29.9 45.6 398,871 570,567 948,956 $2,168,827 100.0% $1,974,924 Percent of Total 2.9% 20.2 28.9 48.0 100.0% (1) Loan-to-value is based on the loan amount (current outstanding balance on closed-end loans and the total commitment on lines of credit) plus deferred loan origination costs net of fees and refundable insurance premiums, if any, plus the original amount of senior liens, if any. Property values represent the most recent appraised value or property tax assessment value known to TCF. In most cases this value was obtained at the loan origination date and does not reflect subsequent appreciation or depreciation in property values, if any. (2) Amount reflects the total outstanding loan balance. The portion of the loan balance in excess of 100% of the property value is substantially less. The following table summarizes TCF’s commercial real estate loan portfolio by property type: At December 31, 2000 1999 ( D o l l a r s i n t h o u s a n d s ) Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hospitality facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warehouse/industrial buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Health care facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance $ 326,594 318,230 171,747 159,383 120,852 28,783 246,252 Number of Loans 544 279 221 34 156 18 546 Balance $ 276,312 233,184 161,032 112,652 107,076 20,858 162,358 Number of Loans 537 257 228 27 136 17 437 $1,371,841 1,798 $ 1,073,472 1,639 28 TCF 29 TCF Commercial real estate loans increased $298.4 million from and consequently TCF retains no credit risk on such amounts. At December 31, 2000, the allowance for loan and lease losses totaled $66.7 million, compared with $55.8 million at December 31, 1999. year-end 1999 to $1.4 billion at December 31, 2000. Commercial This compares with non-recourse fundings of $178.4 million or The increase is due to growth in loans and leases, primarily commercial business, commercial real estate and leasing and equipment finance, business loans increased $59.1 million in 2000 to $410.4 mil- 38.9% at December 31, 1999. Total loan and lease originations which carry higher credit risk than residential real estate loans. The allocation of TCF’s allowance for loan and lease losses, including gen- lion at December 31, 2000. TCF is seeking to expand its com- for TCF’s leasing business were $648.1 million during 2000, eral and specific loss allocations, is as follows: mercial business and commercial real estate lending activity to compared with $327.3 million in 1999 and $199.6 million in borrowers located in its primary midwestern markets. At December 1998. At December 31, 2000, the backlog of approved transac- 31, 2000, approximately 87% of TCF’s commercial real estate tions related to TCF’s leasing business totaled $165.6 million, loans outstanding were secured by properties located in its pri- compared with $125.2 million at December 31, 1999. The increase mary markets. In addition, approximately 96% of TCF’s com- in the leasing and equipment finance portfolio is primarily due mercial business and commercial real estate loans are secured either to the de novo expansion activity of TCF Leasing, which began in by properties or underlying business assets. At December 31, 2000 1999. Included in this portfolio at December 31, 2000 are $144.4 and December 31, 1999, there were no commercial real estate loans million of loans and leases secured by trucks and trailers, com- with terms that have been modified in troubled debt restructur- pared with $34.1 million at December 31, 1999. TCF’s expanded ings included in performing loans. leasing activity is subject to the risk of cyclical downturns and other Leasing and equipment finance increased $363.8 million from adverse economic developments affecting these industries and mar- year-end 1999 to $856.5 million at December 31, 2000. At kets. TCF Leasing has originated most of its portfolio during December 31, 2000, $165.8 million or 25.4% of TCF’s lease 2000, and consequently the performance of this portfolio may portfolio was funded on a non-recourse basis with other banks not be reflective of future results and credit quality. Loan and lease originations were as follows: ( I n t h o u s a n d s ) Consumer(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Includes loans held for sale. Year Ended December 31, 2000 1999 1998 $1,111,644 $1,371,712 $1,181,027 768,024 648,052 893,873 $3,421,593 746,769 327,265 1,362,742 $3,808,488 519,386 199,639 2,023,078 $3,923,130 Allowance for Loan and Lease Losses – Credit risk is the risk of loss from a customer default. TCF has in place a process to of problem loans and leases and special procedures for collection of problem loans and leases. The risk of loss is difficult to quan- identify and manage its credit risk. The process includes initial tify and is subject to fluctuations in values and general economic credit review and approval, periodic monitoring to measure com- conditions and other factors. See Notes 1 and 7 of Notes to pliance with credit agreements and internal credit policies, mon- Consolidated Financial Statements for additional information itoring changes in the risk ratings of loans and leases, identification concerning TCF’s allowance for loan and lease losses. 30 TCF At December 31, ( D o l l a r s i n t h o u s a n d s ) 2000 1999 1998 1997 1996 Residential real estate . . . . . . . . . Commercial real estate . . . . . . . . Commercial business . . . . . . . . . Consumer direct . . . . . . . . . . . . Consumer finance automobile . . . Leasing and equipment finance . . Unallocated . . . . . . . . . . . . . . . . Total allowance balance . . . . . $ 2,762 $ 3,014 $ 3,471 $ 3,501 $ 2,379 20,753 12,708 12,525 15,065 16,213 9,668 8,394 1,370 7,583 8,256 8,482 2,219 4,237 5,756 9,338 22,673 2,955 4,520 12,109 16,020 2,004 3,072 11,907 14,793 1,116 16,139 16,839 23,295 29,364 22,385 $66,669 $55,755 $80,013 $82,583 $71,865 Additional information on the allowance for loan and lease losses follows: Allocations as a Percentage of Total Loans and Leases Outstanding by Type At December 31, 2000 .08% 1.51 2.36 .38 1999 .08% 1.18 2.35 .41 62.59 28.72 .89 .19 .78 .86 .21 .71 1998 .09% 1997 .10% 1996 .11% 1.54 1.99 .57 9.69 .74 .33 1.12 1.75 1.88 .72 5.37 .54 .42 1.17 1.89 1.96 .84 4.84 .38 .42 1.36 ( D o l l a r s i n t h o u s a n d s ) Commercial real estate . . . Commercial business . . . Consumer . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . Unallocated . . . . . . . . . . Subtotal . . . . . . . . . . Residential real estate . . . Total . . . . . . . . . . . . . At December 31, 2000 At December 31, 1999 Allowance for Loan and Lease Losses Total Loans and Leases Allowance as a % of Portfolio Net Charge Offs(1) Allowance for Loan and Lease Losses Total Loans and Leases Allowance as a % of Portfolio $20,753 $1,371,841 1.51% (.02)% $12,708 $1,073,472 1.18% 9,668 410,422 9,764 2,234,134 7,583 856,471 16,139 – 63,907 4,872,868 2,762 3,673,831 $66,669 $8,546,699 2.36 .44 .89 .19 1.31 .08 .78 (.15) .12 .33 N.A. .09 – .05 8,256 10,701 4,237 16,839 52,741 3,014 351,353 2,058,584 492,656 – 3,976,065 3,919,678 $55,755 $7,895,743 2.35 .52 .86 .21 1.33 .08 .71 Net Charge Offs(1) (.08)% (.08) 1.30 .39 N.A. .72 – .35 (1) Net charge-offs (recoveries) during the year then ended as a percentage of related average loans and leases. N.A. Not applicable. The allocated allowance balances for TCF’s residential, consumer December 31, 2000, compared with 1.30% for the year ended and commercial business loan portfolios at December 31, 2000 December 31, 1999. Included in the net loan and lease charge- reflect the Company’s continued strengthening of its credit quality offs for 2000 were $1.5 million of net recoveries related to the and related low level of net loan charge-offs for these portfolios. consumer finance automobile loans, compared with net charge- The increase in the allocated allowance for leasing and equipment offs of $21.2 million for 1999. The allowance for loan and lease finance losses reflects the previously mentioned increase in the losses as a percentage of net loan and lease charge-offs during the percentage of leases that are internally funded, and portfolio year was 1,728% at December 31, 2000, compared with 211% at growth. The allocated allowances for these portfolios do not reflect December 31, 1999 and 310% at December 31, 1998. The increase any significant changes in estimation methods or assumptions. in this ratio reflects the significant decrease in net loan charge- Net loan and lease charge-offs were $3.9 million in 2000, offs related to TCF’s consumer finance automobile portfolio, compared with $26.4 million in 1999 and $25.9 million in 1998. including a significant level of net recoveries. The increase in TCF’s TCF has experienced a significant decrease in the level of net loan allowance for loan and lease losses as a percentage of total loans charge-offs related to its consumer finance automobile portfolio, and leases at December 31, 2000 reflects the impact of the sig- a large portion of which was sold or liquidated in 1999. As a result, nificant growth in the higher-risk commercial loan and lease port- the ratio of annualized net loan charge-offs to average loans out- folios during the past year. standing for TCF’s consumer portfolio was .12% for the year ended 31 TCF Non-Performing Assets – Non-performing assets (principally non-accrual loans and leases and other real estate owned) totaled non-accrual leasing and equipment finance at December 31, 2000 are $3.9 million of leases that have been funded on a non-recourse The over 30-day delinquency rate on TCF’s loans and leases (excluding loans held for sale and non-accrual loans and leases) was .69% of loans and leases outstanding at December 31, 2000, compared with .42% at year-end 1999. TCF had $5 million of accruing loans and $46.7 million at December 31, 2000, up $11.3 million from $35.4 basis by third-party financial institutions. Approximately 60% of leases 90 days or more past due at December 31, 2000, compared with $5.8 million at December 31, 1999. TCF’s delinquency rates are million at December 31, 1999. The increase in total non-per- non-performing assets consist of, or are secured by, residential determined using the contractual method. The following table sets forth information regarding TCF’s over 30-day delinquent loan and lease forming assets reflects increases of $9.4 million in non-accrual real estate. The accrual of interest income is generally discontin- portfolio, excluding loans held for sale and non-accrual loans and leases: leasing and equipment finance and $4.2 million in commercial ued when loans and leases become 90 days or more past due with real estate non-accrual loans, partially offset by a decrease of $2.7 respect to either principal or interest (150 days for loans secured million in commercial business non-accrual loans. Included in by residential real estate) unless such loans and leases are adequately secured and in the process of collection. Non-performing assets are summarized in the following table: ( D o l l a r s i n t h o u s a n d s ) Non-accrual loans and leases: Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . Other real estate owned and other assets . . . . . . . . . . . Total non-performing assets . . . . . . . . . . . . . . . . . Non-performing assets as a percentage of net loans and leases . . . . . . . . . . . . . . . . . . . . . . . Non-performing assets as a percentage of total assets . . . At December 31, 2000 1999 1998 1997 1996 $13,027 $12,178 $ 17,745 $ 21,037 $ 13,472 4,829 5,820 236 11,286 35,198 11,524 $46,722 5,431 1,576 2,960 1,929 24,074 11,348 $35,422 8,078 4,352 2,797 725 33,697 14,972 $ 48,669 8,451 3,818 3,370 117 36,793 21,953 $ 58,746 3,996 7,604 1,149 176 26,397 19,937 $ 46,334 .55% .42 .45% .33 .69% .48 .84% .60 .89% .62 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: ( D o l l a r s i n t h o u s a n d s ) Loans and leases delinquent for: 30-59 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60-89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 days or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 1999 Principal Balances Percentage of Loans and Leases $ 40,083 13,755 5,020 $ 58,858 .47% .16 .06 .69% Principal Balances $20,368 6,945 5,789 $33,102 Percentage of Loans and Leases .26% .09 .07 .42% ( D o l l a r s i n t h o u s a n d s ) Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 1999 Principal Percentage of Portfolio Balances $20,628 16,971 1,793 3,958 15,508 $58,858 .93% .46 .13 .96 1.83 .69 Principal Balances $19,076 11,552 493 1,595 386 $33,102 Percentage of Portfolio .93% .30 .05 .46 .08 .42 TCF’s over 30-day delinquency rate on total consumer loans in the future. This compares with $33 million of such loans and was .93% at December 31, 2000, unchanged from year-end 1999. leases at December 31, 1999. Although these loans and leases are TCF’s over 30-day delinquency on total leasing and equipment secured by commercial real estate or other corporate assets, they finance increased to 1.83% at December 31, 2000 from .08% at may be subject to future modifications of their terms or may December 31, 1999. The increase can be attributed to the signif- become non-performing. Management monitors the performance icant increase in activity in the leasing operations during 2000. and classification of such loans and leases and the financial con- Included in delinquent leasing and equipment finance at December dition of these borrowers. 31, 2000 are $2.4 million of leases that have been funded on a non-recourse basis by third-party financial institutions. Contributing to the increase in leasing and equipment finance delinquencies is an increase in delinquencies for the truck and trailer segment during the fourth quarter of 2000. At December 31, 2000, approximately $9.6 million of the truck and trailer seg- ment was over 30-days delinquent. The rise in fuel prices has had an adverse impact on the owner/operator trucking industry. These operators may be experiencing financial difficulties and may be unable to meet their lease obligations. Management continues to monitor the leasing and equipment finance and consumer loan portfolios, which will generally have higher delinquencies than other categories. See “Loans and Leases.” In addition to the non-accrual loans and leases, there were commercial real estate and commercial business loans and lease financings with an aggregate principal balance of $19.9 million outstanding at December 31, 2000 for which management has concerns regarding the ability of the borrowers to meet existing repayment terms. This amount consists of loans and leases that were classified for regulatory purposes as substandard or doubtful, or were to borrowers that currently are experiencing financial difficulties or that management believes may experience financial difficulties 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 lend- ing and for other general business purposes. In addition to deposits, TCF derives funds primarily from loan and lease repay- ments, proceeds from the discounting of leases, advances from the FHLB and proceeds from reverse repurchase borrowing agree- ments. Deposit inflows and outflows are significantly influenced by general interest rates, money market conditions, competition for funds and other factors. TCF’s deposit inflows and outflows have been and will continue to be affected by these factors. See “FORWARD-LOOKING INFORMATION.” Borrowings may be used to compensate for reductions in normal sources of funds, such as deposit inflows at less than projected levels, net deposit outflows or to support expanded activities. Historically, TCF has borrowed primarily from the FHLB, from institutional sources under reverse repurchase agreements and, to a lesser extent, from other sources. See “Borrowings.” 32 TCF 33 TCF Potential sources of liquidity for TCF Financial Corporation (parent company only) include cash dividends from TCF’s wholly Deposits – Checking, savings and money market deposits are an important source of lower cost funds and fee income for TCF. rates exceeded the contract rates on $53 million of the long-term maximum levels of net interest income while maintaining accept- FHLB advances with call dates within one year. The weighted-aver- able levels of interest-rate risk and liquidity risk and facilitating owned bank subsidiaries, issuance of equity securities, borrowings Deposits totaled $6.9 billion at December 31, 2000, up $307 mil- age rate on borrowings increased to 6.23% at December 31, 2000, the funding needs of the Company. under the Company’s $135 million bank line of credit and com- lion from December 31, 1999. As previously noted, TCF sold six from 5.91% at December 31, 1999, due to general increases in Although the measure is subject to a number of assumptions mercial paper program, and interest income. TCF’s subsidiary branches with $95.7 million of deposits during 2000. Lower inter- interest rates. At December 31, 2000, borrowings with a maturity and is only one of a number of measurements, management banks’ ability to pay dividends or make other capital distributions est-cost checking, savings and money market deposits totaled $4.1 of one year or less totaled $1.5 billion. Management has entered believes the interest-rate gap (difference between interest-earn- to TCF is restricted by regulation and may require regulatory billion, up $373.2 million from December 31, 1999, and com- into additional long-term callable FHLB advances to extend the ing assets and interest-bearing liabilities repricing within a given approval. Undistributed earnings and profits at December 31, prised 59.3% of total deposits at December 31, 2000. The average maturity of $300 million of TCF’s short-term borrowings. The period) is an important indication of TCF’s exposure to interest- 2000 includes approximately $134.4 million for which no pro- balance of these deposits for 2000 was $3.9 billion, an increase of FHLB advances settle during the first quarter of 2001. rate risk and the related volatility of net interest income in a chang- vision for federal income tax has been made. This amount repre- $134.7 million over the $3.7 billion average balance for 1999. sents earnings appropriated to bad debt reserves and deducted for Higher interest-cost certificates of deposit decreased $66.2 mil- federal income tax purposes, and is generally not available for pay- lion from December 31, 1999. The Company’s weighted-average ment of cash dividends or other distributions to shareholders with- rate for deposits, including non-interest bearing deposits, increased out incurring an income tax liability based on the amount of to 3.12% at December 31, 2000, from 2.71% at December 31, 1999, earnings removed and current tax rates. due to increases in general levels of interest rates. As previously noted, TCF continued to expand its supermarket banking franchise during 2000, opening 18 new branches during the year. TCF now has 213 supermarket branches. During the past year, the number of deposit accounts in TCF’s supermarket branches increased 17.1% to over 646,000 accounts and the balances increased 30% to $1.1 billion. The average rate on these deposits increased from 2.24% at December 31, 1999 to 2.73% at December 31, 2000, due to general increases in interest rates. Additional information regarding TCF’s supermarket branches follows: Supermarket Banking Summary ( D o l l a r s i n t h o u s a n d s ) Number of branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits: Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Passbook and statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average rate on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total fees and other revenues for the year . . . . . . . . . . . . . . . . . . . . . . Consumer loans outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 213 1999 195 646,084 551,536 Increase 18 94,548 Percentage Change 9.2% 17.1 $ 475,162 $354,074 $121,088 135,000 108,557 354,891 120,876 60,169 290,579 14,124 48,388 64,312 $1,073,610 $825,698 $247,912 2.73% 2.24% .49% $ 112,043 $ 233,393 $ 86,665 $192,931 $ 25,378 $ 40,462 34.2 11.7 80.4 22.1 30.0 21.9 29.3 21.0 Borrowings – Borrowings totaled $3.2 billion at December 31, 2000, up $100.4 million from year-end 1999. The increase was Included in FHLB advances at December 31, 2000 are $1.5 bil- lion of fixed-rate advances which are callable at par on certain primarily due to increases of $131.3 million in FHLB advances anniversary dates and quarterly thereafter until maturity. If called, and $91 million in federal funds purchased, partially offset by the FHLB will provide replacement funding at the then-prevail- decreases of $42 million in TCF’s bank line of credit, $29.3 mil- ing market rate of interest for the remaining term-to-maturity of lion in treasury, tax and loan notes, $22.4 million in commercial the advances, subject to standard terms and conditions. Included paper and $15.7 million in securities sold under agreements to in FHLB advances are $688 million of long-term FHLB advances repurchase. See Note 10 of Notes to Consolidated Financial that have call dates within one year. Due to changes in interest rates Statements for detailed information on TCF’s borrowings. since the long-term FHLB advances were obtained, the market Stockholders’ Equity – Stockholders’ equity at December 31, 2000 was $910.2 million, or 8.1% of total assets, up from $809 million, or 7.6% of total assets, at December 31, 1999. The increase in stockholders’ equity is primarily due to net income of $186.2 million for the year ended December 31, 2000 and the decrease of $37.5 million in accumulated other comprehensive loss, par- tially offset by the repurchase of 3,243,800 shares of TCF’s com- mon stock at a cost of $73.8 million and the payment of $66.1 million in dividends on common stock. Since January 1, 1998, the Company has repurchased 14.9 million shares of TCF’s common stock at an average cost of $26.26 per share. ing 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 neg- ative interest-rate gap for a given period, the amount of its inter- est-bearing liabilities maturing or otherwise repricing within such period exceeds the amount of its interest-earning assets repricing within the same period. In a rising interest-rate environment, insti- tutions 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. Market Risk – Interest-Rate Risk – TCF’s results of oper- ations are dependent to a large degree on its net interest income The amounts in the maturity/rate sensitivity table below rep- resent management’s estimates and assumptions. The amounts and the Company’s ability to manage its interest-rate risk. Although could be significantly affected by external factors such as prepay- TCF manages other risks, such as credit and liquidity risk, in the ment rates other than those assumed, early withdrawals of deposits, normal course of its business, the Company considers interest- changes in the correlation of various interest-bearing instruments, rate risk to be its most significant market risk. TCF, like most competition, a general rise or decline in interest rates, and the financial institutions, has a material interest-rate risk exposure to possibility that the FHLB will exercise its option to call certain of changes in both short-term and long-term interest rates as well as TCF’s longer-term FHLB advances. Decisions by management to variable index interest rates (e.g., prime). Since TCF does not purchase or sell assets, or retire debt could change the matu- hold a trading portfolio, the Company is not exposed to market rity/repricing and spread relationships. In addition, TCF’s inter- risk from trading activities. est-rate risk will increase during periods of rising interest rates Like most financial institutions, TCF’s interest income and due to slower prepayments on loans and mortgage-backed secu- cost of funds are significantly affected by general economic con- rities. TCF’s one-year adjusted interest-rate gap was a negative ditions and by policies of regulatory authorities. The mismatch $215.1 million, or (2)% of total assets, at December 31, 2000, between maturities and interest-rate sensitivities of assets and lia- compared with a negative $1 billion, or (10)% of total assets, at bilities results in interest-rate risk. TCF’s Asset/Liability December 31, 1999. The decrease in TCF’s negative one-year Management Committee manages TCF’s interest-rate risk based interest-rate gap reflects the impact of projected faster prepay- on interest rate expectations and other factors. The principal objec- ment rates on loan and mortgage-backed securities portfolios, and tive of TCF’s asset/liability management activities is to provide a change in management’s maturity/repricing assumptions for money market deposits. 34 TCF 35 TCF Within 30 Days 30 Days to 6 Months 6 Months to 1 Year 1 to 3 Years 3+ Years Total management strategies, among other factors. card fees, could have an adverse impact on TCF. The following table summarizes TCF’s interest-rate gap position at December 31, 2000: Maturity/Rate Sensitivity ( D o l l a r s i n t h o u s a n d s ) Interest-earning assets: Loans held for sale . . . . . . . . . . . . Securities available for sale (1) . . . . . Real estate loans (1) . . . . . . . . . . . . . Leasing and equipment finance (1) . . Other loans (1) . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . Interest-bearing liabilities: Checking deposits (2) . . . . . . . . . . . Passbook and statement deposits (2) . . . . . . . . Money market deposits (3) Certificate deposits . . . . . . . . . . . . FHLB advances (4) . . . . . . . . . . . . . Discounted lease rentals . . . . . . . . Other borrowings . . . . . . . . . . . . . Interest-earning assets over (under) interest-bearing liabilities (Primary gap) . . . . . . . . . . . . . . . . Impact of unsettled borrowings (5) . . . . Adjusted gap . . . . . . . . . . . . . . . . . . Adjusted cumulative gap . . . . . . . . . . . Adjusted cumulative gap as a percentage of total assets: At December 31, 2000 . . . . . . At December 31, 1999 . . . . . . . $ 167,861 $ 45,966 $ 8,366 $ 2,393 $ 3,193 $ 227,779 102,458 570,888 143,060 166,454 – 113,620 616,026 158,175 171,343 – 279,790 1,495,122 392,921 464,089 – 881,586 1,804,355 129,432 466,733 23,286 1,403,888 5,045,672 856,471 2,644,556 134,059 1,028,826 1,067,530 2,634,315 3,308,585 10,312,425 – 101,812 – 1,409,891 – 39,560 375,692 – 107,111 – 723,036 181,537 39,424 50,000 – 2,038,188 302,914 – 402,511 293,500 61,471 – 389,461 395,245 28,741 1,063,000 16,409 200,000 2,203,943 1,045,388 836,888 2,805,605 1,891,037 165,763 1,127,445 10,076,069 1,856,566 1,926,955 1,101,108 1,060,396 4,131,044 26,434 559,281 32,883 1,375,937 110,773 2,273,169 165,755 144,090 441,643 241,426 353,000 8,899 501,753 416,603 300,000 $ 716,603 $ 716,603 (898,129) (33,578) – – $ (898,129) $ (181,526) $ (33,578) $ (215,104) 1,573,919 (300,000) $1,273,919 $1,058,815 (822,459) 236,356 – – $ (822,459) $ 236,356 $ $ 236,356 236,356 6% 7% (2)% (7)% (2)% (10)% 9% (9)% 2% 2% 2% 2% (1) Based upon contractual maturity, repricing date, if applicable, scheduled repayments of principal and projected prepayments of principal based upon experience. (2) Includes non-interest bearing deposits. 7.5% of checking accounts are included in amounts repricing within one year. In addition, 34% and 29% of passbook and statement accounts are included in the less than 1 year and “1 to 3 Years” categories, respectively. All remaining passbook and statement and checking accounts are assumed to mature in the “3+ Years” category. While management believes these assumptions are well based, no assurance can be given that amounts on deposit in checking and passbook and statement accounts will not significantly change or be repriced in the event of a general change in interest rates. At December 31, 1999, money market accounts and 10% of checking accounts were included in amounts repricing within one year, and 27% and 30% of passbook and statement accounts were included in the less than 1 year and “1 to 3 Years” categories, respectively. (3) Reflects a change in maturity/repricing assumptions from those at December 31, 1999. Certain low-rate money market accounts totaling $395.2 million were moved to the “3+ Years” category due to a history of little or no repricing activity for the product types. (4) Includes $671.5 million of callable FHLB advances, all of which have a call date beyond one year. Based upon market interest rates at December 31, 2000, $158.5 million of these FHLB advances are included as repricing in the “1 to 3 Years” category which corresponds to their next call date, instead of in the “3+ Years” category, which corresponds to their maturity date. (5) Represents $300 million of unsettled callable FHLB advances that settle within 30 days. The call dates for these FHLB advances are beyond one year. As previously noted, TCF also utilizes simulation models to esti- rates. If interest rates were to decline by 200 basis points, net inter- mate the near-term effects (next twelve months) of changing inter- est income is estimated to decrease by 3.9% over the next twelve est rates on its net interest income. Net interest income simulation months. Simulations at December 31, 1999 projected a decrease in involves forecasting net interest income under a variety of scenar- net interest income of .3% assuming a similar change in interest rates. ios, including the level of interest rates, the shape of the yield curve, Management exercises its best judgment in making assump- and spreads between market interest rates. At December 31, 2000, tions regarding loan prepayments, early deposit withdrawals, and net interest income is estimated to increase by .4% over the next other non-controllable events in estimating TCF’s exposure to twelve months if interest rates were to sustain an immediate increase changes in interest rates. These assumptions are inherently uncer- of 200 basis points. At December 31, 1999, net interest income was tain and, as a result, the simulation models cannot precisely esti- estimated to increase by 1.2% assuming a similar change in interest mate net interest income or precisely predict the impact of a change 36 TCF in interest rates on net interest income. Actual results will differ tions on ATM surcharges or restrict the sharing of customer infor- from simulated results due to the timing, magnitude and frequency mation, or adverse decisions in litigation dealing with such legis- of interest rate changes and changes in market conditions and lation, or in litigation against Visa and Mastercard affecting debit Recent Accounting Developments – Effective January 1, 2001, TCF adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 requires that all derivative instru- ments as defined, including derivatives embedded in other finan- cial instruments or contracts, be recognized as either assets or liabilities in the statement of financial condition at fair value. Changes in the fair value of a derivative are recorded in the results of opera- tions. A derivative may be designated as a hedge of an exposure to changes in the fair value of an asset, liability or firm commitment or as a hedge of cash flows of forecasted transactions. The account- ing for derivatives that are used as hedges is dependent on the type of hedge and requires that a hedge be highly effective in offsetting changes in the hedged risk. Under SFAS No. 133, TCF’s pipeline of locked residential mort- gage loan commitments are considered derivatives and will be recorded at fair value, with changes in fair value recognized in gains on sales of loans held for sale in the income statement. TCF hedges its risk of changes in the fair value of locked residential mortgage loan commitments due to changes in interest rates through the use of forward sales contracts. Forward sales contracts require TCF to deliver qualifying residential mortgage loans or pools of loans at a specified future date at a specified price or yield. Such forward sales contracts hedging the pipeline of locked residential mortgage loan commitments are derivatives under SFAS No. 133 and are recorded at fair value, with changes in fair value recognized in gains on sales of loans held for sale. TCF also utilizes forward sales contracts to hedge its risk of changes in the fair value of its residential loans held for sale. In accordance with fair value hedge accounting under SFAS No. 133, the forward sales contracts hedging the residential loans held for sale are recorded at fair value, with changes in fair value recognized in gains on sales of loans held for sale as is the offset- ting change in the fair value of the hedged loans. The impact of adopting SFAS No. 133 on TCF’s financial position and results of operations was not material. L E G I S L A T I V E , L E G A L A N D R E G U L A T O R Y D E V E L O P M E N T S Federal and state legislation imposes numerous legal and regula- tory 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. Among other possible developments, pending legislation which would impose limita- On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act (the “Act”). The Act significantly changed the regulatory structure and oversight of the financial services industry and expanded financial affiliation opportunities for bank holding companies. The Act permits “financial holding compa- nies” to engage in a range of activities that are “financial in nature” or “incidental” thereto, such as banking, insurance, securities activities, and merchant banking. To qualify to engage in expanded financial activities, a financial holding company must make cer- tain required regulatory filings, and subsidiary depository insti- tutions must be well-capitalized, well-managed and rated “satisfactory” or better under the Community Reinvestment Act. TCF filed an election to become a financial holding company with the Federal Reserve, and this election became effective in June 2000. The Act also permits a national bank to engage in certain expanded financial activities through a financial subsidiary, pro- vided the bank and its depository institution affiliates are deemed well-capitalized and well-managed and meet certain other regu- latory requirements. The Act preempts state laws restricting the establishment of financial affiliations authorized or permitted under the Act, subject to certain limited exceptions, including an exception that allows state insurance regulators to impose certain requirements on financial institutions, so long as they are not sub- stantially more adverse than those applying to other persons. F O R W A R D - L O O K I N G I N F O R M A T I O N This Annual Report and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, may contain “forward-looking” statements that deal with future results, plans or performance. In addition, TCF’s management may make such statements orally to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. TCF’s future results may differ materially from historical performance and forward-looking statements about TCF’s expected financial results or other plans are subject to a number of risks and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins; deposit outflows; reduced demand for financial services and loan and lease products; changes in accounting policies or guide- lines, or monetary and fiscal policies of the federal government; changes in credit and other risks posed by TCF’s loan, lease and investment portfolios; technological, computer-related or opera- tional difficulties; adverse changes in securities markets; results of litigation or other significant uncertainties. 37 TCF C O N S O L I D A T E D S T A T E M E N T S O F F I N A N C I A L C O N D I T I O N C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S ( D o l l a r s i n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) Assets Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and leases: Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities and Stockholders’ Equity Deposits: Checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Passbook and statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under repurchase agreements and federal funds purchased . . . . . Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 1999 $ 392,007 134,059 1,403,888 227,779 $ 429,262 148,154 1,521,661 198,928 3,673,831 2,234,134 1,371,841 410,422 856,471 8,546,699 (66,669) 8,480,030 153,239 11,183 395,277 3,919,678 2,058,584 1,073,472 351,353 492,656 7,895,743 (55,755) 7,839,988 158,468 13,262 351,993 $11,197,462 $10,661,716 $ 2,203,943 1,045,388 836,888 2,805,605 6,891,824 1,085,320 1,891,037 165,763 42,125 3,184,245 37,055 174,118 $ 1,913,279 1,091,292 708,417 2,871,847 6,584,835 1,010,000 1,759,787 178,369 135,732 3,083,888 40,352 143,659 9,852,734 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,287,242 Stockholders’ equity: Preferred stock, par value $.01 per share, 30,000,000 shares authorized; none issued and outstanding . . . . . . . . . . . . . . . . . . Common stock, par value $.01 per share, 280,000,000 shares authorized; 92,755,659 and 92,804,205 shares issued . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings, subject to certain restrictions . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock at cost, 12,466,626 and 10,863,017 shares, and other . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes to consolidated financial statements. – – 928 508,682 835,605 (9,868) (425,127) 910,220 928 500,797 715,461 (47,382) (360,822) 808,982 $11,197,462 $10,661,716 ( I n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) Interest income: Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . . . . . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest income . . . . . . . . . . . . . . . . . . . . . . . Interest expense: Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest expense . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-interest income: Fees and service charges . . . . . . . . . . . . . . . . . . . . . . . Electronic funds transfer revenues . . . . . . . . . . . . . . . . Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments and insurance . . . . . . . . . . . . . . . . . . . . . Gain on sales of loans held for sale . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees and other revenues . . . . . . . . . . . . . . . . . . . . . Gain on sales of securities available for sale . . . . . . . . . . Gain on sales of loan servicing . . . . . . . . . . . . . . . . . . . Gain on sales of branches . . . . . . . . . . . . . . . . . . . . . . Gain on sale of subsidiaries . . . . . . . . . . . . . . . . . . . . . Gain on sale of joint venture interest . . . . . . . . . . . . . . Title insurance revenues . . . . . . . . . . . . . . . . . . . . . . . Other non-interest income . . . . . . . . . . . . . . . . . . Year Ended December 31, 2000 1999 1998 $700,325 99,185 17,130 10,041 826,681 197,094 191,051 388,145 438,536 14,772 423,764 179,563 78,101 38,442 12,266 4,012 16,405 328,789 – – 12,813 – – – 12,813 $618,291 111,032 13,367 9,411 752,101 175,495 152,393 327,888 424,213 16,923 407,290 151,972 67,144 28,505 14,849 4,747 12,009 279,226 3,194 3,076 12,160 5,522 – 15,421 39,373 $631,342 93,124 14,072 10,356 748,894 212,492 110,668 323,160 425,734 23,280 402,454 127,952 50,556 31,344 13,926 7,575 11,156 242,509 2,246 2,414 18,585 – 5,580 20,161 48,986 Total non-interest income . . . . . . . . . . . . . . . . 341,602 318,599 291,495 Non-interest expense: Compensation and employee benefits . . . . . . . . . . . . . Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . Advertising and promotions . . . . . . . . . . . . . . . . . . . . Amortization of goodwill and other intangibles . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest expense . . . . . . . . . . . . . . . . . . . Income before income tax expense . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,544 74,938 19,181 10,001 118,864 462,528 302,838 116,593 239,053 73,613 16,981 10,689 112,462 452,798 273,091 107,052 217,401 71,323 19,544 11,399 109,033 428,700 265,249 109,070 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $186,245 $166,039 $156,179 Net income per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared per common share . . . . . . See accompanying notes to consolidated financial statements. $ $ $ 2.37 2.35 .825 $ $ $ 2.01 2.00 .725 $ $ $ 1.77 1.76 .6125 38 TCF 39 TCF C O N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S ’ E Q U I T Y ( D o l l a r s i n t h o u s a n d s ) Balance, December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of 7,549,300 shares to be held in treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 108,200 shares, of which 61,000 shares were from treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options, of which 145,183 shares were from treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares held in trust for deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan to Executive Deferred Compensation Plan, net of payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of 4,091,611 shares to be held in treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 21,050 shares from treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options, 550,661 shares from treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares held in trust for deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan payments by Executive Deferred Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 37,259 shares from treasury to effect purchase acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of 3,243,800 shares to be held in treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of 1,319,896 shares from treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options, 283,036 shares from treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares held in trust for deferred compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of TCF stock to fund the 401(k) plan, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan to Executive Deferred Compensation Plan, net of payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes to consolidated financial statements. Number of Common Shares Issued 92,821,529 Common Stock $ 928 Additional Paid-in Capital 460,684 $ Retained Earnings 508,969 $ Accumulated Other Comprehensive Income (Loss) 8,556 $ Treasury Stock and Other (25,457) $ Total 953,680 $ – – – – – 47,200 (18,170) – 61,687 – – – – – – – 1 – – – – – – – – – – 2,518 (375) – (1,033) 45,740 – 92,912,246 929 507,534 – – – – – – (108,041) – – – – – – – – – – (1) – – – – – – – – – (30) (2,569) – (4,464) 326 – 92,804,205 928 500,797 – – – – – – – (48,546) – – – – – – – – – – – – – – – – – – – – – – – – 417 – (7,716) (1,262) – (81) 1 15,842 684 – 156,179 – 156,179 (54,971) – – – – – – – 610,177 166,039 – 166,039 (60,755) – – – – – – – 715,461 186,245 – 186,245 (66,101) – – – – – – – – – – – (965) (965) – – – – – – – – 7,591 – (54,973) (54,973) – – – – – – – – (47,382) – 37,514 37,514 – – – – – – – – – – – – – – – (210,939) (2,882) 192 5,863 4,345 (45,740) (6,111) (280,729) – – – – (106,106) (30) 392 9,543 15,044 (326) 1,390 (360,822) – – – – 963 (73,824) 7,716 386 9,375 7,337 – (15,842) – (416) 156,179 (965) 155,214 (54,971) (210,939) (363) (183) 5,863 3,312 – (6,111) 845,502 166,039 (54,973) 111,066 (60,755) (106,106) (60) (2,178) 9,543 10,580 – 1,390 808,982 186,245 37,514 223,759 (66,101) 1,380 (73,824) – (876) 9,375 7,256 1 – 684 (416) 92,755,659 $928 $508,682 $ 835,605 $ (9,868) $(425,127) $ 910,220 40 TCF 41 TCF C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( I n t h o u s a n d s ) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . Amortization of goodwill and other intangibles . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . . . Proceeds from sales of loans held for sale . . . . . . . . . Principal collected on loans held for sale . . . . . . . . . Originations and purchases of loans held for sale . . . Net (increase) decrease in other assets and liabilities, and accrued interest . . . . . . . . . . . . . Gains on sales of assets . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total adjustments . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . Cash flows from investing activities: Principal collected on loans and leases . . . . . . . . . . . . . . . Originations and purchases of loans . . . . . . . . . . . . . . . . . Purchases of equipment for lease financing . . . . . . . . . . . . Proceeds from sales of loans . . . . . . . . . . . . . . . . . . . . . . . Net (increase) decrease in interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of securities available for sale . . . . . . . . Proceeds from maturities of and principal collected on securities available for sale . . . . . . . . . . . . . . . . . . . . . . Purchases of securities available for sale . . . . . . . . . . . . . . . Net (increase) decrease in federal funds sold . . . . . . . . . . . Sales of deposits, net of cash paid . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used by investing activities . . . . . . . . . . . . . . . Cash flows from financing activities: Net increase (decrease) in deposits . . . . . . . . . . . . . . . . . . Net increase in securities sold under repurchase agreements and federal funds purchased . . . . . . . . . . . . Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . Payments on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of common stock to be held in treasury . . . . . . . Payments of dividends on common stock . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . Net increase (decrease) in cash and due from banks . . . . . . Cash and due from banks at beginning of year . . . . . . . . . . Year Ended December 31, 2000 1999 1998 $ 186,245 $ 166,039 $ 156,179 30,369 10,001 14,772 611,123 9,885 (649,750) (1,854) (12,813) 4,125 15,858 202,103 2,162,839 (2,320,239) (579,595) – 19,987 – 176,905 (314) – (82,097) (53,000) (675,514) 29,031 10,689 16,923 586,859 10,144 (457,515) 47,088 (23,952) 14,988 234,255 400,294 2,315,173 (3,069,408) (289,156) – 95,575 288,718 577,844 (791,995) 41,000 (104,404) 7,723 (928,930) 27,914 11,399 23,280 577,808 9,083 (603,567) 14,339 (28,825) 8,395 39,826 196,005 3,111,218 (3,119,924) (186,009) 20,330 (95,322) 231,438 606,603 (967,585) (41,000) (213,159) (19,956) (673,366) 402,731 (13,649) 41,816 75,320 5,443,008 (5,331,961) (73,824) (66,101) (13,017) 436,156 (37,255) 429,262 642,720 4,679,462 (4,598,365) (106,106) (60,755) (5,886) 537,421 8,785 420,477 254,836 3,502,311 (2,911,853) (210,939) (54,971) (20,372) 600,828 123,467 297,010 Cash and due from banks at end of year . . . . . . . . . . . . . . . $ 392,007 $ 429,262 $ 420,477 Supplemental disclosures of cash flow information: Cash paid for: Interest on deposits and borrowings . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer of loans to other real estate owned and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ 377,430 89,852 16,580 $ $ $ 302,268 78,125 32,074 $ $ $ 306,299 105,207 36,750 42 TCF See accompanying notes to consolidated financial statements. 1 > S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S 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 financial holding company engaged pri- marily in community banking and lease financing through its wholly owned subsidiaries, TCF National Bank and TCF National Bank Colorado (“TCF Colorado”). The preparation of financial state- ments 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 con- tingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation. For Consolidated Statements of Cash Flows purposes, cash and cash equivalents include cash and due from banks. Comprehensive Income – Comprehensive income is the total of net income and other comprehensive income (loss), which for TCF is comprised entirely of unrealized gains and losses on securities available for sale. The following table summarizes the components of other comprehensive income (loss): ( I n t h o u s a n d s ) Unrealized holding gains (losses) on securities available for sale (net of tax expense (benefit) of $22,212, ($31,532) and $206, respectively) . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustment for gains included in net income (net of tax expense of $1,192 and $1,045 in 1999 and 1998, respectively) . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2000 1999 1998 $37,514 $(52,971) $ 236 – $37,514 (2,002) $(54,973) (1,201) $ (965) Investments – Investments are carried at cost, adjusted for amor- tization 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 related deferred income taxes, reported as accumulated other comprehensive income (loss), which is a separate compo- nent 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. Declines in the value of securities available for sale that are considered other than temporary are recorded in noninterest income as a loss on securities available for sale. commitments are deferred in other assets or other liabilities until the loan is advanced. Discounts and premiums on loans purchased, net deferred fees and costs, unearned discounts and finance charges, and unearned lease income are amortized using methods which approximate a level yield over the estimated remaining lives of the loans and leases. Lease financings include direct financing and sales-type leases as well as leveraged 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 car- ried at the combined present value of the future minimum lease payments and the lease residual value, which represents the esti- mated fair value of the leased equipment at the termination of the Loans Held for Sale – Loans held for sale are carried at the lower of cost or market determined on an aggregate basis, includ- lease. Lease residual values are reviewed on an ongoing basis and any downward revisions are recorded in the periods in which they ing related forward mortgage loan sales commitments. Cost of become known. Interest income on direct financing and sales- loans sold is determined on a specific identification basis and gains type leases is recognized using methods which approximate a level or losses on sales of loans held for sale are recognized at settlement yield over the term of the leases. Sales-type leases generate dealer dates. Net fees and costs associated with originating and acquir- profit which is recognized at lease inception by recording lease rev- ing loans held for sale are deferred and are included in the basis enue net of the lease cost. Lease revenue consists of the present for determining the gain or loss on sales of loans held for sale. value of the future minimum lease payments discounted at the rate Loans and Leases – Net fees and costs associated with origi- nating and acquiring loans and leases are deferred and amortized over the lives of the assets. Net fees and costs associated with loan implicit in the lease. Lease cost consists of the leased equipment’s book value, less the present value of its residual. The investment in leveraged leases is the sum of all lease payments (less nonre- course debt payments) plus estimated residual values, less unearned 43 TCF income. Income from leveraged leases is recognized using a method loan and lease losses. Interest accrued in the current year is which approximates a level yield over the term of the leases based reversed. For those non-accrual leases that have been funded on Income Taxes – Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and lia- tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary dif- on the unrecovered equity investment. a non-recourse basis by third-party financial institutions, the bilities are recognized for the future tax consequences attributable ferences are expected to be recovered or settled. The effect on Impaired loans include all non-accrual and restructured com- related debt is also placed on non-accrual status. Interest payments to differences between the financial statement carrying amounts of deferred tax assets and liabilities of a change in tax rates is recognized mercial real estate and commercial business loans and equipment received on non-accrual loans and leases are generally applied to existing assets and liabilities and their respective tax bases. Deferred in income in the period that includes the enactment date. financings. Consumer and residential real estate loans and lease principal unless the remaining principal balance has been deter- financings are excluded from the definition of an impaired loan. mined to be fully collectible. Loan impairment is measured as the present value of expected future Cost of loans sold is determined on a specific identification basis cash flows discounted at the loan’s initial effective interest rate or and gains or losses on sales of loans are recognized at trade dates. the fair value of the collateral for collateral-dependent loans. The allowance for loan and lease losses is maintained at a level believed to be appropriate by management to provide for proba- ble loan and lease losses inherent in the portfolio as of the balance Premises and Equipment – Premises and equipment are car- ried at cost and are depreciated or amortized on a straight-line basis over their estimated useful lives. sheet date, including known or anticipated problem loans and leases, as well as for loans and leases which are not currently known Other Real Estate Owned – Other real estate owned is recorded at the lower of cost or fair value minus estimated costs to sell at the to require specific allowances. Management’s judgment as to the date of transfer to other real estate owned. If the fair value of an amount of the allowance, including the allocated and unallocated asset minus the estimated costs to sell should decline to less than elements, is a result of ongoing review of larger individual loans the carrying amount of the asset, the deficiency is recognized in and leases, the overall risk characteristics of the portfolios, changes the period in which it becomes known and is included in other in the character or size of the portfolios, the level of non-per- non-interest expense. forming assets, historical net charge-off amounts, geographic loca- tion, prevailing economic conditions and other relevant factors. Residential loans, consumer loans, and smaller-balance com- mercial loans and lease and equipment financings are segregated by loan type and sub-type, and are evaluated on a group basis. Loans and leases are charged off to the extent they are deemed to be uncollectible. The amount of the allowance for loan and lease losses is highly dependent upon management’s estimates of vari- ables affecting valuation, appraisals of collateral, evaluations of 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 under- lying loans used to stratify capitalized mortgage servicing rights for purposes of measuring impairment. Any impairment is recog- nized through a valuation allowance. performance and status, and the amounts and timing of future cash flows expected to be received on impaired loans. Such esti- Intangible Assets – Goodwill resulting from acquisitions is amortized over 20 to 25 years on a straight-line basis. Deposit base mates, appraisals, evaluations and cash flows may be subject to fre- intangibles are amortized over 10 years on an accelerated basis. The quent adjustments due to changing economic prospects of Company reviews the recoverability of the carrying values of these borrowers, lessees or properties. These estimates are reviewed peri- assets whenever an event occurs indicating that they may be impaired. odically and adjustments, if necessary, are recorded in the provi- sion for credit losses in the periods in which they become known. Interest income is accrued on loan and lease balances out- standing. 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 (150 days or more past due for loans secured by residential real estate), unless the loan or lease is ade- quately secured and in the process of collection. When a loan or lease is placed on non-accrual status, unless collection of all prin- Derivative Financial Instruments – TCF utilizes derivative financial instruments in the course of asset and liability manage- ment to meet the ongoing credit needs of its customers and in order to manage the market exposure of its residential loans held for sale 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 14 for additional information concerning these derivative finan- cial instruments. cipal and interest is considered to be assured, uncollected inter- est accrued in prior years is charged off against the allowance for Advertising and Promotions – Expenditures for advertising and promotions are expensed as incurred. Earnings Per Common Share – The following table reconciles the weighted average shares outstanding and the income applicable to com- mon shareholders used for basic and diluted earnings per share: ( D o l l a r s i n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) Year Ended December 31, 2000 1999 1998 Weighted average number of common shares outstanding used in basic earnings per common share calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,648,765 82,445,288 88,092,895 Net dilutive effect of: Stock option plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,338 626,572 172,486 452,944 346,434 476,486 Weighted average number of shares outstanding adjusted for effect of dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,388,675 83,070,718 88,915,815 $ $ $ 186,245 2.37 2.35 $ $ $ 166,039 2.01 2.00 $ $ $ 156,179 1.77 1.76 2 > C A S H A N D D U E F R O M B A N K S At December 31, 2000, TCF was required by Federal Reserve Board (“FRB”) regulations to maintain reserve balances of $17.7 million in cash on hand or at various Federal Reserve Banks. 3 > I N V E S T M E N T S The carrying values of investments, which approximate their fair values, consist of the following: ( I n t h o u s a n d s ) Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Reserve Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 332 $ 110,441 23,286 $134,059 1999 $ 20,319 104,611 23,224 $148,154 The carrying value and yield of investments at December 31, 2000, by contractual maturity, are shown below: ( D o l l a r s i n t h o u s a n d s ) Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No stated maturity (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carrying Value(1) $ 332 133,727 $134,059 Yield 6.17% 7.44 7.44 (1) Carrying value is equal to fair value. (2) Balance represents FRB and Federal Home Loan Bank (“FHLB”) stock, required regulatory investments. 44 TCF 45 TCF 4 > S E C U R I T I E S A V A I L A B L E F O R S A L E Securities available for sale consist of the following: 6 > L O A N S A N D L E A S E S Loans and leases consist of the following: At December 31, 2000 1999 ( I n t h o u s a n d s ) ( D o l l a r s i n t h o u s a n d s ) U.S. Government and other marketable securities . . . . . $ Mortgage-backed securities: FHLMC . . . . . . . . . . . . . . FNMA . . . . . . . . . . . . . . . GNMA . . . . . . . . . . . . . . . Private issuer . . . . . . . . . . . Collateralized mortgage obligations . . . . . . . . . . Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 550 $ – $ – $ 550 $ 500 $ – $ – $ 500 830,516 527,288 22,392 38,328 1,234 1,195 230 112 (11,738) 820,012 (5,392) 523,091 (105) (1,159) 22,517 37,281 928,034 589,206 26,850 51,796 437 – – 437 624 326 378 179 139 – (47,491) (27,633) (174) (1,073) 880,869 561,951 26,855 50,862 – 624 Weighted-average yield . . . . . . 6.63% 6.58% $1,419,511 $2,771 $(18,394) $1,403,888 $1,597,010 $1,022 $(76,371) $1,521,661 The carrying value and yield of U.S. Government and other marketable securities at December 31, 2000, by contractual maturity, are shown below: ( D o l l a r s i n t h o u s a n d s ) 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Carrying Value(1) $500 50 $550 Yield 7.00% 6.60 6.96 (1) Carrying value is equal to fair value. Gross gains of $4.7 million and $2.3 million and gross losses of $1.5 million and $57,000 were recognized on sales of securities avail- able for sale during 1999 and 1998, respectively. There were no sales of securities available for sale in 2000. Mortgage-backed securities aggregating $5.3 million were pledged as collateral to secure certain deposits at December 31, 2000. In addi- tion, mortgage-backed securities aggregating $1.1 billion were pledged as collateral to secure certain borrowings. See Note 10 of Notes to Consolidated Financial Statements for additional information regarding securities pledged as collateral to secure certain borrowings. 5 > L O A N S H E L D F O R S A L E Loans held for sale consist of the following: ( I n t h o u s a n d s ) Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 $ 74,545 153,234 $227,779 1999 $ 55,016 143,912 $198,928 46 TCF Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned premiums and deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer: Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans secured by deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned discounts and deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate: Apartments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other permanent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned discounts and deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance: Loans: Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease financings: Direct financing leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales-type leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease residuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned income and deferred lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 1999 $3,666,765 $3,911,184 7,066 3,673,831 8,494 3,919,678 2,168,827 1,974,924 38,138 6,881 11,900 25,175 55,271 6,859 11,148 26,634 (16,787) 2,234,134 (16,252) 2,058,584 324,666 871,614 178,372 (2,811) 1,371,841 409,915 507 410,422 204,351 2,708 207,059 658,678 37,645 30,426 (94,506) 17,169 649,412 856,471 276,045 637,980 162,570 (3,123) 1,073,472 350,816 537 351,353 43,647 513 44,160 446,351 30,387 24,384 (52,626) – 448,496 492,656 $8,546,699 $7,895,743 At December 31, 2000 and 1999, the recorded investment in At December 31, 2000, 1999 and 1998, loans and leases on loans that were considered to be impaired was $6.1 million and $4.5 non-accrual status totaled $35.2 million, $24.1 million and $33.7 million, respectively. The related allowance for loan losses at those million, respectively. Had the loans and leases performed in accor- dates was $1.2 million and $1 million, respectively. All of the impaired dance with their original terms throughout 2000, TCF would have loans were on non-accrual status. The average recorded investment recorded gross interest income of $3.9 million for these loans and in impaired loans during the year ended December 31, 2000 and leases. Interest income of $1.6 million has been recorded on these 1999 was $4.3 million and $8.1 million, respectively. For the year loans and leases for the year ended December 31, 2000. ended December 31, 2000 and 1999, TCF recognized interest At December 31, 2000 and 1999, TCF had no loans and leases income on impaired loans of $40,000 and $519,000, all of which outstanding with terms that had been modified in troubled debt was recognized using the cash basis method of income recognition. 47 TCF restructurings. There were no material commitments to lend addi- During 2000, TCF purchased the equity interest in a leveraged tional funds to customers whose loans or leases were classified as lease transaction for an aircraft. The investment in leveraged leases non-accrual at December 31, 2000. represents net unpaid rentals and estimated unguaranteed resid- The aggregate amount of loans to directors and executive offi- ual values of the leased assets, less related unearned income. TCF 8 > O T H E R A S S E T S Other assets consist of the following: cers of TCF was not significant at December 31, 2000 or 1999. has no general obligation for principal and interest on notes rep- ( I n t h o u s a n d s ) All loans to TCF’s directors and executive officers were made in resenting third-party participation related to the leveraged lease; the ordinary course of business on normal credit terms, includ- such notes are recorded as an offset against the related rental receiv- ing interest rates and collateral, as those prevailing at the time for able. As the equity owner in the leveraged lease, TCF is taxed on comparable transactions with unrelated persons, and in the opin- total lease payments received and is entitled to tax deductions based ion of management do not represent more than a normal credit on the cost of the leased asset and tax deductions for interest paid risk of collection. to third-party participants. The leveraged lease has renewal and purchase options by the lessee at the end of the 9.75 year lease term. At December 31, 2000, TCF’s net investment in leveraged leases is comprised of the following: ( I n t h o u s a n d s ) Rental receivable (net of principal and interest on non-recourse debt) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated residual value of leased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net investment in leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Future minimum lease payments for direct financing and sales-type leases as of December 31, 2000 are as follows: $ 11,066 18,056 (11,953) 17,169 (1,929) $ 15,240 Total $246,631 167,074 104,542 67,202 39,314 26,112 Payments to be Received by TCF $152,336 114,248 81,935 56,556 37,917 25,585 Payments to be Received by Other Financial Institutions $ 94,295 52,826 22,607 10,646 1,397 527 $468,577 $182,298 $650,875 Year Ended December 31, 2000 $55,755 – 14,772 (9,701) 5,843 (3,858) 1999 $ 80,013 (14,793) 16,923 (34,398) 8,010 (26,388) $66,669 $ 55,755 .05% .78 .35% .71 1998 $ 82,583 – 23,280 (32,714) 6,864 (25,850) $ 80,013 .36% 1.12 ( I n t h o u s a n d s ) 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 > A L L O W A N C E F O R L O A N A N D L E A S E L O S S E S Following is a summary of the allowance for loan and lease losses and selected statistics: ( D o l l a r s i n t h o u s a n d s ) Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ratio of net loan and lease charge-offs to average loans and leases outstanding . . . . . . . . Allowance for loan and lease losses as a percentage of total loan and lease balances at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 TCF Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises and equipment are summarized as follows: ( I n t h o u s a n d s ) Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 $197,525 63,128 40,086 10,869 83,669 1999 $176,108 54,550 22,614 10,912 87,809 $395,277 $351,993 At December 31, 2000 $ 42,088 134,034 33,778 174,232 384,132 186,607 1999 $ 35,590 127,622 32,709 158,368 354,289 178,181 $197,525 $176,108 TCF leases certain premises and equipment under operating leases. Net lease expense was $20.3 million, $19.6 million and $19.6 million in 2000, 1999 and 1998, respectively. At December 31, 2000, the total annual minimum lease commitments for operating leases were as follows: ( I n t h o u s a n d s ) 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage servicing rights, net of valuation allowance, are summarized as follows: ( I n t h o u s a n d s ) Balance at beginning of year, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage servicing rights capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of year, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2000 $22,614 8,992 13,806 (5,326) – – 1999 $21,566 6,991 – (4,737) (1,037) (169) $40,086 $22,614 $ 17,282 15,221 14,800 13,967 11,521 60,256 $133,047 1998 $19,512 8,966 – (5,268) (97) (1,547) $21,566 49 TCF The valuation allowance for mortgage servicing rights is summarized as follows: ( I n t h o u s a n d s ) Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2000 $946 – – $946 1999 $ 2,738 169 (1,961) $ 946 1998 $1,594 1,547 (403) $2,738 At December 31, 2000, 1999 and 1998, TCF was servicing real estate loans for others with aggregate unpaid principal balances of approx- imately $4 billion, $2.9 billion and $3.7 billion, respectively. During 2000, TCF purchased the bulk servicing rights on $933 million of residential mortgage loans at a cost of $13.8 million. During 1999 and 1998, TCF sold servicing rights on $344.6 million and $200.4 million of loans serviced for others at net gains of $3.1 million and $2.4 million, respectively. No servicing rights were sold during 2000. 9 > D E P O S I T S Deposits are summarized as follows: ( D o l l a r s i n t h o u s a n d s ) Checking: Non-interest bearing . . . . . . . . . . . . . . Interest bearing . . . . . . . . . . . . . . . . . . Passbook and statement: Non-interest bearing . . . . . . . . . . . . . . Interest bearing . . . . . . . . . . . . . . . . . . Money market . . . . . . . . . . . . . . . . . . . . . . Certificates . . . . . . . . . . . . . . . . . . . . . . . . Weighted- Average Rate 2000 Amount –% $1,430,102 .58 .21 773,841 2,203,943 71,957 973,431 1,045,388 836,888 4,086,219 2,805,605 – 1.13 1.05 3.83 1.17 5.96 3.12 % of Total 20.8% 11.2 32.0 1.1 14.1 15.2 12.1 59.3 40.7 $6,891,824 100.0% Certificates had the following remaining maturities at December 31, 2000: ( I n t h o u s a n d s ) Maturity 0-3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-24 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-36 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-48 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49-60 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 60 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Includes $235.7 million of negotiated rate certificates and no brokered deposits. 50 TCF At December 31, Weighted- Average Rate 1999 Amount –% $1,185,330 % of Total 18.0% 11.0 29.0 .7 15.9 16.6 10.8 56.4 43.6 727,949 1,913,279 42,838 1,048,454 1,091,292 708,417 3,712,988 2,871,847 $6,584,835 100.0% Other Total(1) $ 672,717 $ 974,905 629,364 629,910 270,631 85,333 16,881 7,013 2,764 694,860 704,800 307,873 94,522 18,636 7,245 2,764 .55 .21 – 1.12 1.08 2.67 .93 5.00 2.71 $100,000 Minimum $302,188 65,496 74,890 37,242 9,189 1,755 232 – $490,992 $2,314,613 $2,805,605 10 > B O R R O W I N G S Borrowings consist of the following: ( D o l l a r s i n t h o u s a n d s ) Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under repurchase agreements . . . . . . . . . . Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . Discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . Other borrowings: Senior subordinated debentures . . . . . . . . . . . . . . . . . Bank line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury, tax and loan note . . . . . . . . . . . . . . . . . . . . Year of Maturity 2001 $ 2000 2001 2005 2000 2001 2003 2004 2005 2006 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2003 2000 2000 2000 2001 Amount 91,000 – 794,320 200,000 994,320 – 481,537 135,000 803,000 246,000 3,000 122,500 100,000 1,891,037 – 84,529 48,369 20,897 10,114 1,355 390 109 165,763 At December 31, 2000 1999 Weighted- Average Rate Weighted- Average Rate Amount 6.49% $ – –% – 6.61 6.27 6.54 – 5.89 5.76 5.69 6.02 5.48 5.25 6.02 5.78 – 8.81 8.96 9.10 9.22 9.15 8.25 8.36 8.92 960,000 50,000 – 1,010,000 499,716 181,571 50,000 903,000 – 3,000 122,500 – 1,759,787 83,785 57,285 23,284 8,816 5,199 – – – 178,369 28,750 42,000 22,357 42,625 – 135,732 $3,083,888 5.75 5.71 – 5.74 6.00 5.79 5.78 5.55 – 5.46 5.24 – 5.69 8.43 8.50 8.67 8.84 8.92 – – – 8.52 9.50 6.92 6.21 4.53 – 6.60 5.91 28,750 9.50 – – – 13,375 42,125 $3,184,245 – – – 5.73 8.30 6.23 At December 31, 2000, borrowings with a remaining contractual maturity of one year or less consisted of the following: ( D o l l a r s i n t h o u s a n d s ) Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury, tax and loan note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount $ 91,000 794,320 481,537 84,529 13,375 $1,464,761 Weighted- Average Rate 6.49% 6.61 5.89 8.81 5.73 6.48 51 TCF The securities underlying the repurchase agreements are book entry securities. During the period, book entry securities were delivered by The following table sets forth TCF’s maximum and average borrowing levels for each of the years in the three-year period ended appropriate entry into the counterparties’ accounts through the Federal Reserve System. The dealers may sell, loan or otherwise dispose of such December 31, 2000: securities to other parties in the normal course of their operations, but have agreed to resell to TCF identical or substantially the same securi- ties upon the maturities of the agreements. At December 31, 2000, all of the securities sold under repurchase agreements provided for the repurchase of identical securities. At December 31, 2000, securities sold under repurchase agreements were collateralized by mortgage-backed securities and had the following maturities: ( D o l l a r s i n t h o u s a n d s ) Year ended December 31, 2000: Securities Sold Under Repurchase Agreements and Federal Funds Purchased FHLB Advances Discounted Lease Rentals Other Borrowings Average balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 925,004 $1,888,892 $163,758 $121,048 Repurchase Borrowing Collateral Securities Maximum month-end balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,151,913 2,016,040 172,348 296,750 ( D o l l a r s i n t h o u s a n d s ) Maturity: 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount $794,320 200,000 $994,320 Interest Rate Carrying Amount Market Value 6.61% $ 846,172 $ 836,278 6.27 6.54 219,359 216,307 $1,065,531 $1,052,585 Included in FHLB advances at December 31, 2000 are $1.5 billion of fixed-rate advances which are callable at par on certain dates. If called, the FHLB will provide replacement funding at the then-prevailing market interest rates. Due to changes in interest rates since the long-term FHLB advances were obtained, the market rates exceeded the contract rates on $53 million of the long-term FHLB advances with call dates within one year. The probability that these advances will be called depends primarily on the level of related interest rates during the call period. The stated maturity dates and the next call dates for the callable FHLB advances outstanding at December 31, 2000 were as follows (in thousands): Year 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stated Maturity $ 100,000 – 85,000 803,000 246,000 3,000 122,500 100,000 $1,459,500 Weighted- Average Rate Next Call Date 4.60% $ 788,000 – 5.74 5.69 6.02 5.48 5.25 6.02 5.66 454,500 100,000 117,000 – – – – Weighted- Average Rate 5.58% 5.81 6.02 5.28 – – – – $1,459,500 5.66 For certain equipment leases, TCF utilizes its lease rentals and rate on the line of credit is based on either the prime rate or LIBOR. underlying equipment as collateral to borrow from other finan- TCF has the option to select the interest rate index and term for cial institutions at fixed rates on a non-recourse basis. In the event advances on the line of credit. The line of credit may be used for of a default by the customer in non-recourse financings, the other appropriate corporate purposes, including serving as a back-up line financial institution has a first lien on the underlying leased equip- of credit to support the redemption of TCF’s commercial paper. The $28.8 million of senior subordinated debentures mature unsecured and contains certain covenants common to such pro- in July 2003. These debentures will be redeemable at par plus grams with which TCF is in compliance. Any usage under the com- accrued interest to the date of redemption beginning July 1, 2001. mercial paper program requires an equal amount of back-up support TCF intends to exercise its right of redemption on the debentures by the bank line of credit. Commercial paper generally matures in 2001. within 90 days, although it may have a term of up to 270 days. TCF has a $135 million bank line of credit expiring in April FHLB advances are collateralized by residential real estate loans 2001 which is unsecured and contains certain covenants common and FHLB stock with an aggregate carrying value of $2.5 billion to such agreements with which TCF is in compliance. The interest at December 31, 2000. 52 TCF Average rate for period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.34% 5.79% 8.55% 7.44% Year ended December 31, 1999: Average balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum month-end balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average rate for period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 529,359 $ 1,821,172 $ 171,997 $ 151,430 1,010,000 1,997,346 5.40% 5.52% 182,456 8.04% 367,177 6.27% $ 140,414 367,280 $ 1,367,104 $ 205,393 $ 92,467 1,804,208 5.60% 5.80% 222,018 8.15% 214,087 7.38% Year ended December 31, 1998: Average balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum month-end balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average rate for period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 > I N C O M E T A X E S Income tax expense (benefit) consists of: ( I n t h o u s a n d s ) Year ended December 31, 2000: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year ended December 31, 1999: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year ended December 31, 1998: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense differs from the amounts computed by applying the federal income tax rate of 35% to income before income tax expense as a result of the following: Current Deferred Total $88,746 $18,862 $107,608 6,457 2,528 8,985 $95,203 $21,390 $116,593 $ 91,647 11,747 $ 103,394 $ 91,102 19,325 $ 110,427 $ $ $ $ 2,981 677 3,658 (994) (363) (1,357) $ $ $ $ 94,628 12,424 107,052 90,108 18,962 109,070 Year Ended December 31, 2000 $105,993 1999 $ 95,582 1998 $ 92,837 2,544 5,840 2,216 2,724 8,076 670 3,741 12,325 167 $116,593 $107,052 $109,070 Computed income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in income tax expense resulting from: Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State income tax, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The tax benefit recorded in additional paid-in capital for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes totaled $1.5 million, $4.1 million and $2.4 million for the years ended December 31, 2000, 1999 and, 1998, respectively. 53 TCF ment with no further recourse against TCF. TCF has a $50 million commercial paper program which is ( I n t h o u s a n d s ) The significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows: On June 22, 2000, the Company entered into an agreement interest at 7.41% to 8.00% and are secured by the shares of TCF ( I n t h o u s a n d s ) Deferred tax assets: Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and other compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan fees and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 1999 $ 5,755 20,471 15,710 41,936 50,653 12,570 7,124 70,347 $(28,411) $27,967 15,437 12,032 55,436 27,292 9,738 3,216 40,246 $15,190 12 > S T O C K H O L D E R S ’ E Q U I T Y 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 or distributions of these appropriated earnings could invoke a tax liability for TCF based on the amount of earnings removed and current tax rates. Shareholder Rights Plan – TCF’s preferred share purchase rights will become exercisable only if a person or group acquires or of the Office of the Comptroller of the Currency (“OCC”). announces an offer to acquire 15% or more of TCF’s common Additional limitations on dividends declared or paid on, or repur- stock. When exercisable, each right will entitle the holder to buy chases of, TCF’s subsidiary banks’ capital stock are tied to the one one-hundredth of a share of a new series of junior participat- national banks’ regulatory capital levels. ing preferred stock at a price of $100. In addition, upon the occur- Undistributed earnings and profits at December 31, 2000 rence of certain events, holders of the rights will be entitled to includes approximately $134.4 million for which no provision for purchase either TCF’s common stock or shares in an “acquiring federal income tax has been made. This amount represents earn- entity” at half of the market value. TCF’s Board of Directors (the ings appropriated to bad debt reserves and deducted for federal “Board”) is generally entitled to redeem the rights at 1 cent per right income tax purposes and is generally not available for payment of at any time before they become exercisable. The rights will expire cash dividends or other distributions to shareholders. Payments on June 9, 2009, if not previously redeemed or exercised. Treasury Stock and Other – Treasury stock and other consists of the following: ( I n t h o u s a n d s ) Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares held in trust for deferred compensation plans, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan to Executive Deferred Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 1999 $(325,026) $(295,148) (61,908) (33,056) (5,137) (46,066) (14,887) (4,721) $(425,127) $(360,822) On January 19, 1998, the Board authorized the repurchase of up to 5% of TCF common stock, or 4.6 million shares. On June 22, 1998, the Board authorized the repurchase of up to an additional 5% of TCF common stock, or 4.5 million shares. On December 15, 1998, the Board authorized the repurchase of up to an additional 5% of TCF common stock, or 4.3 million shares. On March 8, 2000, the Board authorized the repurchase of up to an additional 5% of TCF common stock, or 4.1 million shares. TCF purchased 3,243,800, 4,091,611 and 7,549,300 shares of common stock during the years ended December 31, 2000, 1999 and 1998, respectively. At December 31, 2000, TCF has remaining authorization of 2.6 million shares under its March 8, 2000 5% stock repurchase program. 54 TCF with a third party that provides TCF with an option to purchase common stock purchased with the loan proceeds. These loans have up to $50 million of TCF’s common stock under a forward share a remaining principal balance of $5.1 million at December 31, repurchase contract. The forward transactions can be settled from 2000, which is reflected as a reduction of stockholders’ equity as time to time, at the Company’s election, on a physical, net cash required by generally accepted accounting principles. or net share basis. The final maturity date of the agreement is June 24, 2002. At December 31, 2000, there were no open forward purchases under this contract. Shares Held in Trust for Deferred Compensation Plans – The cost of TCF common stock held by TCF’s deferred compen- sation plans is reported separately in a manner similar to treasury stock (that is, changes in fair value are not recognized) with a cor- responding deferred compensation obligation reflected in addi- tional paid-in capital. Loan to Executive Deferred Compensation Plan – During 1998 and 2000, loans totaling $6.4 million and $2 million, respectively, were made by TCF to the Executive Deferred Compensation Plan trustee on a nonrecourse basis to purchase shares of TCF common stock for the accounts of participants. The loans are repayable by the participants over five years and bear 13 > R E G U L A T O R Y C A P I T A L R E Q U I R E M E N T S TCF is subject to various regulatory capital requirements admin- istered 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 could have a direct material effect on TCF’s financial state- ments. Under capital adequacy guidelines and the regulatory frame- work for “prompt corrective action,” TCF must meet specific capital guidelines that involve quantitative measures of the Company’s assets, stockholders’ equity, and certain off-balance- sheet items as calculated under regulatory accounting practices. The following table sets forth TCF’s tier 1 leverage, tier 1 risk- based and total risk-based capital levels, and applicable percent- ages of adjusted assets, together with the excess over the minimum capital requirements: At December 31, 2000 1999 ( D o l l a r s i n t h o u s a n d s ) Amount Percentage Tier 1 leverage capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tier 1 leverage capital requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tier 1 risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tier 1 risk-based capital requirement . . . . . . . . . . . . . . . . . . . . . . . . . Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total risk-based capital requirement . . . . . . . . . . . . . . . . . . . . . . . . . . Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $758,766 330,110 $428,656 $758,766 284,827 $473,939 $825,527 569,655 $255,872 6.90% 3.00 3.90% 10.66% 4.00 6.66% 11.59% 8.00 3.59% Amount $688,357 314,582 $373,775 $688,357 269,448 $418,909 $745,171 538,897 $206,274 Percentage 6.56% 3.00 3.56% 10.22% 4.00 6.22% 11.06% 8.00 3.06% At December 31, 2000, TCF and its bank subsidiaries exceeded poses other than trading, involve elements of credit and interest- their regulatory capital requirements and are considered “well- rate risk in excess of the amount recognized in the Consolidated capitalized” under guidelines established by the FRB and the OCC Statements of Financial Condition. pursuant to the Federal Deposit Insurance Corporation Improvement TCF’s exposure to credit loss in the event of non-performance Act of 1991. 14 > F I N A N C I A L I N S T R U M E N T S W I T H O F F - B A L A N C E - S H E E T R I S K TCF is a party to financial instruments with off-balance-sheet risk, primarily to meet the financing needs of its customers. These financial instruments, which are issued or held by TCF for pur- by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of the commitments. TCF uses the same credit policies in making these commitments as it does for on-balance- sheet instruments. TCF evaluates each customer’s creditworthi- ness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. For 55 TCF 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 con- Federal Home Loan Bank Advances – Forward Settle- ments – TCF enters into forward settlements of FHLB advances in the course of asset and liability management and to manage Deposits – The fair value of checking, passbook and statement and money market deposits is deemed equal to the amount payable loans held for sale are based upon quoted market prices. The fair values of TCF’s remaining commitments to extend credit and on demand. The fair value of certificates is estimated based on dis- standby letters of credit are estimated using fees currently charged trols the credit risk of forward mortgage loan sales commitments interest rate risk. Forward settlements of FHLB advances totaled counted cash flow analyses using interest rates offered by TCF for to enter into similar agreements. For fixed-rate loan commitments through credit approvals, credit limits and monitoring procedures. $300 million and $189 million at December 31, 2000 and 1999, certificates with similar remaining maturities. and standby letters of credit issued in conjunction with fixed-rate Commitments to Extend Credit – Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. These commitments totaled $1.1 billion and $1.2 billion at December 31, 2000 and 1999, respectively. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral predominantly consists of residential and commercial real estate and personal property. Included in the total commitments to extend credit at December 31, 2000 were fixed-rate mortgage loan commitments and loans in process aggregating $27.5 million. Standby Letters of Credit – Standby letters of credit are con- ditional commitments issued by TCF guaranteeing the performance of a customer to a third party. The standby letters of credit expire in various years through the year 2005 and totaled $28.8 million and $22 million at December 31, 2000 and 1999, respectively. Collateral held primarily consists of commercial real estate mort- gages. 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. VA Loans Serviced with Partial Recourse – TCF services VA loans on which it must cover any principal loss in excess of the VA’s guarantee if the VA elects its “no-bid” option upon the foreclo- sure of a loan. The serviced loans are collateralized by residential real estate and totaled $182.1 million and $184.5 million at December 31, 2000 and 1999, respectively. Forward Mortgage Loan Sales Commitments – TCF enters into forward mortgage loan sales commitments in order to man- age the market exposure on its residential loans held for sale and its commitments to extend credit for residential loans. Forward mortgage loan sales commitments are contracts for the delivery of mortgage loans or pools of loans in which TCF agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of the counterparties to meet the terms of their contracts and from movements in mortgage loan values and interest rates. Forward mortgage loan sales commitments totaled $121.7 million and $46.3 million at December 31, 2000 and 1999, respectively. respectively. 15 > F A I R V A L U E S O F F I N A N C I A L I N S T R U M E N T S 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 infor- mation and information about the financial instruments. Fair value estimates are subjective in nature, involving uncertainties and matters of significant judgment, and therefore cannot be deter- mined with precision. Changes in assumptions could significantly affect the estimates. The carrying amounts of cash and due from banks, investments and accrued interest payable and receivable approximate their fair values due to the short period of time until their expected real- ization. Securities available for sale are carried at fair value, which is based on quoted market prices. Certain financial instruments, including lease financings and discounted lease rentals, and all non-financial instruments are excluded from fair value of finan- cial instrument disclosure requirements. The following methods and assumptions are used by the Company in estimating fair value disclosures for its remaining financial instruments, all of which are issued or held for purposes other than trading. Loans Held for Sale – The fair value of loans held for sale is estimated based on quoted market prices. The estimated fair value of capitalized mortgage servicing rights totaled $49.8 million at December 31, 2000, compared with a carrying amount of $40.1 million. The estimated fair value of cap- italized mortgage servicing rights is based on estimated cash flows discounted using rates commensurate with the risks involved. Assumptions regarding prepayments, defaults and interest rates are determined using available market information. Loans – The fair values of residential and consumer loans are estimated using quoted market prices. For certain variable-rate loans that reprice frequently and that have experienced no signif- icant change in credit risk, fair values are based on carrying val- ues. The fair values of other loans are estimated by discounting contractual cash flows adjusted for prepayment estimates, using interest rates currently being offered for loans with similar terms to borrowers with similar credit risk characteristics. 56 TCF 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 dis- counted cash flow analyses using interest rates for borrowings of similar remaining maturities. loan agreements, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of forward settlements of FHLB advances are based on the difference between current levels of interest rates and the com- mitted rates. TCF has not incurred, and does not anticipate, significant Financial Instruments with Off-Balance-Sheet Risk – losses as a result of the recourse provisions associated with its bal- The fair values of residential commitments to extend credit and for- ance of VA loans serviced with partial recourse. As a result, the car- ward mortgage loan sales commitments associated with residential rying amounts and related estimated fair values of these financial instruments were not material at December 31, 2000 and 1999. As discussed above, the carrying amounts of certain of the Company’s financial instruments approximate their fair value. The carrying amounts disclosed below are included in the Consolidated Statements of Financial Condition under the indicated captions, except where noted otherwise. The carrying amounts and fair values of the Company’s remaining financial instruments are set forth in the following table: ( I n t h o u s a n d s ) Financial instrument assets: Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans: Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment finance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for loan losses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instrument liabilities: Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under agreements to repurchase . . . . . . . . . . . . . . . Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments with off-balance-sheet risk: (2) Commitments to extend credit (3) . . . . . . . . . . . . . . . . . . . . . . . . . Standby letters of credit (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forward mortgage loan sales commitments (3) . . . . . . . . . . . . . . . . . Federal Home Loan Bank advance forward settlements . . . . . . . . . . (1) Excludes the allowance for lease losses. (2) Positive amounts represent assets, negative amounts represent liabilities. (3) Carrying amounts are included in other assets. (4) Carrying amounts are included in accrued expenses and other liabilities. At December 31, 2000 Carrying Amount Estimated Fair Value 1999 Carrying Amount Estimated Fair Value $ 227,779 $ 231,306 $ 198,928 $ 200,617 3,673,831 3,712,568 1,371,841 1,381,222 410,422 410,003 2,234,134 2,408,672 207,059 210,434 (60,816) – 3,919,678 1,073,472 351,353 2,058,584 44,160 (51,847) 3,825,981 1,061,374 347,108 2,116,554 44,160 – $8,064,250 $8,354,205 $ 7,594,328 $ 7,595,794 $2,805,605 $2,836,340 $ 2,871,847 $ 2,901,177 994,320 1,003,645 1,891,037 1,903,898 42,125 41,694 1,010,000 1,759,787 135,732 1,010,000 1,733,859 135,301 $5,733,087 $5,785,577 $ 5,777,366 $ 5,780,337 $ 12,045 $ (342) $ 8,572 (2) 50 – (2) (1,151) (6,985) (1) 39 – $ 12,093 $ (8,480) $ 8,610 $ $ (916) (2) 427 1,509 1,018 57 TCF 16 > S T O C K O P T I O N A N D I N C E N T I V E P L A N The TCF Financial 1995 Incentive Stock Program (the “Program”) was adopted to enable TCF to attract and retain key personnel. Under the Program, no more than 5% of the shares of TCF common stock outstanding on the date of initial shareholder approval may be awarded. Options generally become exercisable over a period of one to 10 years from the date of the grant and expire after 10 years. All outstanding options have a fixed exercise price equal to the market price of TCF common stock on the date of grant. Restricted stock granted in 1998 generally vests within five years, but may be subject to a delayed vesting schedule if certain return on equity goals are not met. Restricted stock granted to certain executive officers in 2000 will vest only if certain earnings per share goals are achieved by 2008. Failure to achieve the goals will result in all or a portion of the shares being forfeited. Other restricted stock grants generally vest over periods from three to eight years. TCF also has prior programs with options that remain outstanding. Those options are included in the following tables. Accounting for Stock-Based Compensation – Effective January 1, 2000, TCF adopted the recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” for stock-based transactions beginning in 2000. Under SFAS No. 123, the fair value of an option or similar equity instrument on the date of grant is amortized to expense over the vesting period of the grant. The recognition provisions of SFAS No. 123 are applied prospectively upon adoption. TCF applied the intrinsic value based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” as amended, for stock-based transactions through December 31, 1999. Accordingly, no compensation expense was recognized prior to 2000 for TCF’s non-compensatory stock option grants. TCF believes the fair value method of accounting more appro- priately reflects the substance of the transaction between an entity that issues stock options, or other stock-based instruments, and its employees; that is, an entity has granted something of value to an employee generally in return for their continued employment and services. The fair value based method is designated as the pre- ferred method of accounting by SFAS No. 123. Compensation expense for restricted stock under SFAS No. 123 and APB Opinion No. 25 is recorded over the vesting peri- ods, and totaled $9.4 million, $9.5 million and $5.9 million in 2000, 1999 and 1998, respectively. Had compensation expense for all periods been determined based on the fair value at the grant dates for awards under the Program consis- tent with the method of SFAS No. 123, TCF’s pro forma net income and earnings per common share would have been as follows for periods prior to TCF’s adoption of SFAS No. 123: ( I n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) Net income: As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share: As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share: As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 1999 1998 $166,039 $164,607 $ $ $ $ 2.01 2.00 2.00 1.98 $156,179 $156,271 $ $ $ $ 1.77 1.77 1.76 1.76 The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model, with the following weighted- average assumptions used for 1999 and 1998, respectively: risk-free interest rates of 5.03% and 4.78%; dividend yield of 2.7% and 2.6%; expected lives of 7 and 5.25 years; and volatility of 27.0% and 27.2%. The weighted-average grant date fair value of options was $6.59, $7.02 and $6.49 in 2000, 1999 and 1998, respectively. The weighted- average grant date fair value of restricted stock was $24.60, $25.94 and $31.19 in 2000, 1999 and 1998, respectively. The following table reflects TCF’s stock option and restricted stock transactions under the Program since December 31, 1997: Outstanding at December 31, 1997 . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at December 31, 1998 . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at December 31, 1999 . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at December 31, 2000 . . . . . . . . . . . . . Exercisable at December 31, 2000 . . . . . . . . . . . . . Stock Options Restricted Stock Exercise Price Shares Range 837,045 $ 2.22-33.28 551,500 23.69-32.19 (208,388) 2.44-17.54 (1,500) – 32.19 – 1,178,657 2.22-33.28 247,550 23.56-29.03 (551,107) (112,000) – 763,100 1,000 2.22-23.69 23.56-33.28 – 2.63-33.28 21.81 (283,585) 2.63-28.88 (13,000) 23.56-32.19 – – Weighted- Average $ 9.61 25.04 4.69 32.19 – 17.67 25.25 11.73 32.36 – 22.27 21.81 20.25 28.32 – 467,515 3.46-33.28 180,965 3.46-33.28 23.32 18.34 Shares Price Range 1,948,928 $ 7.66-27.34 108,200 28.97-34.00 – – (5,400) 16.56-34.00 (607,994) 1,443,734 7.66-21.91 7.66-34.00 21,050 22.53-28.59 – (11,760) (331,889) 1,121,135 1,300,080 – – 8.11-34.00 7.66-27.34 8.11-34.00 22.10-43.70 – (20,940) 20.88-34.00 (125,175) 8.11-28.59 2,275,100 16.56-43.70 The following table summarizes information about stock options outstanding at December 31, 2000: Exercise Price Range $3.46 to $10.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.01 to $20.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.01 to $30.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30.01 to $33.28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Options Outstanding Options Exercisable Weighted- Average Exercise Price $ 5.45 13.78 24.98 31.55 23.32 Shares 49,885 37,830 285,300 94,500 467,515 Weighted- Average Remaining Contractual Life in Years 1.5 5.2 8.1 7.1 7.0 Weighted- Average Exercise Price $ 5.45 13.78 24.85 32.24 18.34 Shares 49,885 37,830 65,050 28,200 180,965 At December 31, 2000, there were 3,211,391 shares reserved In addition to providing retirement income benefits, TCF pro- for issuance under the Program, including 467,515 shares for vides health care benefits for eligible retired employees, and in which options had been granted but had not yet been exercised. some cases life insurance benefits (the “Postretirement Plan”). 17 > E M P L O Y E E B E N E F I T P L A N S The TCF Cash Balance Pension Plan (the “Pension Plan”) is a qual- ified defined benefit plan covering all “regular stated salary” employ- ees and certain part-time employees who are at least 21 years old and have completed a year of eligibility service with TCF. TCF makes a monthly allocation to the participant’s account based on a percent- age 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 qualifying service. Substantially all full-time employees may become eligible for health care benefits if they reach retirement age and have completed ten years of service with the Company, with certain exceptions. Effective January 1, 2000, TCF modified the Postretirement Plan by elim- inating the Company subsidy for employees not yet eligible for benefits under the Postretirement Plan. The plan provisions for full-time and retired employees eligible for these benefits were not changed. These and similar benefits for active employees are provided through insurance companies or through self-funded programs. The Postretirement Plan is an unfunded plan. 58 TCF 59 TCF The following table sets forth the status of the Pension Plan and the Postretirement Plan at the dates indicated: The Pension Plan’s assets consist primarily of listed stocks and government bonds. At December 31, 2000 and 1999, the Pension Plan’s ( I n t h o u s a n d s ) Change in benefit obligation: Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . Service cost – benefits earned during the year . . . . . . . . . . . . . . . . . Interest cost on benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . Change in fair value of plan assets: Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . Funded status of plans: Pension Plan Postretirement Plan Year Ended December 31, Year Ended December 31, 2000 1999 2000 1999 assets included TCF common stock with a market value of $11.3 million and $6.3 million, respectively. For active participants of the Postretirement Plan, a 7.2% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. This rate is assumed to decrease gradually to 6% for the year 2005 and remain at that level thereafter. For most retired participants, the annual rate of increase is assumed to be 4% for all future years, which represents the Plan’s annual limit on increases in $ 30,728 $ 28,967 $ 9,721 $ 9,214 TCF’s contributions for retirees. 3,248 2,431 – (1,942) (1,921) 32,544 74,867 14,118 (1,921) – – 87,064 3,297 2,059 – (1,205) (2,390) 30,728 57,338 18,151 (2,390) 1,768 – 74,867 56 523 (2,481) 179 (389) 7,609 – – (389) – 389 – (7,609) 2,513 – (797) 426 630 – 69 (618) 9,721 – – (618) – 618 – (9,721) 4,433 770 (998) Assumed health care cost trend rates have an effect on the amounts reported for the Postretirement Plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects: ( I n t h o u s a n d s ) Effect on total of service and interest cost components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect on postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-Percentage- Point Increase 1-Percentage- Point Decrease $ 14 132 $ (13) (119) Employee Stock Purchase Plan – The TCF Employees Stock Purchase Plan generally allows participants to make contributions finance, and mortgage banking have been identified as reportable operating segments. Banking includes the following operating by salary deduction of up to 12% of their salary on a tax-deferred units that provide financial services to customers: deposits and basis pursuant to section 401(k) of the Internal Revenue Code. investment products, commercial lending, consumer lending, res- TCF matches the contributions of all employees at the rate of 50 idential lending and treasury services. Management of TCF’s bank- cents per dollar, with a maximum employer contribution of 3% ing area is organized by state. The separate state operations have of the employee’s salary. Employee contributions vest immediately been aggregated for purposes of segment disclosures. Leasing and while the Company’s matching contributions are subject to a grad- equipment finance provides a broad range of comprehensive lease uated vesting schedule based on an employee’s years of vesting ser- and equipment finance products addressing the financing needs vice. The Company’s matching contributions are expensed when of diverse companies. Mortgage banking activities include the orig- $(5,893) $(5,516) made. TCF’s contribution to the plan was $2.7 million, $2.8 mil- ination and purchase of residential mortgage loans for portfolio lion and $2.7 million in 2000, 1999 and 1998, respectively. loans and sales to third parties, generally with servicing retained. Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid (accrued) benefit cost at end of year . . . . . . . . . . . . . . . 54,520 – (2,926) (32,808) $ 18,786 44,139 – (3,983) (23,870) $ 16,286 Net periodic benefit cost (credit) included the following components: ( I n t h o u s a n d s ) Service cost . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . Amortization of transition obligation . . Amortization of prior service cost . . . . Recognized actuarial gain . . . . . . . . . . Net periodic benefit cost (credit) . . Pension Plan Year Ended December 31, Postretirement Plan Year Ended December 31, 2000 $ 3,248 2,431 (6,207) – (1,057) (915) $(2,500) 1999 $ 3,297 2,059 (5,155) – (1,057) – 1998 $ 2,967 1,454 (3,745) – (876) (728) $ (856) $ (928) 2000 $ 56 523 – 209 – (22) $766 1999 $ 426 630 – 342 109 (12) $1,495 1998 $ 299 641 – 342 109 (58) $1,333 The discount rate and rate of increase in future compensation used to measure the benefit obligation and the expected long-term rate of return on plan assets were as follows: Pension Plan Year Ended December 31, Postretirement Plan Year Ended December 31, 2000 7.50% 5.00 10.00 1999 7.50% 5.00 10.00 1998 6.75% 5.00 9.50 2000 7.50% – – 1999 7.50% – – 1998 6.75% – – Discount rate . . . . . . . . . . . . . . . . . . Rate of increase in future compensation . . . . . . . . . . . . . . . Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . 60 TCF 18 > B U S I N E S S S E G M E N T S Prior to April 1, 2000, TCF’s wholly owned bank subsidiaries located in Minnesota, Illinois, Wisconsin and Michigan had been identified as reportable segments. In April 2000, TCF merged these four bank charters into one national bank charter head- quartered in Minnesota. Following the bank merger, certain management responsibil- ities were realigned within the organization. Management report- ing was revised to reflect the charter merger and the resulting changes in responsibilities. Banking, leasing and equipment In addition, TCF operates a bank holding company (“parent com- pany”) that provides data processing, bank operations and other professional services to the operating segments. TCF evaluates performance and allocates resources based on the segments’ net income. The segments follow generally accepted accounting principles as described in the Summary of Significant Accounting Policies. TCF generally accounts for intersegment sales and transfers at cost. Each segment is managed separately with its own president, who reports directly to TCF’s chief operating deci- sion maker. 61 TCF The following table sets forth certain information about the reported profit or loss and assets for each of TCF’s reportable segments, Revenues from external customers for TCF’s operating units, comprised of total interest income and non-interest income, are as follows: including reconciliation to TCF’s consolidated totals. The results of TCF’s parent company and other administrative areas comprise the “other” category in the table below. Prior period data has been restated to reflect the change in composition of TCF’s operating segments. ( I n t h o u s a n d s ) At or For the Year Ended December 31, 2000: Revenues from External Customers: Leasing and Equipment Finance Banking Mortgage Banking Eliminations and Reclassifications Other Consolidated Interest Income . . . . . . . . . . . Non-Interest Income . . . . . . . Total . . . . . . . . . . . . . . . . . $ 751,103 $ 69,960 $ 5,192 287,219 38,451 15,846 $ 1,038,322 $108,411 $ 21,038 $ 397,887 $ 30,405 $ 5,609 Net Interest Income . . . . . . . . . . Provision for Credit Losses . . . . . Non-Interest Income . . . . . . . . . Amortization of Goodwill and Other Intangibles . . . . . . . . . . Other Non-Interest Expense . . . . Income Tax Expense . . . . . . . . . . Net Income (Loss) . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . At or For the Year Ended December 31, 1999: Revenues from External Customers: Interest Income . . . . . . . . . . . . Non-Interest Income . . . . . . . Total . . . . . . . . . . . . . . . . . Net Interest Income . . . . . . . . . . . Provision for Credit Losses . . . . . . Non-Interest Income . . . . . . . . . . Amortization of Goodwill and Other Intangibles . . . . . . . . . . Other Non-Interest Expense . . . . . Income Tax Expense . . . . . . . . . . . Net Income (Loss) . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . At or For the Year Ended December 31, 1998: Revenues from External Customers: Interest Income . . . . . . . . . . . . Non-Interest Income . . . . . . . Total . . . . . . . . . . . . . . . . . Net Interest Income . . . . . . . . . . . Provision for Credit Losses . . . . . . Non-Interest Income . . . . . . . . . . Amortization of Goodwill and Other Intangibles . . . . . . . . . . Other Non-Interest Expense . . . . . Income Tax Expense . . . . . . . . . . . Net Income (Loss) . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . 62 TCF $ $ $ $ $ $ 426 86 512 (556) – – $ 826,681 – 341,602 – $ 1,168,283 5,191 $ 438,536 – 14,772 – 25,497 90,640 (100,205) 341,602 – 29,218 717 – 93,588 (1,266) – (95,014) – 10,001 452,527 116,593 9,594 287,219 9,605 398,922 102,722 5,178 38,451 396 25,813 14,420 $ 164,263 $ 23,049 $ 1,171 $ (2,238) $ – $ 186,245 $10,800,942 $876,540 $130,477 $112,309 $ (722,806) $11,197,462 $ $ $ $ $ $ $ $ $ $ 699,451 269,384 968,835 398,264 15,065 269,384 10,296 394,303 96,473 151,511 10,270,641 691,282 228,486 919,768 393,273 22,073 228,561 11,006 368,661 90,470 129,624 9,757,427 $ $ $ $ $ $ $ $ $ $ 47,562 28,490 76,052 25,212 1,858 28,490 393 19,062 13,037 19,352 524,702 48,861 31,340 80,201 26,833 1,255 31,340 393 16,705 16,166 23,654 417,094 $ $ $ $ $ $ $ $ $ $ 4,668 20,723 25,391 6,029 – 24,914 – 32,571 (491) (1,137) 122,685 8,591 31,640 40,231 9,874 – 37,184 – 37,274 3,941 5,843 262,794 $ $ $ $ $ $ $ $ $ $ 420 2 422 (3,487) – 82,564 – 84,731 (1,967) (3,687) 56,188 160 29 189 (1,759) (48) 70,783 – 73,521 (1,507) (2,942) 54,485 $ $ $ $ $ $ $ $ $ $ – – – $ $ 752,101 318,599 1,070,700 (1,805) $ – (86,753) – (88,558) – – $ 424,213 16,923 318,599 10,689 442,109 107,052 166,039 (312,500) $ 10,661,716 – – – $ $ 748,894 291,495 1,040,389 (2,487) $ – (76,373) – (78,860) – – $ 425,734 23,280 291,495 11,399 417,301 109,070 156,179 (327,206) $ 10,164,594 ( I n t h o u s a n d s ) Deposits and investment products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential lending and treasury services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 > O T H E R E X P E N S E Other expense consists of the following: ( I n t h o u s a n d s ) Deposit account losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telecommunication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ATM interchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Postage and courier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan and lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal deposit insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2000 1999 1998 $ 272,785 $ 232,603 $ 194,948 139,697 239,916 385,924 108,411 21,038 512 108,817 215,671 411,744 76,052 25,391 422 99,383 236,538 388,899 80,201 40,231 189 $1,168,283 $1,070,700 $1,040,389 Year Ended December 31, 2000 $ 19,479 1999 $ 17,172 1998 $ 14,335 13,345 11,735 11,442 9,216 3,979 2,837 5,326 13,386 11,156 10,876 8,879 5,469 5,307 4,906 13,049 9,107 9,926 10,006 6,917 5,439 6,815 41,505 $118,864 35,311 $112,462 33,439 $109,033 63 TCF 20 > P A R E N T C O M P A N Y F I N A N C I A L I N F O R M A T I O N TCF Financial Corporation’s (parent company only) condensed statements of financial condition as of December 31, 2000 and 1999, and the condensed statements of operations and cash flows for the years ended December 31, 2000, 1999 and 1998 are as follows: Condensed Statements of Financial Condition ( I n t h o u s a n d s ) Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends receivable from bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities and Stockholders’ Equity: Bank line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At December 31, 2000 1999 $ 191 23,996 835,933 11,947 25,000 35,315 $ 673 2,639 835,997 11,566 7,272 33,007 $932,382 $891,154 $ – – 22,162 22,162 910,220 $932,382 $ 42,000 22,357 17,815 82,172 808,982 $891,154 Condensed Statements of Operations ( I n t h o u s a n d s ) Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest expense after provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends received from consolidated bank subsidiaries . . . . . . . . . . . . . . . . . . . . Other non-interest income: Affiliate service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-interest expense: Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income tax benefit and equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2000 $ 1,192 $ 1,726 (534) – (534) 212,327 90,553 87 90,640 54,506 16,133 22,970 93,609 208,824 1,435 210,259 (24,014) 1999 576 4,000 (3,424) – (3,424) 164,791 82,567 (3) 82,564 49,171 14,982 20,622 84,775 159,156 1,852 161,008 5,031 $ 1998 581 2,219 (1,638) (49) (1,589) 184,569 72,483 35 72,518 41,379 14,672 19,294 75,345 180,153 1,588 181,741 (25,562) $186,245 $166,039 $ 156,179 Condensed Statements of Cash Flows ( I n t h o u s a n d s ) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits with banks . . . . . . . . . . . . . . . . Investments in and advances to subsidiaries, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan to Executive Deferred Compensation Plan, net . . . . . . . . . . . . . . . . . . . . . . . Purchases of premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities: Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of common stock to be held in treasury . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in bank line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2000 1999 1998 $ 186,245 $ 166,039 $ 156,179 24,014 13,381 37,395 223,640 (21,357) – (416) (4,300) 525 (25,548) (66,101) (73,824) (22,357) (42,000) 5,708 (5,031) 15,554 10,523 176,562 (238) (1,000) 1,390 (6,624) 579 (5,893) (60,755) (106,106) 22,357 (32,000) 6,330 25,562 1,802 27,364 183,543 17,420 – (6,111) (4,174) 765 7,900 (54,971) (210,939) – 74,000 629 (198,574) (170,174) (191,281) (482) 673 191 $ 495 178 673 $ 162 16 178 $ 21 > L I T I G A T I O N A N D C O N T I N G E N T L I A B I L I T I E S 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, bor- rowers have also brought actions against TCF, in some cases claiming substantial amounts of damages. Some financial services companies have recently been subjected to significant exposure in connection with class actions and/or suits seeking punitive damages. While the Company is not aware of any actions or allegations which should reasonably give rise to any material adverse effect, it is possible that the Company could be subjected to such a claim in an amount which could be material. Management, after review with its legal counsel, believes that the ultimate disposition of its litigation will not have a material effect on TCF’s financial condition. 64 TCF 65 TCF I N D E P E N D E N T A U D I T O R S ’ R E P O R T O T H E R F I N A N C I A L D A T A Selected Quarterly Financial Data (Unaudited) 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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and per- form the audit to obtain reasonable assurance about whether the financial statements are free of material mis- statement. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in note 16 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as of January 1, 2000. Minneapolis, Minnesota January 17, 2001 ( D o l l a r s i n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) Selected Financial Condition Data: Total assets . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . Securities available for sale . . . . . . . . . . . Residential real estate loans . . . . . . . . . . Other loans and leases . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . . . Borrowings . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . Selected Operations Data: Interest income . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . Net interest income after provision for credit losses . . . . . . Non-interest income: Fees and other revenues . . . . . . . . . . Other non-interest income: Gain (loss) on sales of securities available for sale . . . . Gain on sales of loan servicing . . . Gain on sales of branches . . . . . . . Gain on sale of subsidiaries . . . . . . Title insurance revenues . . . . . . . Other non-interest income . . Total non-interest income . . Non-interest expense: Amortization of goodwill and other intangibles . . . . . . . . . . . . . Other non-interest expense . . . . . . . Total non-interest expense . . . . . . Income before income tax expense . . . . . . Income tax expense . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . Per common share: Basic earnings . . . . . . . . . . . . . . . . . Diluted earnings . . . . . . . . . . . . . . . . Diluted cash earnings (1) . . . . . . . . . . . Dividends declared . . . . . . . . . . . . . . Financial Ratios: (2) Return on average assets . . . . . . . . . . . . . Cash return on average assets (1) . . . . . . . . Return on average realized common equity . . . . . . . . . . . . . . . . Return on average common equity . . . . . . Cash return on average realized common equity (1) . . . . . . . . . Average total equity to average assets . . . Average realized tangible equity to average assets . . . . . . . . . . . . . . . . Average tangible equity to average assets . . . . . . . . . . . . . . . . . . Net interest margin (3) . . . . . . . . . . . . . . . At Dec. 31, 2000 At Sept. 30, 2000 At June 30, 2000 At March 31, 2000 At Dec. 31, 1999 At Sept. 30, 1999 At June 30, 1999 At March 31, 1999 $11,197,462 $10,980,000 $10,905,705 $10,761,821 $10,661,716 $10,342,248 $10,338,341 $10,200,744 158,222 1,569,406 3,788,352 3,504,977 6,632,481 2,579,789 824,442 134,059 1,403,888 3,673,831 4,872,868 6,891,824 3,184,245 910,220 127,701 1,599,438 3,819,673 3,782,457 6,633,738 2,721,200 815,304 131,635 1,436,836 3,866,659 4,364,491 6,719,962 3,205,732 807,382 148,154 1,521,661 3,919,678 3,976,065 6,584,835 3,083,888 808,982 194,781 1,701,063 3,773,094 3,658,077 6,648,283 2,734,652 810,448 132,173 1,413,218 3,797,023 4,562,644 6,810,921 3,115,066 859,444 155,265 1,470,532 3,932,944 4,158,849 6,823,248 2,975,080 780,311 Dec. 31, 2000 Sept. 30, 2000 June 30, 2000 March 31, 2000 Dec. 31, 1999 Sept. 30, 1999 June 30, 1999 March 31, 1999 Three Months Ended $ 214,408 $ 103,584 110,824 4,711 210,709 $ 100,035 110,674 3,688 204,407 $ 94,209 110,198 5,383 197,157 $ 90,317 106,840 990 193,043 $ 86,931 106,112 3,371 188,656 $ 82,116 106,540 2,845 186,359 $ 79,637 106,722 2,947 184,043 79,204 104,839 7,760 106,113 106,986 104,815 105,850 102,741 103,695 103,775 97,079 88,122 85,276 82,438 72,953 74,785 72,137 68,385 63,919 – – 8,947 – – 8,947 97,069 – – – – – – 85,276 – – 3,866 – – 3,866 86,304 – – – – – – 72,953 – – 3,349 5,522 2,490 11,361 86,146 – – 6,429 – 3,953 10,382 82,519 (5) 743 2,382 – 4,512 7,632 76,017 3,199 2,333 – – 4,466 9,998 73,917 2,519 115,841 118,360 84,822 32,657 52,165 $ 2,515 113,818 116,333 75,929 29,232 46,697 $ 2,484 112,761 115,245 75,874 29,212 46,662 $ 2,483 110,107 112,590 66,213 25,492 40,721 $ 2,665 112,292 114,957 73,930 28,980 44,950 $ 2,676 114,061 116,737 69,477 26,717 42,760 $ 2,673 110,106 112,779 67,013 26,024 40,989 $ 2,675 105,650 108,325 62,671 25,331 37,340 .67 $ .66 $ .68 $ .2125 $ .60 $ .59 $ .61 $ .2125 $ .60 $ .59 $ .61 $ .2125 $ .51 $ .51 $ .53 $ .1875 $ .55 $ .55 $ .58 $ .1875 $ .52 $ .52 $ .54 $ .1875 $ .50 $ .49 $ .52 $ .1875 $ .45 .44 .47 .1625 $ $ $ $ $ 1.89% 1.96 1.71% 1.78 1.73% 1.80 1.53% 1.60 1.72% 1.80 1.66% 1.73 1.60% 1.67 1.48% 1.55 23.17 23.78 24.01 7.95 6.66 6.45 4.33 21.52 22.55 22.39 7.60 6.43 6.06 4.38 22.19 23.72 23.09 7.28 6.23 5.72 4.38 19.24 20.55 20.12 7.44 6.35 5.84 4.32 21.04 22.03 22.14 7.78 6.50 6.13 4.38 20.37 21.29 21.27 7.79 6.44 6.08 4.46 19.81 20.11 20.73 7.95 6.33 6.21 4.52 18.06 17.99 18.97 8.22 6.39 6.42 4.52 66 TCF (1)Excludes amortization and reduction of goodwill, net of income tax benefit. (2)Annualized. (3) Net interest income divided by average interest-earning assets. 67 TCF O T H E R F I N A N C I A L D A T A Five-Year Consolidated Financial Highlights Five-Year Consolidated Financial Highlights (continued) ( I n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) Consolidated Summary of Operations: Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . Provision for credit losses . . . . . . . . . . . . . . . . . . . . . Net interest income after provision for credit losses . Fees and other revenues . . . . . . . . . . . . . . . . . . . . . . . Other non-interest income: Gain on sales of securities available for sale . . . . . . . Gain on sales of loan servicing . . . . . . . . . . . . . . . . Gain on sales of branches . . . . . . . . . . . . . . . . . . . Gain on sale of subsidiaries . . . . . . . . . . . . . . . . . . Gain on sale of joint venture interest . . . . . . . . . . . Gain on sales of loans . . . . . . . . . . . . . . . . . . . . . . Title insurance revenues . . . . . . . . . . . . . . . . . . . . Other non-interest income . . . . . . . . . . . . . . . Total non-interest income . . . . . . . . . . . . . Amortization of goodwill and other intangibles . . . . . . FDIC special assessment . . . . . . . . . . . . . . . . . . . . . . Other non-interest expense . . . . . . . . . . . . . . . . . . . . Total non-interest expense . . . . . . . . . . . . . . . . Income before income tax expense . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share . . . . . . . . . . . . . . . . Diluted earnings per common share . . . . . . . . . . . . . . Diluted cash earnings per common share . . . . . . . . . . Dividends declared per common share . . . . . . . . . . . . Average common and common equivalent shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, At December 31, 2000 1999 1998 1997 1996 ( I n t h o u s a n d s , e x c e p t p e r - s h a r e d a t a ) 2000 1999 1998 1997 1996 $ 826,681 $752,101 $ 748,894 $682,614 $612,884 388,145 438,536 14,772 423,764 328,789 – – 12,813 – – – – 12,813 341,602 10,001 – 452,527 462,528 302,838 116,593 327,888 424,213 16,923 407,290 279,226 3,194 3,076 12,160 5,522 – – 15,421 39,373 318,599 10,689 – 442,109 452,798 273,091 107,052 323,160 425,734 23,280 402,454 242,509 2,246 2,414 18,585 – 5,580 – 20,161 48,986 291,495 11,399 – 417,301 428,700 265,249 109,070 289,018 393,596 17,995 375,601 188,620 8,509 1,622 14,187 – – – 13,730 38,048 226,668 15,757 – 345,605 361,362 240,907 95,846 258,316 354,568 21,446 333,122 159,844 86 – 2,747 – – 5,443 13,492 21,768 181,612 3,540 34,803 314,983 353,326 161,408 61,031 $ 186,245 $166,039 $ 156,179 $145,061 $100,377 $ $ $ $ 2.37 2.35 2.44 .825 78,649 79,389 $ $ $ $ 2.01 2.00 2.10 .725 82,445 83,071 $ $ $ $ 1.77 1.76 1.88 .6125 88,093 88,916 $ $ $ 1.72 1.69 1.73 $ $ $ 1.23 1.20 1.22 $ .46875 $.359375 84,478 86,134 81,904 83,939 Consolidated Summary of Financial Condition: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing deposits with banks . . . . . . . . . . . . . . Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Reserve Bank stock, at cost . . . . . . . . . . . . . . . Federal Home Loan Bank stock, at cost . . . . . . . . . . . . Securities available for sale . . . . . . . . . . . . . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . Residential real estate loans . . . . . . . . . . . . . . . . . . . . Other loans and leases . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Home Loan Bank advances . . . . . . . . . . . . . . . Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . Tangible equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book value per common share . . . . . . . . . . . . . . . . . . Tangible book value per common share . . . . . . . . . . . . Key Ratios and Other Data: Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average assets . . . . . . . . . . . . . . . . . . . . . . . Return on average realized common equity . . . . . . . . . Average total equity to average assets . . . . . . . . . . . . . . Average interest-earning assets to average interest-bearing liabilities . . . . . . . . . . . . . . . . . . . Common dividend payout ratio . . . . . . . . . . . . . . . . . Number of full service bank offices . . . . . . . . . . . . . . . Number of checking accounts (in thousands) . . . . . . . . $11,197,462 $10,661,716 $10,164,594 $9,744,660 $ 7,430,487 332 – – 23,286 110,441 1,403,888 227,779 3,673,831 4,872,868 153,239 11,183 6,891,824 1,891,037 1,293,208 910,220 745,798 11.34 9.29 20,319 – – 23,224 104,611 1,521,661 198,928 3,919,678 3,976,065 158,468 13,262 6,584,835 1,759,787 1,324,101 808,982 637,252 9.87 7.78 115,894 41,000 4,227 23,112 93,482 1,677,919 213,073 3,765,280 3,375,898 166,645 16,238 6,715,146 1,804,208 656,838 845,502 662,619 9.88 7.74 20,572 – 4,061 22,977 82,002 1,426,131 244,612 3,623,845 3,445,343 177,700 19,821 6,907,310 1,339,578 387,574 953,680 756,159 10.27 8.15 386,244 – 3,910 – 66,061 999,586 203,869 2,252,312 3,040,608 15,431 10,843 4,977,630 1,141,040 567,132 630,687 604,413 7.61 7.29 At or For the Year Ended December 31, 2000 1999 1998 1997 1996 4.35% 1.72 21.53 7.58 119.10 35.11% 352 1,131 4.47% 1.61 19.83 7.93 117.02 36.25% 338 1,032 4.84% 1.62 17.51 9.35 116.55 34.80% 311 913 5.20% 1.77 19.57 9.12 117.15 27.74% 221 772 5.27% 1.39 16.77 8.31 115.29 29.95% 196 669 68 TCF 69 TCF O T H E R F I N A N C I A L D A T A Allowance for Loan and Lease Loss Information Contractual Amortization of Loan and Lease Portfolios Year Ended December 31, At December 31, 2000 (1) ( D o l l a r s i n t h o u s a n d s ) Balance at beginning of year . . . . . . . . . . . . . . . . . . . . Acquired balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers to loans held for sale . . . . . . . . . . . . . . . . . . Charge-offs: Residential real estate . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . Recoveries: Residential real estate . . . . . . . . . . . . . . . . . . . . . . Commercial real estate . . . . . . . . . . . . . . . . . . . . . Commercial business . . . . . . . . . . . . . . . . . . . . . . Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasing and equipment finance . . . . . . . . . . . . . . . Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . Provision charged to operations . . . . . . . . . . . . . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . Ratio of net loan and lease charge-offs to average loans and leases outstanding . . . . . . . . . . . . . . . . . Year-end allowance as a percentage of year-end total loan and lease balances . . . . . . . . . . . . . . . . . Year-end allowance as a percentage of year-end loans and leases excluding residential real estate loans . . . . 2000 $55,755 – – (15) (76) (360) (7,041) (2,209) (9,701) 28 295 694 4,576 250 5,843 1999 $ 80,013 – (14,793) (155) (674) (52) (31,509) (2,008) (34,398) 71 1,381 329 5,831 398 8,010 1998 $ 82,583 – – (291) (1,294) (42) (30,108) (979) (32,714) 103 559 635 5,222 345 6,864 1997 $ 71,865 10,592 – (444) (927) (1,485) (21,660) (2,297) (26,813) 167 2,530 2,488 3,141 618 8,944 1996 $ 66,290 – – (333) (1,944) (2,786) (18,317) (914) (24,294) 131 3,690 2,675 1,918 9 8,423 (3,858) 14,772 (26,388) 16,923 (25,850) 23,280 (17,869) 17,995 (15,871) 21,446 $66,669 $ 55,755 $ 80,013 $ 82,583 $ 71,865 .05% .35% .36% .30% .29% .78 1.31 .71 1.33 1.12 2.27 1.17 2.30 1.36 2.29 ( I n t h o u s a n d s ) Amounts due: Within 1 year . . . . . . . . . . . . . . . . After 1 year: 1 to 2 years . . . . . . . . . . . . . . . 2 to 3 years . . . . . . . . . . . . . . . 3 to 5 years . . . . . . . . . . . . . . . 5 to 10 years . . . . . . . . . . . . . . 10 to 15 years . . . . . . . . . . . . . . Over 15 years . . . . . . . . . . . . . . Total after 1 year . . . . . . . . . Total . . . . . . . . . . . . . . Amounts due after 1 year on: Fixed-rate loans and leases . . . . . . Adjustable-rate loans . . . . . . . . . . Total after 1 year . . . . . . . . . . . Residential Real Estate Commercial Real Estate Commercial Business Consumer Leasing and Equipment Finance Total Loans and Leases $ 114,568 $ 213,456 $234,965 $ 97,393 $312,119 $ 972,501 115,641 120,013 250,073 629,189 572,963 1,864,318 3,552,197 $ 3,666,765 $ 1,479,438 2,072,759 $ 3,552,197 162,865 88,205 266,182 487,696 135,716 20,532 1,161,196 $1,374,652 $ 244,741 916,455 $1,161,196 60,183 48,904 43,971 20,752 894 246 174,950 $409,915 $ 75,647 99,303 $174,950 88,604 100,528 204,425 566,558 948,031 245,382 2,153,528 $2,250,921 $1,143,996 1,009,532 $2,153,528 239,938 168,565 227,647 – – – 636,150 $948,269 $636,150 – $636,150 667,231 526,215 992,298 1,704,195 1,657,604 2,130,478 7,678,021 $8,650,522 $3,579,972 4,098,049 $7,678,021 (1) Gross of unearned discounts and deferred fees. This table does not include the effect of prepayments, which is an important consideration in management’s interest-rate risk analysis. Company experience indicates that the loans remain outstanding for significantly shorter periods than their contractual terms. 70 TCF 71 TCF S E N I O R O F F I C E R S B O A R D O F D I R E C T O R S O F F I C E S TCF Financial Corporation TCF National Bank Corporate Chairman of the Board and Chief Executive Officer William A. Cooper Vice Chairman and Chief Operating Officer Thomas A. Cusick Vice Chairman, General Counsel and Secretary Gregory J. Pulles President Lynn A. Nagorske Executive Vice President, Chief Financial Officer and Treasurer Neil W. Brown Executive Vice President and Chief Information Officer Earl D. Stratton Executive Vice Presidents Craig R. Dahl William E. Dove Ronald J. Palmer Mary E. Sipe Senior Vice President, Controller and Assistant Treasurer David M. Stautz Senior Vice Presidents Timothy G. Doyle Daniel P. Engel Kevin J. Fink Wallace A. Fudold Antoinette M. Jelinek Jason E. Korstange Mark R. Lund Norman G. Morrisson Barbara E. Shaw R. Craig Woods Vice President, General Counsel, Corporate Affairs Diane O. Stockman President Barry N. Winslow Executive Vice President Paul B. Brawner Senior Vice Presidents Philip M. Broom Daniel R. Edward Shelley A. Fitzmaurice Douglass B. Hiatt Charles P. Hoffman, Jr. Scott W. Johnson Gloria J. Karsky Patricia L. Quaal Diane O. Stockman R. Elizabeth Topoluk Senior Vice President, General Counsel and Secretary Joseph T. Green Minnesota President Mark L. Jeter Executive Vice Presidents Sara L. Evers Alan C. Hubbell Robert H. Scott Senior Vice Presidents Scott A. Fedie Mark L. Foster K. Robert Lea Timothy B. Meyer Erin E. Raden Steven E. Rykkeli John F. Schroeder Kurt A. Schrupp James T. Stahlmann Daniel G. Thorberg Illinois/Wisconsin President and Chief Executive Officer Barry N. Winslow Chief Operating Officer, Lending Timothy P. Bailey Chief Operating Officer, Retail Michael B. Johnstone Executive Vice Presidents Mark B. Dillon Michael R. Klemz Mark W. Rohde C. Hunter Westbrook Senior Vice Presidents Robert J. Brueggeman Maureen F. Cipriano David R. Creel Gina L. Galante Mark W. Gault James L. Koon Russ McMinn Todd A. Palmer Stephen W. Sinner David J. Veurink Michigan President Thomas J. Wagner Executive Vice Presidents Robert T. Griffore Terrence K. McHugh Senior Vice Presidents James S. Broucek Luis J. Campos Larry M. Czekaj Natalie A. Glass Dennis J. Gistinger Donald J. Hawkins Charles L. Hayne T. Paul Terova John J. Owens Colorado President Wayne A. Marty Senior Vice Presidents Matthew G. Lamb Edward F. Tierney TCF Financial Insurance Agency President Mary E. Sipe Senior Vice President Janet M. Bryant TCF Securities, Inc. President Frank A. McCarthy TCF Mortgage Corporation President Joseph W. Doyle Senior Vice Presidents Richard B. Aronson Douglas L. Dinndorf Patricia A. Roycraft Tamara J. Salvo Jon M. Savat Carol B. Schirmers Winthrop Resources Corporation Chairman Craig R. Dahl President Ronald J. Palmer Senior Vice Presidents Gary W. Anderson Paul L. Gendler Deborah L. Mogensen Richard J. Pieper Dean J. Stinchfield Steven C. Zola TCF Leasing, Inc. President Craig R. Dahl Executive Vice Presidents William S. Henak Mark D. Nyquist Senior Vice Presidents Peter C. Darin Walter E. Dzielsky Timothy A. Pratt William D. Reinke TCF Express Trade, Inc. President Brian J. Hurd Lynn A. Nagorske President Ralph Strangis 2,3,4 Senior Partner, Kaplan, Strangis and Kaplan, P.A. Gerald A. Schwalbach 2,3 Chairman, Superior Storage LLC 1 Audit/Asset Quality Committee 2 Personnel/Shareholder Relations Committee (also acts as Nominating Committee) 3 Advisory Committee –TCF Employee Stock Purchase Plan 4 Executive Committee William A. Cooper 4 Chairman of the Board and Chief Executive Officer William F. Bieber 2,3 Chairman, Acrometal Management Corporation Rodney P. Burwell Chairman, Xerxes Corporation Thomas A. Cusick 4 Vice Chairman and Chief Operating Officer John M. Eggemeyer III 2,3 President, Castle Creek Capital LLC Robert E. Evans 1 Retired Vice Chairman Luella G. Goldberg 2,3,4 Immediate Past Chair, University of Minnesota Foundation Trustee Emerita, Former Acting President, Wellesley College George G. Johnson 1 CPA/Managing Director, George Johnson & Co. Thomas J. McGough 1,4 President, McGough Construction Company, Inc. Richard F. McNamara 2,3 Chief Executive Officer, Activar Inc. Executive Offices Michigan Headquarters 401 East Liberty Street Ann Arbor, MI 48104 (734) 769-8300 Traditional Branches Metro Detroit Region (17) Northeast Region (9) Southeast Region (8) Central Region (9) Supermarket Branches Metro Detroit Region (10) Northeast Region (1) Port Huron (1) Southeast Region (1) Colorado Headquarters 9200 E. Panorama Circle Suite 100 Engelwood, CO 80112 (303) 858-8519 Traditional Branches Colorado Springs (1) Supermarket Branches Denver Area (8) Colorado Springs (3) TCF Financial Corporation 200 Lake Street East Mail Code EX0-03-A Wayzata, MN 55391-1693 (612) 661-6500 Minnesota Headquarters 801 Marquette Avenue Mail Code 001-03-P Minneapolis, MN 55402 (612) 661-6500 Traditional Branches Minneapolis/St. Paul Area (41) Greater Minnesota (6) Supermarket Branches Minneapolis/St. Paul Area (34) Greater Minnesota (3) Illinois Headquarters 800 Burr Ridge Parkway Burr Ridge, IL 60521 (630) 986-4900 Traditional Branches (30) Supermarket Branches (138) Includes Indiana Branch Wisconsin Headquarters 500 West Brown Deer Road Milwaukee, WI 53217 (414) 351-8522 Traditional Branches Milwaukee Area (11) Kenosha/Racine Area (7) Supermarket Branches Milwaukee Area (12) Kenosha/Racine Area (2) 72 TCF 73 TCF S H A R E H O L D E R I N F O R M A T I O N Stock Data Year 2000 Fourth Quarter Third Quarter Second Quarter First Quarter 1999 Fourth Quarter Third Quarter Second Quarter First Quarter 1998 Fourth Quarter Third Quarter Second Quarter First Quarter 1997 Fourth Quarter Third Quarter Second Quarter First Quarter 1996 Fourth Quarter Third Quarter Second Quarter First Quarter Close High Low Dividends Paid Per Share $44.56 37.63 25.69 23.81 $ 24.88 28.56 27.88 26.06 $ 24.19 19.88 29.50 33.94 $ 33.94 29.22 24.69 19.81 $ 21.75 18.81 16.63 18.13 $45.56 37.88 29.06 24.88 $ 30.56 29.38 30.69 27.25 $ 25.63 32.44 37.25 35.13 $ 34.38 29.69 25.19 23.75 $ 22.69 19.31 18.88 19.00 $33.81 25.75 22.00 18.00 $.2125 .2125 .2125 .1875 $ 23.75 26.63 25.13 21.69 $ 15.81 19.88 28.38 29.25 $ 27.00 24.13 18.75 19.50 $ 18.75 15.56 16.00 14.81 $ .1875 .1875 .1875 .1625 $ .1625 .1625 .1625 .125 $ .125 .125 .125 .09375 $ .09375 .09375 .09375 .078125 Trading of Common Stock The common stock of TCF Financial Corporation is listed on the New York Stock Exchange under the symbol TCB. At January 29, 2001, TCF had approximately 79.6 million shares of common stock outstanding. 2001 Common Stock Dividend Dates Expected Record: February 2 May 11 August 3 November 2 Expected Payment: February 28 May 31 August 31 November 30 Transfer Agent and Registrar Fleet National Bank c/o EquiServe Limited Partnership P.O. Box 43010 Providence, RI 02940-3010 (800) 730-4001 www.equiserve.com Common Stock Dividend Reinvestment Plan Approximately 64% of TCF’s 10,232 shareholders of record participate in the Dividend Reinvestment Plan. Under the plan, common share- holders may purchase additional shares of common stock at market price without service charges or brokerage commissions through auto- matic reinvestment of cash dividends. Optional cash contributions may be made monthly with a minimum investment of $25 per month and limited to $25,000 per quarter. Information is available from: Fleet National Bank c/o EquiServe Limited Partnership P.O. Box 43010 Providence, RI 02940-3010 (800) 730-4001 www.equiserve.com Investor/Analyst Contacts Jason Korstange Senior Vice President Corporate Communications (952) 745-2755 Patricia Quaal Senior Vice President Investor Relations (952) 745-2758 Additional Information TCF’s report on Form 10-K is filed with the Securities and Exchange Commission and is available to shareholders without charge. News releases are available via fax at no charge by calling (800) 758-5804 and entering TCF’s code 840750. Information may also be obtained from: TCF Financial Corporation Corporate Communications 200 Lake Street East EX0-02-C Wayzata, MN 55391-1693 (952) 745-2760 Corporate Web Site Please visit our Web site at www.tcfexpress.com for up-to-date investor information, news, investor presentation and access to TCF’s quarterly conference calls. Annual Meeting The annual meeting of shareholders of TCF will be held on Wednesday, May 9, 2001 at 10:30 a.m. at the Ramada Plaza Hotel, 12201 Ridgedale Drive, Minnetonka, Minnesota. 74 TCF TCF Financial Corporation 200 Lake Street East Wayzata, MN 55391-1693 www.tcfexpress.com E In an effort to help save our natural resources, the cover and inside pages of this annual report are printed on paper stock made from 30% post-consumer waste and a total 50% recycled fiber content. This report is printed with vegetable-based inks. 2690-AR-01 Power Assets . Power Liabilities® . Top-Line Revenue Growth . Earnings Growth . Totally Free Checking . Home Equity Loans . Innovations . Student Banking . Campus Banking . Small Busines Banking . Check Card . Express Phone C Supermarket Banking Online Banking . Online Banking . Service . TCF Financial Corporation . Express TellerSM ATMs . Telephone Banking . A National Financial Holding Company . De Novo Expansio . Power Assets . Convenient Banking . Power Liabilities . Top-Line Revenue Growth Earnings per Share Growth . Totally Free Checking . Home Equity Loans . Leasing . Student Banking . Campus Banking . Small Business Banking . Express Phone Card . Online Banking . Supermarket Banking . Express Banking . Convenient Banking . Service . Express Teller ATMs . Telephone Banking . De Novo Expansion . Power Assets® . Power Liabilities . Top Line Revenue Growth . Earnings per Share Growth . Totally Free Checking . Home Equity Loans . Leasing . Check Card . TCF Express Phone Card . Small Business Bank Campus Banking . Student Banking . 2000 Annual Report . Super market Banking . Online Banking . Service . Convenient Banking. Service Liabilities Earnings per Share Growth . Leasing and Equipment Finance . Totally Express Teller ATMs . De Novo Expansion . Telephone Banking . Power Assets . Powe TCFIR9304 Free Checking . Home Equity Loans . Leasing . Student Banking . Campus 

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